How to Establish Credit

FINANCIAL LITERACY
How to Establish Credit
Residence History
Credit is an important part of our lives. Unfortunately, obtaining
credit can be difficult if you have never had credit before, or if
you have had credit issues in the past. Before creditors can
lend money to consumers, they must be sure individuals can
repay the funds provided. In other words, they try to determine
whether or not the applicant is creditworthy.
Lenders look to see how often you move and whether you rent
or own a home. It pays to have a stable residence, and owning
a home (even if jointly with a spouse) is better than not owning
a home.
The following information is used to find out if an applicant is
creditworthy:
Employment History
Stable employment is a key component to a creditor lending
money, especially when it comes to lending to first-time
borrowers. A person’s ability to hold a steady job will improve
his/her chances of getting approved.
Disposable Income
You can determine your disposable income by subtracting all of
your expenses (e.g., rent, utilities, gas, etc.) from your monthly
income. The disposable income helps the creditor determine
whether or not an individual is able to take on additional debt.
Utilities
Even without a credit history, it is possible for an individual to
sign up for utilities in his/her name. When an individual has
his/her name on any type of utility, it won’t improve the person’s
credit score, but it can be helpful to a first-time borrower.
Assets Owned
Lenders will look for any type of assets owned by the applicants,
such as checking or savings accounts, insurance policies,
valuables, etc, which can be used as collateral.
Let’s say you just started working, or you work out of your home.
Or, what if you have always paid for things with cash, or you do
not have many (if any) assets in your name? How do you
establish a credit history?
Debt Management
How does the applicant manage debt? Does he/she have any
credit cards or other types of loans? What is his/her payment
history? In nearly every case, the creditor will obtain this
information from a credit report.
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How to Establish Credit (Continued)
3. Become a co-borrower. In most instances, you can co-sign
on a loan, which means that you share in the responsibility
of making loan payments. Usually, an individual can co-sign
with another party who has established credit, such as
parents co-signing for a child for his/her first car. A person
can then develop a positive credit history by making loan
payments on time, without as great a risk to the creditor.
The following is a sure fire way to establish credit in your name:
1. Open a savings or checking account at your financial
institution. Your ability to manage a savings and/or
checking account over a period of time will demonstrate
that you can handle this type of responsibility.
2. Apply for a loan. Many say they cannot obtain a loan
because they don’t have credit, but that is not necessarily
the case. You should consider applying for a credit card
from your financial institution, a department store card
(which is easy to obtain), or some sort of secured credit
card (credit limit is tied to your savings or other funds).
Just remember that each card comes with its own group
of expenses and you should treat them with great care. Do
not use these tools as “free” money as you must show
responsibility in the repayment of any debt you have on the
card. Be sure to ALWAYS pay your debt on time!
The key to establishing credit is to be patient. You must show
consistency in money and/or credit management over a period
of time. Start slowly, be cautious, keep track of your debt, and
repay your debt on time. Over time, you will not only establish
credit, but develop a good credit record for your future.
MEMBER FDIC. EQUAL OPPORTUNITY LENDER.
Comerica Bank NMLS ID: 480990
The information provided in this article is not intended as legal advice and should not be relied on as such.
Contact your legal advisor and/or accountant for further information specific to your situation.
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