A limited credit history can be just as much of an obstacle as a poor credit score. Without an established credit history it can be difficult to get approval for new credit cards, loans and other structured financing that are necessary for important purchases like buying a car. There are ways you can establish a credit history if you haven’t started to build a rating.
Pre-paid Credit Cards
A pre-paid credit card functions more like a gift card than like a traditional credit card. You purchase the unloaded card and put as much or as little cash onto the card as you need. You can then use the prepaid card as you would any other credit card to make purchases or pay bills. There is no application process and anyone with the funds can purchase a prepaid credit card. Look for prepay credit cards that offer an add-on credit reporting service to allow the use of the card to establish credit history. The small fee you pay for this additional service is usually lower than what someone with limited credit history would pay in fees and Internet to traditional credit card companies.
Secured Credit Cards
A secured credit card is nearly identical to a traditional credit card, except that the credit limit is determined based on an initial deposit you pay. Credit reporting agencies treat the activity on a secured credit card in the same manner as unsecured, or traditional, credit cards. The benefits of getting a secured credit card include less strict approval standards and an inability to generate more credit card debt than you can manage to repay. Most secured credit card companies will allow you to request an upgrade to an unsecured line of credit after a certain length of time.
Retailer Credit Cards
Many major retailers extend lines of credit to qualified customers. The credit worthiness standards of retailer credit cards are less strict than other creditors, and credit scores are impacted by nearly every retailer credit account. Be mindful of the fees and interest rate associated with the retail credit card you apply for and receive. As you establish a credit history, it is important that you maintain a financing situation you can keep up with based on your current income. Use retailer credit cards to make purchases and make the minimum payment, at least, every month.
Establishing a positive credit history takes time and a commitment to healthy financial habits. Know the limits of your monthly income and the credit building strategy that is best suited to your current circumstances.
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