Establishing a Positive Line of Credit

For some people, their credit is not only bad, but it's so bad that they won't even think about trying to obtain a loan – for anything. They may have had good credit at some point, but something went terribly wrong, leaving them with a credit report that draws nothing but denials every time they try to get a credit card or other credit account.

For others, it's different problem (although creditors often treat them roughly the same): their credit is simply non-existent. They've never had a credit line before and, unfortunately for them, no creditor wants to be their first. This is often the case with young adults who've just turned 18 and want to open their own accounts – only to find that their lack of credit history is counted heavily against them.

In either case, how can you change those 'turn-downs' into acceptance letters? First, you'll have to realize that you may not be able to get a regular credit card, especially during the current credit crunch. You may, however, be able to qualify for a secured credit card. These are cards that are tied into a savings account that you'll have to open with the card issuer. Your credit limit will be equal to the amount of your deposit into the account as collateral.

Your secured card works the same as a regular credit card. As a matter of fact, no one will know it's secured except you and the creditor. As long as you make your monthly payments as agreed, your account will be reported positively to the credit bureaus. That positive credit rating will move things in the right direction toward establishing a strong track record. After a period of time (perhaps one or two years, the card issuer may even upgrade you to an unsecured credit card.

On the other hand, while your credit may not be so great, you probably know someone that does have good credit. This person may be able to help you establish or re-establish your credit record. However, convincing a co-signer to go along with you isn't always easy, and it's something that you should take on only after careful consideration. The co-signer essentially agrees to take on all responsibility for the debt if you back out of your responsibility to pay what you owe. As a consequence, many people balk at co-signing for others out of a fear that they'll be stuck with someone else's debt – which, unfortunately, happens much more than it should.

Therefore, if you're not sure that you're responsible enough to live up to your end of agreement, do everyone a favor and avoid this option. Many friendships and family relationships have been broken beyond repair by people who've convinced a friend to co-sign for them and then defaulted on their responsibility.

Once you start either of these plans of credit-building, you should to be patient. Good credit ratings don't come overnight. They will take time and proof that you're good for your word and the charges you make. Whether you get a secured credit card or co-signed loan, make sure to use your credit responsibly and make your payments faithfully. These actions will help your credit to look better and better with each passing month.

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