The Importance of Good Credit Series – #7
Now that you can see the value of building a strong credit history, you are ready to begin building your own good credit. But where do you begin, especially if you have no credit now? The good news is that you can do it. With patience and a little time, you will have a credit history to build your future upon.
The first step is to open a checking or savings account if you have not done so. Next, apply for a credit card. If you cannot open a bank account or have a credit card now, you must begin keeping track of all your financial obligations. (Why? Some lenders are realizing the value of serving new immigrants and those with cash incomes. You can create a non-traditional credit history by showing careful documentation of your payment history.) Here are some things you can do to start establishing your good credit:
1. Open checking and savings accounts. (If you do not speak English, look for a bank branch or credit union with bilingual tellers where you will feel comfortable doing business.) Keeping all your money in cash in your home or place of business is dangerous, leaving you at risk for losing your money or having it stolen. Your cash is safer in the bank. In banks and credit unions, your deposits are insured against loss. (Limits on insurance vary by institution and type of account. Ask your financial institution for its deposit insurance information.) If your money is in a bank, you can pay bills, make withdrawals and check your balance regularly. Your bank also may offer value-added services, such as free or low-cost money transfers so you can avoid expensive wire transfers when sending money to family overseas. If you pay your bills with checks you can show a mortgage lender your history of good payments even if those payments are not reported to a credit bureau. Also your deposits may earn valuable interest.
2. Apply for a credit card. A good place to start is with a department store where you shop regularly. Start with a low balance, and pay your bill on time every month. Another option is opening a secured credit card, which is guaranteed by a savings account equal to the amount of your credit limit. Be careful to avoid upfront fees on credit cards aimed at users with imperfect credit or no credit. Other than an annual fee, there should be no charge to help open a credit card account. Ask your lender to waive or reduce fees, and shop around to find the lowest rates possible. Keep the number of your credit cards to a minimum of two or three. Having too many credit cards can penalize you when you apply for a loan. Pay your rent and utilities on time. Even though these obligations are not typically reported to a credit bureau (i.e., Equifax, Experian, TransUnion), if you can show that you paid these bills, then you can show a lender that you have a pattern of making payments on time and in full. If you do not have established credit history, careful documentation of these payments is important.