Having an established credit history is necessary to make life’s biggest and most important purchases, but how does one start to build credit? In this week’s Money Minute, RP Funding CEO Robert Palmer is here to use his expertise in the financial industry to offer valuable advice on how to build credit.


Robert’s Response

The best thing to do when first attempting to build credit when you have no credit history, is to apply for a secured credit card. It’s the best way to prove to the banks and financial companies that you can be a trusted borrower.

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How Does Secured Credit Work?

With secured credit cards, the cardholder first deposits some money into either a Certificate of Deposit (CD) or savings account. Then the cardholder’s bank issues them a credit card with a secured balance of the deposited amount. For example, if you deposit $1000 into a CD, then the bank will give you a $1000 secured credit card. They allow this risk knowing you can’t stiff them on the payment, because they already have your money as collateral.


There’s Not a Better Way to Build Credit?

When you use secured credit, you’re basically borrowing your own money. It may sound silly, but this is the best way to establish credit when you don’t have any. You have to prove that you can pay back the bank and make payments on time. Until you’ve done that, it’s really hard to get credit from the traditional credit companies.


Find the Right Card for You

Do your research. Go online and search for companies that offer secured credit cards but be prepared to see higher interest rates and annual fees. The key with secured credit cards is: Don’t abuse it and pay it on time every month.


Necessary Step in Building Credit

Secured credit is kind of a rite of passage that is necessary in order to build credit from scratch. However, if you consistently make payments on time, within six months you can qualify for a normal credit card with a better APR, interest rate, and annual fee. At this point, you have proven you are a responsible borrower, so you can cut up and close your secured credit card account. From then on, credit will be easier for you to get and you will soon graduate on to higher credit limits and a healthy credit score.