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Research: Use a department store card or secured credit to establish credit with a no credit history -

If you have been around some shopping malls you would have certainly been asked if you wished to obtain a store credit card and thereby save ten percent on your purchases.  In all probability you would have declined at that time. But it would be wise to rethink that decision if you are looking to establish credit. In general, store cards are a bad idea and are best avoided. But this might actually be a good idea if you are looking to establish credit. Store cards generally lure customers with some upfront discounts but the interest rates that follow are generally very high.

Since these cards are easily available it would be a good idea to use them to establish credit.  It would be worthwhile to check at a local department store and see the kind of cards that are on offer. Whichever card you choose, just ensure that they report to the credit bureaus.  If they don’t report to the credit bureaus, they will do you no good.

After getting the approval of any of these store cards make sure that you are disciplined and use the card properly. Treat this card with a little care and not used as a new tool instead of money but bear in mind that this card is meant to establish good credit scores. The limit on these cards are generally low so ensure that you make the initial purchase with this card and then pay off the balance in full. The card should be reported to the credit bureaus once the card is active. Maintaining a good payment history on this card will help in rebuilding your credit.

The last option is a secured credit card, which is much easier to obtain than an unsecured credit card. When a loan or a credit card is secured what it means is that there is some asset that is linked to this particular account, which would be used as collateral by the lender in case you fail to make payments. Auto loans and mortgage loans are all secured loans as the loan amount is given to you against your property and in the event of non-payment of the loan amount the banks can take your car or your house to clear off the debts.

The same thing could be established at most banks with a secured credit card. The money can be pledged in the bank account in order to secure a credit card. For instance, a secured credit card could be obtained with a limit of $500 and you could in turn deposit $500 in the bank and secure the card as the deposit would be linked to the card.  If the credit card payments are not made, the bank will take the deposit that is linked to the card.

Here again, ensure that the secured cards are reporting to the credit bureaus. If they aren't then you will not be able to establish credit history. If you keep the card in good standing you can avail a regular card after a while.