How to Establish Credit

Developing a high credit score is very important. Your credit score influences a number of important financial decisions in your life.


Anytime you want to take out a loan, lenders will look at your credit score to determine how much they can loan to you, as well as your interest rates and payment plans. Many landlords will not rent their property to you until they have seen your credit score. Some employers may even ask for your credit score as part of a job interview. Even cell phone providers may look at your credit score when they are determining which plans are available to you.

The earlier you establish a line of credit, the easier it is for you to develop a high credit score. In fact, simply having a long credit history will naturally improve your credit score. Establishing an initial line of credit can be tricky, since many of the largest influencing factors for your credit score rely on having existing credit. This makes getting your first credit card difficult, since the credit card provider will look for your credit score before making a decision. Fortunately, there are a couple of easy steps you can follow to start establishing an early line of credit.

Bank Accounts

One of the few financial decisions that does not require a credit check is whether you can open a checking account at a bank. Most banks require you to place a minimum balance in your account. If possible, you should also consider opening a savings account at the same time. Having an active bank account is one of the ways you can prove you can manage money, which will help you establish your initial line of credit. In addition, your bank will often act as your first direct line of credit, whether you are taking out a loan from them or opening up a credit card. In fact, many banks will offer their own credit card as an incentive to open an account with them. Even if you do not receive a credit card directly from your bank, other credit card companies will require you to list either your checking or savings account so they can withdraw your payments at regular intervals.

If you do not want to own a credit card, having a bank account is even more important. Some people are more comfortable avoiding credit cards entirely to avoid ever falling into debt. However, unless you are able to build up a significant savings account, there is a good chance you will need a loan to cover major expenses, like buying a house or vehicle. Since you do not have an established credit score, negotiating with lenders will be very difficult. However, if you negotiate through your bank, you have a much greater chance of striking a deal, since your bank can view your financial history to determine reliability. There is also a loyalty factor if you have been with your bank for a long period of time. Once you take out your first loan, you will begin to establish a credit score, even if you never end up owning a credit card.

Department Store Credit Cards

If you are unable to get your first credit card from a bank, you can potentially receive your first credit card from a department store. Many major department store chains offer their own store credit cards, usually with the incentive of receiving a discount on your initial purchase. Normally, credit experts will advise you to avoid these credit cards, as they have some of the highest interest rates available. However, if you are trying to establish an early line of credit, these cards may be your best option. As long as you carefully use the credit card, you will not have any trouble building your initial line of credit. You are strongly recommended to only use the credit card for small purchases, and to make your credit payments as early as possible. If you are only making small purchases, you should always pay off the balance in full. After a few months, you should be able to apply for a different credit card with a better interest rate.

Having Utilities in Your Name

Having utilities in your name will not automatically develop a line of credit. However, it is a way of establishing a payment history without having to own a credit card. If you are making payments on any utilities, such as an electric or phone bill, you can use this as evidence of your payment history. If your bank or another source is hesitant about issuing you a credit card, you may be able to persuade them by showing your bills to establish your financial responsibility. You may even be able to get small loans based on this payment history, which will lead to establishing a credit score.

Secured Credit Cards

The majority of banks will offer a secured credit card, which is different from a traditional credit card. With a secured credit card, you are first required to deposit a set amount of money into your account before you are given a credit card. For example, if your secured credit card limit is $1,000 dollars, you must make an initial deposit of $1,000 dollars into your bank account. If you are unable to pay your credit card on time, the bank will withdraw the payment from the amount you deposited. As long as you never default on your payments, you should be able to build up to obtaining a traditional credit card from your bank, allowing you to build a line of credit.


Secured credit cards are generally recommended only as a last resort, since it requires you to make a large initial payment just to get your secured credit card. However, there are very few reasons you will ever be denied a secured credit card, making it one of the most reliable ways of establishing your initial line of credit.

Authorized Accounts and Co-Signing

Another way you can establish a line of credit is if you share an account with someone else. For example, many credit card holders receive their first credit card after being authorized to share an account with their parents. A similar option is to have someone with an existing credit score co-sign for your credit card or loan. In both situations, the primary account holder is ultimately responsible if you miss any of your payments. Both you and the primary account holder will also suffer a significant credit score decrease. If you are using these options just to establish a line of credit, you should consider closing the account shortly after building your own line of credit, so you are not putting your co-signer at risk.


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