Establishing a Credit History when You Can’t Get Credit

Sometimes, establishing a good credit history can seem like a catch-22.

If you have no credit history, and have never had your own credit card, getting that first credit card can be tough. Credit card companies sometimes don’t want to take a risk on you unless you have a good credit history, and have shown that you can and do pay your bills on time. But how can you establish a good credit history if no one will give you credit?

Those with a bad credit history also have a tough time. In order to turn their credit history around, they have to show credit card companies, finance companies, and others that they have gotten back on their feet and are now able to pay their bills consistently and promptly. But that’s hard to do if no one will take a chance on them by giving them bills to pay.

See? A catch-22.

Those with a good credit history have a much easier time getting loans, financing a home or car, renting an apartment, or even getting a job. (Someone with a good credit history will seem much more responsible and reliable to a perspective employer than someone with a bad credit history.)

Fortunately, there are ways to establish a good credit history, even if you’re having a hard time getting an unsecured credit card.

Apply for a department store credit card.

Even if you can’t get an unsecured credit card, you might be able to get a department store credit card. Just make sure they report to a credit bureau before you apply. Once you get the card, charge something on it. But don’t go overboard. The last thing you want to do is create a bill you won’t be able to pay, which will hurt your credit history. Make the first purchase something you can pay off in two or three months/installments. Once the first purchase is paid for, charge something else, and repeat the cycle, always paying the credit card bill promptly. By doing this, you’ll show that you can pay a bill regularly and on time, which will look very good on your credit history.

If you’re not interested in getting a department store credit card, a gas station credit card is another option.

Get a consigner for an unsecured credit card.

If you can’t get an unsecured credit card on your own, ask someone with a good credit history to cosign for you. But remember, by doing this, you’re asking them to be responsible for the bill if you can’t (or don’t) pay it. Don’t break their trust, or damage their credit history, by not paying the bill regularly. Treat this card the way you would a card from a department store. Use it only to establish a good credit history so that you’ll be able to get an unsecured card on your own, without a cosigner.

Get a secured credit card.

With a secured credit card, you deposit money into an account as “security” for the provider of the card. If you ever fail to make a payment, they can take the money from the account. But the fact that you’re “covered” by the deposit doesn’t mean you shouldn’t pay the bills for these cards, and on time. The purpose of these cards is to improve your credit history by showing that you can and will pay your bills regularly. Not paying the bills on these cards can hurt your credit history as much as not paying the bills on unsecured credit cards. Defaulting on payments can also mean costly penalties.

Using a secured credit card responsibly will improve your credit history and might eventually help you to get an unsecured credit card, but only if the secured credit card provider reports to a credit bureau. So make sure they do before you apply.

Having a good credit history can make your financial life run much more smoothly. Follow these suggestions, and you can establish good credit, whether you have a bad credit history, or no credit history at all.

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