I always get asked how someone should establish credit when I speak. Let me give you the answer. First whether you are establishing credit for the first time or reestablishing credit, this information is for you.
There are two main ways to establish credit:
The first option is to be a joint user with someone else. You would have to open a joint credit card with another person. That means that what you do (and what they do) will appear on both of your credit reports. If you both handle your credit wisely, that will reflect on both your credit reports positively. On the other hand, if one of you abuse your credit, that will reflect on both your credit reports as well. This can be a great way to establish your credit. Take a great thought when determining who the joint user will be. You want to be sure you are a joint user and not an authorized user – trust me there is a big difference.
The second option is to open a secured credit card. A secured credit card is where you give the credit card company a sum of money for them to give you the credit card (without risk or harm to them). Think of this as similar to a renter giving a security deposit to a Landlord. This is what you are doing. You get a credit card that looks and works just like a traditional credit card, but the creditor has minimal risk if you default. Remember, you are doing this to establish or reestablish credit.
When you need to establish or reestablish credit, you are a risky person (from a credit stand point) and you need to minimize the risk to the creditor for them to give you a chance. Once you have proven yourself, you can open a traditional credit card (with more favorable terms) and close the joint or secured credit card. Notice the order, I said in the previous sentence – do it in that order, please.
Keep your credit as best as possible and this will help you in the long run and give you the best possible finance down the road, but first you need to take this step to establish or reestablish your credit.