How to Establish and Build Credit

Establishing credit for those without a prior credit history is a concern for 50 million adults out of 210 million in the US that don’t have enough information to calculate a fico score. 

Here are some tips when starting to build a strong credit score:

• Avoid closing off old credit cards, because doing so could cause your score to go down. This is because, with less available credit, your overall debt-to-available credit ratio will be worse. Even if you have more than five cards, keep that old, positive credit card open.
• Avoid opening new credit cards if you already have three or more. Whenever you open a new credit card, your score is temporarily penalized, because it is unknown how you will handle the new card.
• You can improve your credit scores by simply lowering your balances on your revolving accounts.

Your credit utilization ratio accounts for 30 percent of your score. By paying your credit card balances down, you can significantly improve your credit scores. Experts in the credit industry all have their own opinions on what percentage of your available credit you should utilize. To make a long story short, the less you utilize, the better your score will be.

If you don’t have the finances available to pay your credit cards down, a simple method to improve your score is to raise your credit limits. You can raise your credit limits by contacting your credit providers and asking them to increase your limits. If you have paid your bills consistently on time, most lenders are willing to give you a credit limit increase. If you have a $1,000 limit on a credit card that’s totally maxed out, that is greatly negatively impacting your score. If the card issuer raises it to $2,000, your credit utilization is now 50.

• You need 3 major credit cards on your credit. One credit account on your credit report is not sufficient. You cannot qualify for a mortgage or home loan with only one account. 

At least one of these needs to be a Visa or MasterCard, because these are major cards and have more weight than individual store cards. Lenders are looking for a balanced credit file with a mix of 3 tradelines. Credit cards such as Visa, MasterCard, and Amex would be in one category and then you can have a maximum of 3 store cards like Target, Macy’s, or a gas car. Then you would have a mix of installment loans that you pay once a Month like an Auto Loan. Mortgage or CD loan. 

• Stay away from finance companies. Before you sign up for financing at an electronic, appliance, or furniture store, ask if they partner with a finance company. If they say yes, do not use their instore financing. When a finance company shows up on your credit report, it automatically lowers your score even if you pay on time because finance companies are considered to be “hard money lenders” who accept people with bad credit. Even if you have perfect credit, having a hard money lender on your report will lower your score. If you already have a finance company on your report, pay it off as fast as you possibly can, especially if the interest

How am I going to get credit if no one will give me Credit?

There are multiple options available to a consumer to establish credit. These methods consist of obtaining secured cards, obtaining subprime cards, getting a cosigner, obtaining secured bank loans, and becoming an authorized user.  Secured Credit Cards can be obtained fairly easily, and some card issuers guarantee 100 percent approval. These cards are usually secured by your deposit, and your credit limit is typically the amount of your deposit, but not in all cases. Sometimes card issuers will give you over the amount you deposit.

Most secure cards require a minimum down payment of $200 to $300 and usually have an annual or monthly fee. When obtaining a secured card, make sure that the card in question reports to all three major credit bureaus. Otherwise, you are just wasting your time and money.

Millions of consumers have used Orchard Bank cards to establish and build credit. They let you know which card you qualify for. They offer a Secured MasterCard as well as subprime cards. You could be required to pay a $200 minimum security deposit, or you may not be required to place a deposit at all. Orchard Bank is also currently reporting to all three major credit bureaus. 

The Capital One Secured MasterCard also reports to all three major credit bureaus, and with your refundable security deposit, you can have extended credit up to $3,000. With timely payments, you could qualify for limit increases with no further security deposit required. This card has the flexibility to extend credit. The more you put down, the more credit they could possibly extend to you. It’s more of a secured card than an unsecured card, but it’s both, which is good.

Subprime Cards

Subprime cards are another way to build or establish credit. Subprime cards usually take a chance on those individuals with limited or no credit. These subprime cards typically do not require a security deposit but have large processing fees. Sometimes, these fees are billed in monthly installments, beginning with your first payment, and usually have high-interest rates. If your credit score is under 680, you are considered subprime and will most likely be charged higher interest rates.

The First PREMIER Bank MasterCard and Orchard Bank usually take chances on those with less than stellar credit. Merchant Cards. Once you have obtained a secured or subprime card, you can also apply for merchant cards. Merchant cards are typically classified as any store that has its own card like Macy’s, Boston Store, Marshalls, Walmart, and JCPenney. These stores usually require that you have a major credit card bearing the MasterCard or Visa logo to qualify for their cards. Most stores require that you produce your MasterCard or Visa, as well as other identifying information, and, usually within seconds, will let you which can adversely affect your credit score by five points.

Shopping for Credit Cards

There are various Websites on the Internet that compare rates, fees, and APRs, as well as list the advantages of individual credit cards. They also make it possible for you to shop for cards based on your credit score. By knowing your credit score when shopping for credit cards based on your current score, you can greatly increase your chances of approval. Essentially, many of these card providers are laying out the prerequisite needed to obtain their card. Many of these sites simplify the process into five easy categories: credit cards for people with excellent credit, good credit, fair credit, bad credit, and cards for those with no credit history. Remember, when shopping for credit cards to compare rates, make sure they report to all the major credit bureaus and factor in that one hard inquiry that could adversely affect your score by five points. There are some credit card issuers that will allow you to prequalify without affecting your score.

Secured Bank Loans or Self Lender Loans 

This is another way you can establish credit, and it is through your local bank You can simply open up an account at that particular bank and place a deposit of, say, $1,000 in that particular ac- count. You can then request to see a loan officer and tell him that you would like to apply for an $800 loan. You can explain to him your current credit situation (no credit /bad credit) and that you would like to use your $1,000 account as collateral to secure the loan. Additionally, you could advise the loan officer that there is no risk on their part because a hold could be placed on the account ($1,000) that would essentially secure and could guarantee the loan.

Credit-Builder Loans

Credit-builder loans consist of a credit union loaning you money that is ultimately deposited into a secured certificate of deposit (CD). The loan reports, just as a traditional loan would report, to the credit bureau, and upon completion of timely payments, you receive the CD as well as a positive

Tradelines

Authorized and Primary Tradelines

With an authorized tradeline, you obtain the positive trade line of the individual but also the entire account history. If the account is four years old, now you have an account on our credit report that shows that you have not missed a payment in forty-eight months and are able to manage credit. In addition, there is no limit to the amount of positive authorized tradelines one can use as a great tool to use for someone who has no credit history and wants to establish credit. It can also be used for someone who has removed all the negative items from their credit and no longer has any credit history.

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