Credit can be a valuable financial tool that allows you to purchase items, while promising to pay with future income. However, in order to use credit, you must first establish a credit history that ensures that you are capable of paying current or future obligations. There are several ways to establish credit (some very costly). The three examples below are by far the easiest and least expensive to establish or even re-establish credit.
How to establish a credit history
1. Establish a savings account through a credit union.
2. Deposit $100 into your new savings account.
3. After the transaction, find a loan officer and ask for a $100 secured loan against your savings account.
IMPORTANT: Inform your loan officer that you want the loan payments to stretch for at least 1 year, and reported to the credit bureaus. If the loan goes unreported to the bureaus, you will not build any credit history.
WARNING: Repayment plan of the small loan may vary depending on credit union policy.
4. When the loan officer hands you a check for $100, deposit it into your savings account.
5. One year later. The loan is paid-off. You have established or re-established credit. You now have $200 plus interest in your savings account.
■ Secured Credit Cards: Secured credit cards help build or re-establish credit; yet can pay for goods and services much like any credit card. However, a secured card requires a deposit that may range from a few hundred or thousand dollars. Usually, a bank will pay interest on your deposit, but you may have to pay application and processing fees, sometimes totaling hundreds of dollars.
Before applying, ask what the total fees are, and whether they will be refundable if denied credit card. Typically, a secured card has a higher interest rate than an unsecured card.
NOTE: If you are a credit union member, inquire about a secured card there. Almost half of all credit unions offer secured cards to their members. Some credit unions offer lower interest rates and waive annual fees.
For more information visit:
■ Establish your own credit history: Approximately 100 million Americans have little or no credit history with the "big three" credit bureaus. While millions of these consumers earn steady incomes, and meet regular payment obligations, there has been no easy way for mainstream lenders to evaluate them as potential borrowers…until now.
PRBC (Payment Reporting Builds Credit) is a national credit bureau that captures consumers' history of paying rent, utility, and other recurring bills not reported to traditional bureaus. They enable business partners to help their consumers and small business customers to build a credit file automatically as they pay their bills, or by verifying self-reported payments they have made in the past. Their service bridges the gap between consumers seeking credit and lenders seeking to qualify them.
Patented Innovation: PRBC has been qualified as a "Community Development Service" for Financial Institutions, by the Federal Reserve Board, Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, and by the State of New York Banking Department. The FHA (see http://prbc.com/popup/fha-letter.php) and Sallie Mae (see http://prbc.com/popup/fannie-quote.php) accept PRBC reports.
To learn more, visit:
http://prbc.com or call 877.772.2123.
To learn more about establishing credit, visit:
(For more strategies on how to stretch, save and spend your paycheck see Jeff Burch's Money Book.)