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Establishing Your Credit

Posted May 7, 2010 by Matthew Denton

Taking the first step in buying a home

You’ve always heard of bad credit especially now that the housing market has turned sour. Known by a few, there are a lot of people who have no credit. Yes, that’s right. This group is comprised of those who have never taken out a loan. They may be fresh college graduates on a job hunt, financially-stable buyers who have always preferred paying cash rather than credit cards, and immigrants who still have to start out in the country.

It becomes tough for lenders to verify their personal financial management since no data can be used to generate their credit history using financial products. Loans are often based on credit scores and obviously, there’s nothing that can serve as basis. Take note, this does not mean that they have not made any installment payments. They just didn’t have transactions that were reported to any credit agency.

If you are someone with no credit history or you happen to know somebody who is, your hopes of getting a mortgage approval are not impossible though. Here’s a quick guide on how to establish your credit.

It’s important that you know how to tap alternative credit sources. Your utility bills can be a first tool. Be sure that you have paid them on time and all receipts are chronologically arranged in a folder. This includes your payments on mobile phones, cable TV subscriptions and the like. The lender may consider this as your credit history.

Second, you can secure credit accounts in department stores, gas stations and other business establishments. Most of these offer credit lines below $1,000. A word of warning though: they may offer higher interest rates once you begin delinquent with your payments. You’ll definitely be disappointed in some stores that do not accept return items.

Third, you can apply for a secured credit card where you are required to deposit a certain amount that will serve as a “collateral” once you miss your monthly payments. There are plenty of options available from a $200 credit limit to zero application fees. There are banks that would give back your initial deposit after some time of on time regular payments.

Fourth, because competition among banks is tough, some accept credit card applicants who have no credit history, qualify them for regular credit cards. The only disadvantage though is that these cards have higher interest rates to make up for the higher risk that the applicants possess.

Finally, you can opt to purchase expensive items in installment payments. This includes furniture, jewelry, antiques, appliances, equipments, etc. Just make sure that there’s a reason to buy these things and not just to prove that your payments are on time.

Once you follow these steps, you can start building your credit and hopefully learn how to get qualified for a mortgage.

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