Saturday, April 21, 2012

How To Establish Credit When You Are Under 21

Some people who have been fortunate (or unfortunate) enough to have been issued credit cards wish they never would have gotten as far in debt as they're in. There are others, though, who just wish they could have the slightest opportunity to have a credit card and begin to prove their credit worthiness. While there are many people in a variety of situations who have never applied for a loan or credit card, this situation generally applies to teenagers and young adults who have never had any credit extended to them.

You may have been told recently that you don't qualify for a credit card or a loan because you have no credit profile. As frustrating as that seems, remember this: Having no credit is much better than having bad credit. Before we take a look at a couple ways to start building your credit profile, let's first take a look at some best practices for credit cards.

When you're young and you first get a credit card, the temptation to go on a shopping spree can be quite overwhelming. Think about this, though: Your first credit card is your first opportunity to show future lenders that you are responsible. The decisions you make now will affect you for the rest of your life. When you use your credit card, try not to use more than 30-45% of your available credit. Also, don't use more than you can afford to pay the following month. Remember that minimum payments are great for the interim, but making them only means that you'll be paying practically double (or more) the cost of your original purchase(s) in the long run.
So now let's take a look at a couple ways you can start building your credit.

Pre-Paid or Secured Credit Cards

There are a wide variety of financial institutions including Capital One, First Premier Bank, HSBC, and others that offer pre-paid credit cards or secured credit cards to people with bad or no credit. As you may infer from the name, a pre-paid credit card is a credit card that is issued to you in exchange for a full payment by you of its total credit limit. For example, if your pre-paid card has a credit limit of 0 (typical value for first time card), you would be required to pay the issuing bank 0 up front to secure' the funds. You will be able to use the credit card just as you would a regular credit card, and the best part is: The card activity gets reported to all 3 major credit reporting bureaus. As such, within months you will have an active credit profile. It's up to you how you nurture it.

Department Store Credit Cards

If you aren't interested in paying up front to secure a credit card, you may be able to get a store credit card somewhere. All types of stores like Home Depot, Lowe's, Macy's, and target and labels such as Abercrombie and Fitch and other common mall shops offer them. It's hard to know which one will offer to you without a credit profile, so ask before applying to avoid wasting your time and diminishing your already non-existent score by having it run multiple times.

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