Starting Out With Credit

The ins and outs of credit are unfortunately not something taught in most schools these days. So, by the time a person graduates from high school and enters college or the work force, they have no idea where to begin to start establishing credit. While credit can be intimidating, it does not need to be overwhelming.

The best time to start establishing credit is in high school. Most teenagers have checking and savings accounts by the time they are a Junior or Senior. This is the time that they should talk to their parents and bank about opening a secured credit card, a lot of banks offer these. It is important to note that while most checking accounts have a debit card attached to them, they are not considered actual credit. The account cards are not reported to the credit bureaus, and therefore do not establish credit.

If a person goes all the way through high school or even college and still has no credit, it is important to begin establishing credit as soon as possible. Again, a secured credit card is a great place to start. If someone has a checking account, they should ask their bank if they offer a secured card. If they do not, there are a lot of options out there: Applied Bank, Open Sky Visa and First Premier all offer a secured credit card. Another good resource is bankrate.com, they have a large list of good, secured credit cards from which to choose. Once a person has a secured card and they make timely payments on it for a year, the creditor will then normally turn it into an unsecured card and raise the credit limit.

Co-signing an installment loan for someone can also be a good way to help a person establish credit. Normally, co-signing a loan is not something that is recommended, and caution should be used because it completely depends on another person to pay their bills. If that person defaulted on the loan or missed payments those would show up on the co-signers credit report as well and result in a significant score drop. However, as long as the payments are made on time and it’s someone that the co-signer knows can be trusted, then co-signing a loan for someone is a viable option for helping to establish credit.

Adding someone as an authorized user to an existing credit card is also a great way to establish credit. This option is the quickest as it can generate scores between 30-45 days from when the authorized user was added. If the card has a long, and preferably clean, history it is a great way to start establishing credit. This is something a lot of parents do for their kids when they are starting out. It is a lot safer than co-signing a loan as the person who is the authorized user never has to actually have access to the card and are not responsible for the payments which means that the primary card holder is still in control. It is important for the person needing credit to work on other means of establishing credit as well by opening a card or two on their own.

The purpose of establishing credit is to generate and maintain good credit scores. However, none of the options discussed will generate scores immediately, so planning ahead is key. For someone with no credit at all or has only closed accounts it will take six to eight months to generate any industry scores. Personal scores will be generated fairly quickly, but those are not used by any industry, such as auto or mortgage.

Credit can be confusing and generating usable scores for someone who has no credit can be a bit frustrating. It’s good to start young and plan ahead. If someone has no scores but is looking to buy a house or purchase a car, they should start establishing credit at least six to eight months before they plan to make the purchase. With a little time and forethought establishing credit can be a relatively easy feat to accomplish.



Author: Mindy Leisure Manager of Rescoring Services
Mindy has been with the company since it’s inception in 1994. She wears several hats as Director of Product Development and Rescore Express Manager. As a public speaker she has delivered dozens of seminars for borrowers, real estate agents and mortgage brokers on the ins and outs of the world of credit. Prior to joining Advantage Credit she had 15 years experience in mortgage, real estate and property management. Her experience, knowledge and dedication have helped make Advantage Credit a leading credit reporting agency. Mindy has a BA from Fort Lewis College in Durango CO and an MFA from Humboldt State University in Arcata, CA. After living for 32 years in Colorado she has recently moved back to where she was born and raised in Bartlesville, Oklahoma in order to be closer to her family. In her free time she loves to cook, fish, garden, write and spend time with her family and her dogs Ben and Annie.