How to Establish a Credit Rating
Perhaps your problem isn’t bad credit; it is that you have no credit at all or insufficient credit. If you’ve never financed a car loan, a computer, or other major purchase, how do you begin to establish credit? How do you get approved for a car loan? Doing the following should help you obtain credit:
(1) Apply for a department or retail store credit card. Many people establish their credit rating with a Sears, JCPenney, Target or other department or retail credit card because these credit cards are much easier to get than Visa or MasterCard. Keep in mind that when you are issued your first retail credit card from Sears or whomever, your purpose is to establish an excellent credit rating so you qualify for the Visa or MasterCard that you really want. Use your card to buy necessities, such as shoes and clothing, and pay your balance off each month before the due date. How long does it take to establish a credit rating this way? Your credit score can be calculated when you have at least one open account on your credit report and at least one account has been reported on in the last six months. Since most department / retail stores report your account and payment history to all three credit bureaus, you can establish a credit rating within six months.
(2) Apply for a secured Visa or MasterCard with one of the major credit card issuers, such as Capital One (www.capitalone.com), who offers those with bad or no credit the opportunity to build up a good credit rating. A secured credit card is one that is “secured” meaning that the credit card’s limit is equal to the cardholder’s security deposit. By sending in a $500 security deposit, one can be issued a credit card with a $500 spending limit. The $500 deposit earns a modest interest rate and will eventually be refunded if the cardholder demonstrates that he or she is a good credit risk and doesn’t default on the account. In addition, the cardholder’s payment history will be reported to the three credit bureaus just as if it were a regular credit card. Within a year, if the account is paid as agreed, other credit card companies will begin sending offers for unsecured credit cards.
(3) You must be at least 18 years old to be approved for a credit card. Under contract law, a minor can rescind a contract at will in most circumstances. If a credit card issuer were to give a credit card to a minor, the minor could charge up to the credit limit and then rescind the contract and refuse repayment. Minors wanting to have a credit card in their own name must have a parent, guardian or other adult over the age of 18 contracts for the credit card.
(4) You Must Have An Income. This does not really need an explanation. Would you lend money to someone who had no means of repaying it? Many people are denied financing because they try to buy more than they can afford, particularly with cars and houses, so the lender either denies financing or requires a co-signor.
Editor’s Note:
We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).
If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.
But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.
The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.
This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.
Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit
Posted by Christian C Culpepper