Friday, September 05, 2008

What Can I Do To Get Credit?

I can't remember one person teaching me anything about credit when I was growing up. Can you? Most likely... your answer is no.

Well, that's because most people in this country don't want or like to talk about credit, debt or financial matters, especially with their children.

So you go along thinking nothing of it until the day you realize you have a job and now you want to own some stuff but you don't have any cash to buy it. Don't fret...

If you have no credit history at all you can still get credit.

There are several ways for a first-time borrower to get credit. If you have a good banking relationship where you keep your checking account, start out by talking with one of the customer service people there. Explain your situation and see what they can do to help. Many times you can get approved for a Visa or MasterCard with a relatively small limit. As you establish your payment history with the credit card issuer they will raise your limit.

Here is another strategy that works for a lot of people:

Go to your bank and ask to borrow an amount equal to some portion of your savings account balance. Tell them that you will secure the loan with the money in your savings account. It is not likely that you will be turned down because this is a sure thing for the bank. They put a hold on that amount in your savings account and they won't release that hold until the loan is paid. They have very little chance of losing their money. As an added benefit you will likely get a lower interest rate because the loan is secured 100% by your money.

Now, make your regular monthly payments on the loan. Don't pay it off early, don't pay it off late. Pay it off 100% on time. This shows the bank that you are capable of keeping your word. If you pay it all off in one month then you really haven't established a true loan payment history and you've wasted your time and money.

Once you have the loan paid off, of maybe three-quarters of the way paid off, apply at one of the national department store chains for one of their store cards. You should be approved, all things being equal, without too much difficulty. Stay away from the "big bucks" store and go with someone like K-Mart or Target for starters.

Make small purchases monthly and pay the amount off in full each month. Do this for nine or ten months, then go back to your bank, and ask for a Visa or MasterCard. With the bank loan behind you, and your good department store credit history, you should be approved if even for a relatively small balance.

If you apply for credit but feel you were unfairly denied, you do have some options.

If you are denied credit in the U.S. then you have rights under the Equal Credit Opportunity Act. This law requires a creditor to send you a notice that tells you exactly why your credit application was rejected. You have the right to obtain additional details, if you ask for them, within 60 days after you've been rejected.

The law prohibits vague and unreasonable answers such as "We just decided no", or "You don't meet our credit standards". Answers such as "Your income is not high enough", or "You haven't been on your job long enough" are considered valid.

You may also find out that you were turned down because you have balances that are too high on your charge cards, or you have too many loans. These are also valid reasons for rejecting your application. Of course, you may always reapply once you have paid these balances down.

If you are told that you were denied credit because of items appearing in your credit report then you have a right to contact the credit-reporting agency that provided that information, within 60 days, and obtain a free copy of your credit report. You also have the right to dispute any errors that you find in that credit report. Contact the customer service department for the credit bureau and they will be happy to help you file the disputes. They have a legal obligation to be impartial and they cannot refuse to help you.

Credit is a very powerful tool to have in your arsenal especially when you want to buy a car or a home. If you abuse your credit it can take years to rebuild it. Don't go "credit crazy". Be sensible and don't take on more debt than you can handle. Don't charge things that you can pay cash for. Debt builds up quickly and it can ruin your life if you are not careful.

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