How to Establish Credit

Knowing how to establish credit history is crucial to your financial life. At some point in time, we each find ourselves in situations where we require to purchase an item or to acquire a service, but do not have enough resources to do so. It becomes important to find a way to acquire the item or service on credit, or finding an alternative source of payment which you will then pay off at a later date. Establishing credit is an essential part of managing and transacting with resources available to us.

When trying to establish credit, it is important to plan on how you will use it wisely and with the greatest efficiency.Whether you are a college student trying to establish your credit history for the first time, or someone who has never had credit, the following 4 steps will help you build your credit history.


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1. Open a Bank Account
A bank account is important, as it is a requirement in your credit card application form. Although not visible on your credit report, this is a positive step as it will show that you are responsible enough to save your money.

2. Apply for a credit card
Before applying for a credit card, shop around for one whose requirements you are able to meet, to avoid being disappointed by a rejection. You could begin by applying for a gas or department store credit card, as they are easier to obtain.

Watch out for their interest rates and ensure that the credit companies you select report your account activities and history with a reference bureau before settling on their card.

For those intent on getting a Visa or MasterCard, it will be easier to apply for one from the bank or credit union where you have an account.

If you can’t get a credit card for any reason, apply for a secure credit card. You will be asked to send the lender say $200. Then the lender sends you a credit card with $200 limit on it. You use your card as you would any other credit card, ensuring you pay your bills on time, every time. After 12 months or so, you can apply for an unsecured credit card with the same lender, and if you re in good standing, you will be approved.

Be sure to use a lender that reports to all major credit bureaus. Otherwise, obtaining a secure credit card from them would be pointless since it won’t be counted towards your credit history.

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Establishing Credit

3. Use your credit card to make purchases and pay on time
These two aspects will be discussed together to over-emphasize their mutual importance. As often as possible, charge your purchases to your gas or department store cards and make sure that you pay these bills on time. After using your card consistently and responsibly for at least three months, you could then apply for a Discovery, Visa, American Express or MasterCard.

You will need to be very careful when using these cards, as in as much as they offer more flexibility in the way they charge your payments, you could easily fall behind on the payments and land in a lot of trouble. The larger spending limits offered on these cards does not mean that you have more money available for you to spend, it just means you have more debt to fall into.

4. Develop a Spending Plan
Before embarking on any spending endeavor, you will need to write down all your expected expenses and compare them with your income. Make sure that whatever you intend to purchase with the card will not overwhelm your ability to pay, the interest included.

In cases where it is difficult for you to qualify for a credit card, you may as well acquire a secured card. This card has a credit limit which is based on a deposit you make into a savings account.

When denied credit, find out why. It is important to know the reason why a creditor denies you credit. Reasons may vary and would include your income level, your employment status or credit history.

Finding out your short-comings may assist you to be better prepared when apply for the next credit. Refer to your credit report to see if the information on it is correct before applying for your next credit. Note that the more applications you make for credit that appear on your credit report, the more likely it is that a potential creditor will be put off.

What NOT to do when applying for credit:

  • Do not overdraw your bank account as you will be charged hefty fees that will reflect poorly on your good reference. A sure way of damaging your credit rating is by making late payments or missing payments to your creditors all together.
  • Limit access of others to your credit or debit cards as only you are authorized to carry out transactions on them. Be careful whom you share your account details with, especially on the phone or the Internet.


Keep in mind that establishing credit history is not that hard, whats hard is establishing a good credit history. To do that, you have to pay your credit card balance on time, every time, and you have to avoid financial pitfalls that my damage your good standing with the credit bureaus.

Building a good credit history takes time and doing the right things. You won’t find any shortcuts or tricks to take you from zero credit to an out sanding credit score. It will take years of paying bills on time and maintaining a good standing with lenders to establish good credit history.