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Obtaining a credit card or any other kind of loan can be quite frustrating especially when you have no credit history. Establishing the initial credit history can also be quite tricky. When you don’t have credit, there are not too many places that will be willing to give you credit and then if no one is willing to give you credit, how will you able to establish credit, as you will have to start from somewhere.
Firstly, it is important to understand what the lenders are looking for. Now if you are looking forward to establishing credit for the very first time, then what can lenders possibly look for? They cannot look at your FICO score to determine if they can lend you money or not. In such situations, they will be examining the other factors which will help them make a decision if lending will be risky or not.
Bank Accounts: One does not need a credit score to open a checking account at the local branch. Since these accounts don’t require any credit to open an account, they don’t get reported to the credit bureaus. However, your account history could play a vital role as lenders will consider this when you wish to apply for a credit card or avail loan for the first time.
Employment History: The most important factor that lenders will look into is your employment history. They will want to see if you can hold on to a job, or if you keep shifting. They will also look into periods of unemployment. Holding on to a steady job will help in getting approvals easily.
Residence history: Lenders will be interested in seeing if you move house very often, if you rent a place, or if you own a home. This is probably as important as the employment history. It does pay to have a permanent residence. Joint ownership of a home along with a spouse also holds well in most cases.
Utilities in your name: It is possible to have many utilities in one’s name even without having a credit history. Having a telephone connection, gas, electric, cable or water connection in one’s name is also of great benefits. This will not be used to establish a credit score, but it will certainly help first-time borrowers.
Starting with the bank is always a good idea to establish credit. Opening a checking or a savings account in a bank has dual benefits such as:
• If you have a good standing in any of the bank accounts that are active, then you are sending the message that you are responsible enough to manage money. These bank accounts are not necessarily part of your credit score but lenders could use this bit of information to come to a conclusion if you are a credit risk or not.
• If you have a good rapport with the bank it helps in improving your chances of obtaining a credit card or a loan through them as they will value your business with them.