Let me give you an image: Fresh faced young adult, ready to spread her wings in this world, walks into a car lot with dreams of owning her first car. Only there is a small problem. After she picks out the car she wants, she has no established credit-dashing her hopes of driving off into the sunset with her perfect car, leaving her devastated.
So how does one establish credit and avoid disappointment?
First order of business…Open a Checking/Savings Account. If you don’t already have one get one! It’s good to establish a relationship with a financial institution. Even though a checking or savings account does not affect your credit score, it could help you with lenders when they weigh your credit risk.
Also, let me let you in on a secret…once you have established a relationship with that financial institution, that specific financial institution knows you. They want to continue to do business with you and help you with your financial decisions. Therefore, they should be your top choice when you are looking into a loan or a line of credit.
Next…Look into a Secured Credit Card. A secured credit card works much like a credit card with one difference. You place a deposit down which acts as collateral. Think of renting an apartment-that security deposit you put down acts as an insurance policy in case of damages. Same thing with a secure credit card.
Usually the amount of a deposit you put down on a credit card, you have a credit limit for. Example: you put $300 down, you have a $300 credit limit.*
This secured credit card activity is usually reported to the three credit bureaus and BOOM! You have started to establish credit.
Finally…Keep this credit card in “good standing.” Meaning-make sure you pay your balance and make sure your payments are not late. After a period of time, this will help you in the future in obtaining loans or line of credits. Which then could lead you to owning those dreams one day, like owning your own car.