Establishing a good credit rating is one of the most important components of financial security and stability. It is not possible to obtain a mortgage, a vehicle loan, and many other essential purchases without credit. In addition to financing, having established credit is important when buying automobile insurance and when trying to rent a home or vehicle.

There are many ways of building credit. One way is to apply for a secured credit card. This type of credit card requires the cardholder to prepay a certain amount towards the credit limit. The cardholder can then charge on the card up to the amount of money that was posted to the account. This allows the credit card company to monitor the cardholder’s use of the card to determine whether the cardholder is financially responsible enough for an unsecured credit card.

Another method of building credit is to apply for a loan with a cosigner. This type of loan is secured by the good credit of a cosigner whose credit has already been established. One drawback of this method is that both the applicant and the cosigner’s credit are at risk. If the applicant is late in making the loan payment, or fails to make the payment altogether, the cosigner is responsible for making the payment. Both credit ratings are at risk of decline if the loan goes unpaid.

Department stores will sometimes offer credit cards to a person with no other credit background. These types of cards, when used responsibly, build a credit history.

A third way of establishing credit is to buy furniture, electronics, or appliances at a buy-here-pay-here or rent-to-own company. These types of companies offer products with no credit check and require no credit history on behalf of the buyer. Although no credit is necessary to purchase at this type of company, the payment information and payment history can be reported to credit bureaus and added to the buyer’s credit report as established credit.

A credit history is usually required to obtain a cellular phone contract without being required to pay a deposit. Paying the deposit and obtaining the contract is a good way to build credit. Most phone companies report to credit bureaus.

Finance companies are a good place to start building a credit history. They offer small loans and usually require payments at weekly or biweekly intervals. Finance companies generally do not require established credit and they report payment information and payment history to credit bureaus.

Student loans also help build credit. These are very common types of loans granted to college students who often have no credit history. If the loan payments are paid on time, the student will establish a good credit history.

An important and often overlooked aspect of building credit is to simply pay bills on time. Some phone, cable, and utility companies report late payments and service cancellations to credit bureaus. This can lower a credit score.

Once financing has been obtained, making timely payments will help establish a credit history and create opportunities for further financing and credit building options.