a consumer trying to establish credit over the phone by using her credit card

Establishing Credit

How to get your first credit card or loan and manage credit responsibly.

Establishing Credit

Your first credit card or loan is the hardest to get. If you’ve never had credit, you have no credit history.

How do companies decide who gets credit?

Giving someone a credit card or loaning them money is a risk. Most people pay their bills, but some don’t. Companies don’t want to give credit cards or loan money to people that are unlikely to pay it back.

When you apply for credit, the company will want to find out if you are a good credit risk. They will review your application and get a copy of your credit report from a credit reporting agency. Having no credit history makes it hard for them to figure out if you are likely to pay them back on time.

How to establish credit

Here are the best ways to get credit and start building a good credit history:

  • Apply for a department store or gasoline credit card. The idea here is to start small and work your way up. Major bank cards like Visa and MasterCard are the hardest to get. Department store and gasoline cards present less risk because you can only use them at certain stores and the credit limit is often lower than bank cards.
  • Buy something, make a big down payment, and make payments on the rest. A local retailer or department store is the best place to try and do this. The large down payment takes away some of their risks. Be sure they agree to report your payments to a credit reporting agency so you can start building a credit history. Be sure to make all payments on time. If you pay late this will be reported to the credit reporting agency too.
  • Apply for a small loan with your bank or credit union. It’s always best to apply for credit with people or businesses that know you. If you have a checking account at a bank or credit union, start there. If you don’t have a checking account, go to a bank or credit union and open one. Bank accounts appear on your credit report and help you start building a credit history.
  • Apply for a secured credit card. Try for this at the bank or credit union where you have a checking or savings account. Here’s how it works: They give you a credit card with a low credit limit. To reduce their risk, you deposit the amount of your credit limit into a bank account with them. If you don’t make your payments, they take the money from your account. Ask for a credit card that has no annual fee or upfront fees and charges.

Use credit wisely and build a good credit history

Congratulations! Once you’ve gotten credit, use it responsibly. Building a good credit record will give you access to credit when you really need it in the future to buy a car, a home or for an emergency.

  • Don’t max out your card. You will need to use your credit card to build a credit history but take it easy. Charge small amounts and pay in full each month. Paying only the minimum balance will cost you extra in interest charges. Now’s a good time to get in the habit of paying in full each month.
  • Limit credit card use. You will hurt your credit score if you have a lot of credit cards near their credit limit. As you get closer to your credit limits, your credit score goes down. Also, applying for new credit cards lowers your credit score.
  • Pay your bills on time every month. If you pay late, it’s reported to the credit reporting agencies and your credit standing suffers. If you’re having trouble paying bills on time, you may have too much credit. Late payments to your landlord or your utilities can end up on your credit report too.
  • Review your credit report. Review your credit report at least once a year.

County of Los Angeles Department of Consumer and Business Affairs. Last change: Apr. 26, 2011

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