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How To Establish Credit The First Time

It can be really tough to get a loan or a charge account when you don’t have any credit history.  Even if you don’t want to borrow or buy something on credit right now, I think that you should establish a positive credit history now, before you are desperate to get a loan.

You may find that trying to establish credit when you have no credit history is really frustrating and discouraging… especially if you need to borrow money right now or buy something you badly need on credit. Hopefully, you are not in that situation and have the time to do it right!

To make it worse, you will feel like you are going in circles when you try to get credit for the first time because no one will give you credit if you don’t already have it.  But, don’t despair, as long as you have a regular source of income of sufficient amount, you can usually establish credit.

The First Steps To Take To Establish Credit

Lenders are looking for your ability to repay the money that they are going to loan to you.  This means that they want to see that you have a job and have been employed at that job long enough to convince the lender that you will be there for a long time in the future.

Here are the steps that I suggest that you should take before you attempt to get a loan or buy something on credit.

  1. Get a bank account… Both checking and savings.  Make sure that you always save some of your paycheck in the savings account.  Use the checking account to pay bills but make sure everything in the savings account is reserved for emergencies.  A growing savings account looks good to lenders because it means that you have the maturity to control your money wisely. And, above all, make sure that you NEVER OVERDRAW your checking account.
  2. Get and keep a good job for years.  Not only does it help you grow in stability and income… It also shows lenders that you are stable and unlikely to end up in their collections department..
  3. Live at the same address for years.  This impresses lenders because you will appear to be stable.  They really hate it when the people they have loaned money to suddenly move and don’t tell them where they are going.  Always pay your rent on time.  Your landlord can be a good credit reference.
  4. Get your utilities in your name and pay your bills on time.  You can generally use the various utilities as credit references.  A year or two of on time payments to the telephone, water, gas and electric companies can go a long way toward convincing lenders to trust you enough to loan you money.

Remember  that what the lender is looking for is that you have the means to repay the money they give you with interest as well as the willingness to repay it.  If you don’t have a credit score then you need to have a picture of yourself that looks like what I’ve described above.

How To Find That First Loan Or Credit Purchase To Establish Credit

There are several ways to establish credit.  I’ve written separate articles about what I think are the best ways.  You can read them by clicking on links in the list below or return to the menu.

How To Establish Credit Through Your Personal Bank

How to Establish Credit Through A Local Business

How to Establish Credit Through A Secured Credit Card


What Comes Next?

Getting someone to loan you money or letting you buy something using credit the first time is only the first step.  It is crucial that you do two things after you have gotten your first loan or credit purchase.

First, you should make your payments on time in the amount promised or slightly more.  Some creditors consider it a negative if you always pay off a credit card each month.  Remember they need to make their money too and if you pay it off before they are eligible to charge you interest, they don’t make any money on your account.

Second, after you get your good payment record established for 6-months or a year, it would be wise to get no more than two other credit accounts of different types than each other and of a different type than the original.  I’m not sure why but they have told me that that is a good idea.

Good Luck!