subject: Effective Ways to Establish Credit [print this page] Effective Ways to Establish Credit Effective Ways to Establish Credit
Many prospective home buyers in America have never established a credit history. Sometimes, people have an aversion to borrowing money for any purpose. Other times, normally with limited incomes or cultural norms, people will only use credit for basic necessities (rent, utilities, and temporary loans) that don't generate activity that is recorded by the major bureaus.
Consequently, when these consumers make the decision to purchase a home they find themselves very limited to borrowing from lenders who require alternative credit. Alternative credit comes in the form of verifiable payment streams for the aforementioned rent, utilities etc.
It is never easy to establish credit in a short time span. However, there are three strategies that do generate results within 12 to 18 months:
Acquiring a secured credit card
Taking out a signature loan at a credit union
Becoming an approved user of a family member's credit card
Secured credit cards can be obtained from banks found online or locally. They normally require a deposit of at least $500 into a savings account to secure the small balance card. When the card is used sparingly and paid without fail well before the due dates, the bureaus will quickly report the positive activity and the first credit line will be established. Credit unions aren't as quick to report, but still offer a good process to the new borrower to move toward home ownership.
Be mindful that these strategies will take a minimum of one year to show results and cannot be expected to reconcile previous poor credit behavior. However, coupling them with two or more alternative credit lines can assist the borrower in securing credit from a limited number of lenders whose rates are slightly higher than traditional banks, but still able to offer affordable monthly payments.
What can be taken away from this, is that there is no quick fix if you have credit woes; however, with diligence and the desire and drive to purchase a home, you can take these steps to assure better credit scores and a greater chance at making homeownership a reality. Talk to your local mortgage lender with any questions you might have about the process.
