How to Establish a Good Credit History

by : Robert Rogers

Many young adults who are just starting out usually have no credit history. Maybe they just paid cash for everything and have never needed a loan before. "Cash and Carry", as I call it, is a good responsible way to buy things. However, sometimes you may need to get a loan. Like for your first car or home. If you have no credit history, your credit score is probably very low.

Even though a low credit score for lack of credit history is not always bad, it can affect a lenders decision to give you money or not, and it can affect how much the loan is going to cost you in terms of an interest rate. It can also affect how much you can borrow. So I'm going to give you a proven strategy to establish good credit quickly.

If you have a checking account, ask the bank if they offer overdraft protection. This is like a mini loan to cover any amounts you spend over your balance so you don't bounce checks. Also ask them if they offer a major credit card like visa or mastercard. Make sure this is not a debit card, but a true line of credit. If you're not approved, ask if they offer a secured visa card. You can also look online by typing "secured visa card" into google. Look for the ones that offers the lowest application fee, and they report to all three credit bureaus.

Another way to acquire a good credit history is to take at least $1000 and open a 6 month CD (certificate of deposit) account. If you can do more, go for it. Ideally you can do $5000. Anyway, to continue this strategy, a loan for $1000, using that CD as collateral. The reason is simple. You are far more likely to get approved for a "secured" loan than an unsecured loan when you're just starting out. Now I know you're thinking, "Just take that $1000 and pay off the loan using the same $1000." But don't stop there. Take the $1000 loan, and open another 6 month CD account at different bank. Get another loan for the $1000 at the second bank. Do this one more time at a third bank.

In the end, you have three $1000 loans, and three $1000 CDs. Each loan will have a minimum payment amount. Pay the minimum payment ON TIME for each of the 6 months. In the last month, cash out all your CDs and pay the loans off. You now have a credit history, and it only cost you a few dollars in interest rate fees to do it.