Establish First Time Credit

If you are preparing to establish first time credit, get ready to answer a lot of questions and perhaps even experience some rejection. Creditors can be reluctant to provide credit to people who have not yet proven themselves as creditworthy.

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Why is it so hard to get credit for the first time? Creditors look at a few different factors when deciding to provide credit to an applicant. Although every lender has different standards, it is usually safe to assume that the following factors will be taken into consideration when reviewing your application for credit:

• Your credit score
• Your income
• Your employment history
• Your payment history

If you have never had credit before, and have no record of making payments to anyone on a consistent basis, you may have to rely on your income and employment history to make you an attractive borrower. For some lenders, however, this simply isn't enough; they want their borrowers to already have a history of making payments on time. There are other lenders, however, who will approve you for credit despite your lack of payment history.

Unless you have a high income you will probably wind up with a high interest rate and a variety of fees. This is common practice for people establishing credit for the first time, because at this point they are considered subprime borrowers as a result of the lack of credit history. As you build a payment history, your credit score will raise, and you will probably become eligible for more attractive credit products.

You have several options when you want to establish first time credit.

• Start out with subprime credit products. The credit you receive will have high interest rates and may not have very attractive terms, but consider it a stepping stone to better credit products in the future.
• Get help from a creditworthy cosigner. A parent, spouse or other loved one may be willing to cosign with you for first time credit. This means that the other person assumes any financial obligation you don't meet, but does not have access to use the credit themselves. Getting a cosigner can be a great way to obtain first time credit at reasonable interest rates and terms, but keep in mind that this can be a tricky situation and can result in big problems if you don't pay as agreed.
• Secure the credit with cash. A secured credit card or loan is backed up by collateral, usually in the form of a savings account that you create but are not allowed to access as long as the secured credit product is open. If you start with secured credit, make sure that your lender actively reports your positive payment history to your credit report so your score can steadily increase.

It is possible to obtain some types of loans without a credit history in the form of a seasoned credit report. For example, a person who wants to obtain a mortgage loan - but who does not want to have credit cards and other loans - can attempt to find a mortgage lender that conducts manual underwriting. This means that the loan application is reviewed by a human instead of a computer program, and other forms of payment history are taken into consideration including utility payments, rent, and other recurring payments. Getting a loan using this method may result in higher interest rates and more fees, but it is an option for people who do not want to establish first time credit using credit cards for whatever reason.

When trying to establish credit for the first time, resist the urge to fill out applications with numerous creditors. Too many credit applications can actually damage your credit score, making it even harder to get your first card.

Upon obtaining your first credit card, always make your payment on time. Consistently paying your credit card bill without exceeding your credit limit will help you increase your credit score and qualify for better credit products in the future.

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