January 29, 2009

How to Establish Good Credit

Credit Cards

It’s important for women, even stay at home Mom with no income of her own, to establish good credit. This might be a challenge if all the bills come in your husband’s name, but it’s essential. Many women have found themselves unexpectedly widowed or divorced with no credit to speak of. This can present big problems when you go to rent an apartment (many property managers nowadays check credit history, and in their eyes, no history is bad history.), try to buy a car, or even get a job (again, some prospective employers check your credit score to determine if you’re reliable.)

In order to obtain good credit standing, you have to get a credit card. However, it’s difficult to establish good credit if you can’t get credit in the first place! Here are some ways to get out of this conundrum.

Apply for a secured credit card. What is this? It’s a credit card whose credit limit is determined by the amount of money you deposit into a checking or savings account. The credit card company issues you a card and holds your deposit as security. After some time has passed, and you have paid your bill on time, you can ask the credit card company to issue a regular credit card. One well known company that offers this service is Capitol One.
[ad#ad-2] Another way to establish your credit is to apply for a department store charge card. Once again, as long as you pay your bills on time, you credit rating will begin to rise. However, do not attempt to apply for too many cards, as the credit reporting agencies may determine you cannot handle the line of credit based upon your history or income.

When you receive all of those credit card offers in the mail, immediately check the APR rate as well as their terms and conditions. Not all credit card companies offer low rates, and some of those who do will raise your rate after a period of time. Once you establish credit, and are considered an account in good standing, you can contact the credit card company and ask for a lower rate. Depending upon your payments, line of credit, and usage, they will determine whether or not you qualify for a lower rate.

Another way to establish good credit is by applying for a loan; but since you do not have any credit history, you may be turned down unless you have a co-signer. The best approach is to begin with a department store or secured credit as mentioned.

One other important note: Upon securing a credit card, you will be given a line of credit. It could be $500 or more. Do not run up your bills immediately. Use the card for one small purchase and pay the bill on time (this is crucial!) every month. Try to pay it in full, but if you cannot, at least pay the minimum well in advance of the due date. Credit card companies penalize you for late payments and report this information to the credit bureaus.

Creative Commons License photo credit: Andres Rueda

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Alexis Rodrigo