How Do I Establish Credit?

Online, March 19, 2012 (Newswire.com) - For many people who are just starting out in life, establishing good credit is easier said than done. Some are unsure how to get started, while others have tried, failed and given up. But when it is time to begin searching for your first home, having a good credit score and healthy credit history is a must.

In most cases, you can get a mortgage if you have a 20 percent down payment, you choose a 15-year conventional loan, and you have a strong employment history with good income, with a history of paying your bills each month on time. But not everyone can come up with the required 20 percent down in order to make this scenario work, nor can they afford the mortgage payments.

One of the simplest ways you can establish good credit is by obtaining a store credit card. You can get a card, and charge an amount you can afford to pay off each month, and over a period of a few months, you will establish a positive credit history.

A secured credit card is another option. Secured cards are called secured because you deposit an amount of money to create a "balance" on the card, which you can then charge against. You then make payments each month to pay off the card, with the deposited funds sitting as insurance you'll pay your debt.

You may be able to obtain a regular credit card, which is considered unsecured. Credit card companies mail out offers constantly, so you might be able to obtain one fairly easily. However, you should read the fine print carefully. These cards often come with fees and an introductory rate that is designed to lure you into signing on and spending away - but in a few months or so, your rate will jump to an unbearable amount. If you've racked up a high balance, you'll have a tough time paying that card off.

If you choose to use a regular credit card, be sure you choose one with a competitive rate and with reasonable or no fees. Use the card, and make your payments on time, every time.

But beware of carrying high balances. Credit scores are derived, in part, based on the amount of debt you carry versus how much you were granted. The best scores come when you use 20 percent of your credit limit or less.

Building up your credit is not that hard - it just takes time and a bit of cunning. Make wise choices and be sure to read the fine print.