How to Develop a Credit History

If you are just starting out building your credit history, you may discover it is a challenging process. Lenders are hesitant to extend credit to individuals who do not already have a credit profile. This places you in the position of attempting to get credit without first having credit to show for it. To develop credit, you must build a credit history by proving to potential lenders that, although you have no previous credit history, you are a low risk borrower. This is usually achieved by offering collateral. Collateral is something your lender can seize in the event that you do not pay.

Instructions

1

Apply for a secured credit card. Secured credit cards require you to make an initial deposit to the credit card company. This deposit determines the spending limit on your card. Because your up-front payment is considered collateral, secured cards are much easier to get approved for than unsecured cards when you are trying to build a credit history.

2

Consider a secured bank loan. A secured bank loan is very similar to a secured credit card in that you are borrowing against funds that you already have. Speak to a loan officer at your bank about placing funds into a savings account and then borrowing against those funds. This allows the bank to extend a loan to you at a very low risk since the bank can opt to "freeze" those funds and seize them if you cease making payments on the loan. A bank loan is also beneficial because it appears on your credit report as installment debt. Having a good balance of both installment debt and revolving debt, such as credit cards, allows you to boost your credit score more quickly since the types of debt you hold accounts for 10 percent of your credit score.

3

Make payments on time to both your credit card company and your bank. Your payment history, at 35 percent, has a larger impact on your credit score than any other factor.

4

Charge only 10 percent of your spending limit on your credit card and pay it off each month. If you do not make purchases on your card, you cannot build a good payment history and thus a good credit score. Limiting the charges you make is important, however, because the more you owe on your card, the worse it is for your credit score.

5

Apply for an unsecured credit card after six months. Once enough time has passed to develop a short, but good, credit history, you can apply for an unsecured credit card and be approved. Unsecured cards typically charge lower interest rates and annual fees than secured cards and are a good financial decision for someone who is laying the foundation for a good credit history.