How to Establish Credit
Your Personal Finance Management Plan

How to establish credit? That question is often asked when you're fresh out of school and just starting to live in the real world paying your own bills, renting your own apartment, and buying your own car.

Before you even try to establish your credit you need to decide why you need credit and is it imperative that you get it. For some, those who use credit wisely, it can make your life easier on a day to day basis.

But for others, those who don't have the discipline to manage their credit appropriately, it can be your worst nightmare. Improperly managed debt can grow to become enormous and unmanageable in short order, putting you and others in your family in an untenable situation. Your best bet is to just not go there.

Credit should be used in such a way as to benefit you. You need to define a credit limit that you can and will adhere to and choose to only use credit when there is no cash alternative. Doing things any other way is a recipe for financial mayhem.

Lenders decide to extend credit based on a number of factors. One that plays heavily into the decision is your credit score and if you don’t have established credit you likely don’t have a credit score. This can limit your ability to get a credit card or secure a loan.

How to Establish Credit, Get Started

You have probably already started building a credit history without even knowing it. The first things you need to due are basic, it all starts with your personal information including your name, address, employment status and history, etc.

Having a bank savings and checking account in your name will also get the ball rolling. You’ll need to valid active account without issues like bounced checks and overdrawn account balances.

Employment history is also looked at by lenders. They will look to see that you have been in a job continuously with no unemployment intervals. A stable job history will work in your favor and increase your chances of getting credit.

Getting Service

As you continue down the road of life you may need to obtain certain service utilities like gas, cable or satellite television, cellular or landline telephone, water or electricity. Normally any of these types of credit accounts can be established with at most a small cash down payment. Having any of these types of credit accounts in your name will begin the process of establishing your credit score. However, there is a danger here. You must make sure before you put any accounts in your name that you have and will maintain the ability to pay.

Moving Down the Road

Eventually you may need to purchase an automobile. If you buy a new or late model used car you may be able to get a loan on that vehicle. This is called secured credit where the car acts as collateral for the loan that you take out to pay for it. New car loans are generally the easiest for buyers with little credit history to obtain mainly because the manufacturer subsidizes the purchase of their cars with a variety of tactics like rebates and cheap loans. Here again, just because you are able to get a loan on a particular car doesn’t mean you should buy it. Because automobiles depreciate in value so rapidly you should never take a new car loan for longer than three years. Any longer and you run the risk of getting upside, meaning you owe more in the car than its worth. That is a bad place to be.

Easy Credit Card

A secured credit card account is another way to establish credit. Let’s say you want a credit limit of $500, then you would put that much amount in a bank account to act as collateral on the credit account. If you are ever not able to make credit card payment then the bank will take the payment out of the deposit account.

There are no short cuts in the how to establish credit game, it all takes time, patience, and perseverance. Maintain an established residence, keep a good employment history, pay you bills on time, and you should have no trouble establishing a good credit history.