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by Gary ForemanAre you facing financial troubles? Please email us your concerns
"Whether you're trying to establish credit for the first time or re-establish credit after experiencing financial difficulties, a lender will be looking for assurance that you can pay back the money you borrow", says Consumer Credit Counseling Service. You must be able to show:
Stability - You must prove that you can hold a steady job with a dependable income and that you have lived in the same place for a certain length of time.
Ability to repay - You must be able to demonstrate that your income exceeds your expenses.
Assets - Lenders will look more favourably on your application for credit if you have assets such as a home, car or savings account that can serve as collateral on your loan.
Credit references - Lenders will look to see if you have credit references and a good credit standing.
The following steps apply whether you're trying to establish credit for the first time or you're rebuilding credit.
- Open a checking account - Balance your checkbook each month so that you can be sure never to overdraw your account.
- Open a savings account - Make regular deposits and try to avoid taking money out of your savings account. To help you establish credit, some banks will allow you to take out a small personal loan secured by your savings account.
- Join a credit union - Credit unions are often more receptive to the needs of their members. A credit union may be more willing to take your personal and financial situation into account when reviewing your application for a credit card or a loan. All lenders will look more favourably on your application for credit if you demonstrate stability and maturity by making regular deposits to your savings account.
- Establish good credit references - Even if you've never had a credit card or installment loan, you can still demonstrate your creditworthiness by having a stable relationship with a bank or credit union and a record of paying your rent and utility bills on time.
- Apply for a gasoline or department store credit card - These types of credit cards are usually easier for first-time card holders or those re-establishing credit to obtain because they offer lower credit limits. By using this card and paying on time each month, you can develop a positive record with the credit bureaus.
- Apply for a secured credit card - Some banks will give you a credit card if you open a savings account at that bank. This is called a secured credit card. The deposit in your savings account serves as collateral on the things you buy with the credit card. In addition to opening the savings account, you must meet the bank's other criteria for granting credit. If you do get a secured credit card and make your monthly payments or pay your balance in full each month, the bank may consider giving you a regular credit card with a higher available credit limit. You could then close the secured credit card.
- Have a relative or friend co-sign for a credit card or a loan - Sometimes you can begin building a good credit history by having someone agree to assume responsibility for your loan or credit card if you're not able to make the payments. You need to request that your payment history on this loan or credit card be reported on your credit report in addition to that of your cosigner's.
As you set about trying to build or rebuild a good credit history, remember not to apply for too much credit at once. Each time you apply, a lender submits an inquiry to the credit bureau. Too many inquiries serve as a red flag to lenders, who may then deny your application.
~Gary began The Dollar Stretcher website www.stretcher.com and newsletters in April 1996. Over 100,000 readers benefit from the time and money saving ideas presented in The Dollar Stretcher newsletters each week. His mission is to help people "Live Better for Less".
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Look for more information on personal financial management at Consumer Credit Counseling Service of Greater Washington Inc.
~ Consumer Credit Counseling Service is a nonprofit community agency dedicated to helping individuals and families resolve financial problems and promoting the wise use of credit and sound money management through free budget counselling, debt management intervention and community education. Look for CCCS offices in Washington DC, Maryland, Northern Virginia West Virginia and across the United States. Call CCCS of Greater Washington at 1-800-747-4222