What’s the Best Way to Establish Credit If You Have No Credit?
Secured credit cards are often the best way to establish credit and build credit history when you have no credit. This video explains how these cards work and what you can do to build credit quickly.
April Lewis-Parks, Consolidated Credit Director of Education: Hi, it’s April with Ask the Expert for Consolidated Credit.
You know, we’re always asked, what’s the best way to establish credit?
And a quick and easy way to do so is to apply for a secured credit card. A secured credit card works just like a regular credit card, except that you place a deposit with the credit card company as collateral.
A security deposit gives the lender confidence that you’ll pay them back, even if you have damaged or no credit history. And that’s because if you fail to pay your bill, the lender can keep your deposit.
Also, the deposit is usually equal to your credit limit. For example, you send ABC creditor $800 as a security deposit for the card and now your credit limit on the card is $800.
But a secured card is not like a debit card, where it’s associated with your bank account. You will get a monthly bill and you are required to at least make the minimum payments on the card. The payments are not deducted from the security deposit you make with the issuer.
But some of the best secured cards may allow you to upgrade your account to an unsecured card after using the card responsibly for a period of time. And please be sure to always pay off your entire balance as you’re establishing your credit.
On-time payments count the most – 35% of your score. And it’s best not to carry any debt. But use the credit card to your advantage to get a good credit score.
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