What Does it Mean to Establish Credit?

You establish credit simply by doing common financial activities like opening bank accounts, starting utility service, using cell phones, obtaining credit cards and financing vehicles. The Experian, TransUnion and Equifax credit bureaus, which are the dominant players in the credit reporting field, and alternative bureaus like PRBC, collect and sell your data. You make it easier or more difficult to get new accounts, depending on whether you establish a good or bad credit rating.

Credit Reports

Your credit is established through activities that show up on your credit reports. Some of the information reported by Experian, TransUnion and Equifax is demographic. The Federal Reserve Bank of San Francisco explains that the bureaus put your name, current and past addresses and phone numbers, date of birth, Social Security number and employment information in their files. These data do not establish your credit, but the bureaus also track credit account openings and closings, payment histories and those accounts and court actions tied to your finances, like suits over unpaid bills and foreclosures. This credit use information establishes your credit history and indicates whether you are a good risk for new accounts.

Establishing Initial Credit

Lenders are reluctant to extend credit to people who are just starting out financially, but MSN Money writer Liz Pulliam Weston explains that certain accounts are accessible. Secured credit cards require a monetary deposit in exchange for a Visa or MasterCard with an equivalent credit line. The lender takes no risk because you back up your payment promise with the deposit. Department stores, gasoline companies and retail chains are more likely to give unsecured credit to consumers with little established credit than other lenders. You need a mixture of revolving and installment loans to properly establish credit, so a secured personal loan adds variety.

Results

Your credit use shows up on your Experian, TransUnion and Equifax records, thus establishing your credit history. That history is positive if you do not owe too much money and you make all payments on time. It is negative if your accounts are at or near their limits or you skip payments regularly. Your credit score reflects the data on your reports. The MyFICO scoring site explains that payment dates, debt load, total time using credit, number of recently opened accounts and mixture of account types are all factors that establish your score.

Alternative

You can establish credit without getting loans or credit cards by doing activities that are recorded by alternative credit bureaus like PRBC, according to "USA Today." Some consumers avoid credit use or do not have a long enough history to satisfy lenders. PRBC records other financial actions, like paying rent and utility bills, and distills an alternative credit score. This score makes loans accessible to people who have not established credit through traditional means with the "big three" credit bureaus.