How to Establish or Re-Establish Your Credit Rating

You are reading this because

  1. You have no credit cards or loans – thus no credit rating.
  2. You have had financial difficulties and have a less-than-stellar credit history but you want to improve your credit rating.

First – Let’s understand what Lenders look for

If they are an upstanding lender, first and foremost they are looking to lend money to only those who can pay back their money. How do they do this?  They do it by determining your credit worthiness.  To find this out they require the following items:

  • Income & Expenses
    • With this information, they can tell if you have enough disposable income to make the monthly payments to pay back the loan.
  • Assets
    • This information informs the lender of what you own that you can sell to pay back the loan, like stocks and bond, savings accounts, etc.  It also gives them information about assets that could be used as collateral to secure the loan.

Helpful Note:  go to Personal Financial Statement for assistance.

  • Credit History
    • This informs the lender how you have handled debt before.  How much you borrowed, what your monthly payments were, did you make your payments on time or were you late, etc.  It also informs them how much debt you currently carry and thus how much debt you can add on.
      • If you have borrowed and paid back money before, you have established credit history and it will be quantified by the credit bureaus giving you a credit rating.
      • If you have not borrowed and paid back money before, do not worry.  There are other ways lenders can assure themselves that you are credit worthy.

How to Establish Credit

If you haven’t already, open a checking and a savings account in your name.  Your deposits, withdrawals, and transfers will inform the lender if you can handle your money responsibly.

Then, go to the bank with whom you have the checking and savings accounts and apply for a small loan, secured with the amounts in your accounts.  This could be $500 and paid back at $50 per month with interest.  Then make the monthly payments on time.  This gives you a credit rating.  Do not pay it back right away, pay it back in terms with the loan.  If you pay it back right away, they will tag it as trying to manipulate your credit rating.  Paying it back under the terms of the loan informs the lender that you can budget your money and you are credit worthy- plus they earn a little interest.

Or, and I do not recommend this, you can get a credit with a small credit limit, use it and pay the credit card every month.  The reason I do not recommend this is that it is addictive and can lead to ruining your credit rating in the future.

If you do not have the time to borrow and then pay back to establish credit, you can proceed a different way with your lender.  This requires that you show the lender that you are credit worthy by showing them that you are paying your rent, paying your student loans , paying your telephone bill, paying your utility bill, etc.  You get your bills and your canceled checks.  Show them to the lender.   They will contact the companies that you are paying and they might want more companies that you are paying.  Once the lender establishes that you have been paying your monthly charges on time and have been for a long time they will deem you credit worthy and that you are financially responsible by paying your financial commitments on time.  This way shows your lender that your are credit worthy.

Best advice: Start slowly, be cautious, understand the process, manage your overall debt, and pay on time.


About Gary

I am retired, but not tired. I still want to be valuable to others. I know that others are valuable to me. After looking back on six decades, I have asked myself this question: “What do I believe?” My mind filled up. My heart started beating faster. My spirit soared. I post blogs to share what my mind is working on, what my heart believes would help others and, what my spirit is communicating to me. What do I believe, you ask? Decisions dictate your path In love, not hate In tolerance, not prejudice In health, not sickness In wealth, not poverty In kindness, rudeness In happiness, not sadness In encouragement, not discouragement In faith, not doubt In courage, not fear I have been and will be challenged in each one of these beliefs, but the biggest belief is to stay positive and not turn negative. This belief helps me maintain all of the others.

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