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There is a ton of information on how to fix your credit and get on the road to a debt-free lifestyle. Unfortunately, if you don’t have any credit to begin with, it is hard to know where to start. It seems that every company wants to know what credit you have established already before giving you credit. How can you get started on the road to having credit? This article explains some of the building blocks to getting your first credit cards and beyond.
The First Steps
The first thing to do in most cases is to establish a secured loan. Many credit unions and banks will let you deposit money into an account that you can draw from up to the amount in the account. It acts similarly to any other checking account. It is more of an illusion that it is a credit at all. This type of account is usually referred to as a line of credit. By actively using your line of credit and repaying the balance you withdraw, you are showing your ability to use credit wisely.
Another way to establish credit is to open a department store or gas card. These types of cards are usually store specific and have low limits on spending. Typically they are well under $500.00. These cards are much more often issued to people with poor or no credit and will help to establishing credit. It is important to be careful with these cards, since most of them contain very high APR’s and you should be able to pay them off in full at the end of each month. Making mistakes with these cards early on can make it very hard to get better credit cards in the future.
Now what?
After you have been building credit, you will want to get a more proper credit card. You shouldn’t expect to get a platinum card right away, and you might be disappointed with the limit they offer. The most important thing to consider is the APR. This is how much interest your finance charge will be. You should shop around and find the lowest fixed APR available to you. APR’s change with the economy, but lower is always better. You should also know that you don’t pay this finance charge as long as you pay off your credit card every month.
You should also keep in mind that the credit card companies are trying to charge you finance charges and in any other ways they can. Research your credit cards with extreme due diligence. Look for fees like annual charges and check to see how much it will cost if you do have to have a late payment. A full disclosure legally must be on both your statement, and any solicitation for a credit card you are sent. If a credit card company doesn’t give a full disclosure up front, it is often a sign of a credit card you shouldn’t choose.
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