Marino on Money: August 4
How can my son establish credit? He was turned down for two credit cards.
Great question. This is a challenging situation. It’s like applying for job. Many employers require experience. I need a job to gain experience, but it is hard to get that first job. Credit is the same.
Banks and finance companies require good credit before they issue you credit. It’s a catch 22. I cannot earn good credit unless someone offers me credit. So, what can do to obtain my first credit card and start building credit?
I need to understand what lenders consider before offering me credit. If my credit score is not adequate (because I have never had credit), then lenders consider the following:
1. Employment history. Have I been steadily employed? Periods of unemployment are an area of concern. Have I been employed with the same employer for an extended period of time? This shows stability. When you are applying for a job, this is one of the first factors an employer considers. Job hoppers, or someone who changes jobs every year, make some employers nervous.
2. Residence history. Like employment history, lenders consider how frequently you move. Remember, lenders (and employers) value stability.
3. Bank accounts. Having a checking and savings account will help. Although these type of accounts don’t always get reported to the credit reporting agencies, the history of the accounts can be valuable when applying for credit.
4. Utilities. Like bank accounts, payments may not be reported, but they do provide a history of consistent payment.
If you want a lender to offer you credit, you need to prove that you are credit worthy. Showing stability and a history of fiscal responsibility will go a long way.
Tomorrow I will discuss where to start when searching for the first credit account.
If you have a financial question for Ross, you can use the Marino on Money page.
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