Top Methods of Establishing Credit

Credit consists of multiple things, including the ability to get credit as well as establishing a good credit score. There are many ways in which a person can establish credit and improve their credit score within just a few short months.

A person needs to have credit to get credit. It sounds like a difficult thing to do, but there are many ways in which a person can establish credit. It's important to have credit to be able to partake in many things in life, including buying a car, getting a mortgage, and holding high limit credit cards. Whether a person is establishing credit for the first time or trying to improve credit, the rules are basically the same.

Start Small

All credit cards are not created equally. That's why they have silver cards, gold cards, platinum cards, and the coveted black card. There are many credit cards that offer very low limits of only a few hundred dollars. While it may not buy you much, it will allow you to prove yourself to a bank by:

  • Paying the card on time
  • Making regular payments
  • Not putting the card at its limit

By demonstrating your ability to do all of the above, you'll show that you have the ability to pay the debt as well as the financial savvy not to go crazy with purchasing above your means. The issuing bank will likely increase your credit limit. As the credit limits increase, you are establishing better credit.

Pre-Paid Cards

A pre-paid card may not sound like credit, but it is. It's issued by a bank and it will allow you to have the benefits of a credit card without the interest rate. Why would anyone actually want these? Several reasons. The first is that it gives you the flexibility over cash to buy anywhere, including online. The second is that these issuing banks report back to the credit card bureaus. As the credit card bureaus learn of on-time payments and the presence of a credit card, your score will improve.

Patience is a Virtue

While you may be in a hurry to establish credit, rushing things can work against you. It's important to pace yourself opening up new lines of credit. When you suddenly apply for several credit cards, a mortgage or other things, it will send up red flags.

Too many new accounts will show credit bureaus that you are desperate. When credit isn't completely established, this may look like you are trying to suddenly put everything on credit. If a proper time isn't put in between the different openings, it will make banks wonder if you'll be able to pay for all of the credit you've just opened. The same thing can be said about maxing out all of your cards. When you have multiple lines of credit and they are all at their limits, it will show that you don't have any available credit.

There's a fine line between having credit and needing credit. The banks want you to have credit in order to get credit. But not too much. A person who has two cards with available balance on them will likely have a better score than someone with three cards that are maxed out. The reason is that the first person shows that they have more restraint and can control their spending habits better.

Establishing credit is very important for being able to purchase the things that you'll want to throughout your life. So whether you are just starting into the world of credit or are trying to regain credit after a bankruptcy or other financial situation, you'll need to establish credit again.

As long as you are prepared to start out slow and take your time establishing the credit, you'll be rewarded. It's about being able to balance spending habits with the ability to pay the banks on what you've spent. As you continue with this balance, you'll get several different things in return. You'll get a better credit score, better interest rates, and higher credit limits.

Final Word

Credit helps a person throughout their life, whether they choose to carry credit cards or not. It affects being able to get a home, a car, and other necessities in life. By making smart decisions early, it will make later decisions much easier.