Bank Accounts

An account at a bank or credit union is a good first step to establishing credit, if you handle the account responsibly. Overdrafts and bounced checks not only cost you money, they can cost you the ability to apply for credit down the line. However, a checking account in good standing can save you hundreds of dollars when compared to the fees charged by most check-cashing businesses.

When shopping for a bank or credit union, try to choose one that has few or no maintenance fees, and make sure that you will have an ATM available to check your balance or make withdrawals for free, as high ATM fees can wreak havoc on your budget. Take advantage of online bill-pay if your bank offers it for free – it’s a quick and low-hassle solution for keeping track of your expenses from month-to-month that will help you stay on top of your credit scores.

Secured Credit Cards

If you don’t qualify for an unsecured card with reasonable rates, a secured credit card is a great way to start out. Some banks or credit unions will place your deposit in a money market account or another interest-bearing account, which means that if you only charge what you can pay off each month, you can actually make money by using this method.

You want to avoid any card that charges high annual fees, or that has any other hidden costs. Additionally, you need to make purchases that you can pay off in full at the end of the month, without using more than 30% of the credit card’s available balance. Make sure you have the discipline to stick within your spending limits before you get the card – how you manage your bank account is a good indicator. If you can stay within the available funds in your bank account without going over, and actually have money left at the end of each month, you can probably handle your credit card with equal responsibility.

Shift a regular purchase such as gas, groceries, or a specific utility to the credit card, and use your budgeted funds to pay it off. This will prevent you from misusing the card by buying things you don’t need in the name of building your credit.

Student Loans

While taking out unnecessary student loans is ill-advised, a necessary student loan can be a real boost to your credit score. Generally seen as a type of ‘good’ debt, most banks and lenders look favorably upon student loan debt as long as you make payments on time, or have a qualified deferment or forbearance in place. Another benefit: the interest you pay on your loan is tax deductible – so you can claim it at the end of the year on your taxes.

Because there are so many payment options available for student loans, chances are good that you can find one that will fit your budget. If you start paying before you graduate, you have the added bonus of building up a solid repayment history that can assist you in obtaining additional credit after your graduation.

While no one action can guarantee good credit in the future, by making sure you establish your credit in a responsible and diverse way from the start, you can avoid the temptation to overspend on credit cards and instead focus on building a responsible financial plan that will both improve your credit scores and your financial outlook going forward.

1.    Offers with vague terms. Be wary of credit card offers with wording such as ‘rates as low as __%’ or ‘credit limit up to ___.’ Chances are, most will not qualify for those teaser rates and credit limits, and the card you end up with could be too limited to be worthwhile.

2.    Offers with excessive fees. Likewise, avoid any credit card that offers a low credit limit, but charges high fees to issue the card. Some of these cards have fees totally more than 80% of the initial balance. If you pay off these fees, you’ll still take a hit on your credit rating because the initial debt will be seen as excessive, even though you haven’t actually charged a dime.

3.    Offers that allow you to pay off an already charged-off debt with your new card. While this may seem like a great deal, all too often it turns out to be a scam. Instead of getting your charged-off debt satisfied, along with a new credit card, you’ll find yourself making payments on that old debt for months or even longer before the company will give you an actual credit card. Meanwhile, your credit scores have little or no improvement.

While there are many scams out there, getting a credit card from a reputable bank or finance company can be an important first step to rebuilding your credit. Some of the best places to get that new credit card include:

1.    Your bank. If you have a good relationship with your bank, and a direct deposit account, you may be able to qualify for a credit card even if your credit scores need improvement. Getting a secured credit card from your bank can also make it more convenient to pay the card back on time, as you can set up automatic payments.

2.    A credit union. If you can open an account at a credit union, you may find that you get better interest rates and have more options when it comes to qualifying for a card.

3.    Store cards or gas cards. Although the interest rates on these types of cards are generally higher, you can still rebuild your credit if you are careful about paying off the balance each month. Store cards are generally easier to qualify for, as well. Just be sure to keep your spending in check, and only buy what you can afford to pay off each month.

Credit cards are a necessary component to a healthy credit score. By carefully choosing the right credit card from the start, you can give yourself the best possible opportunity to rebuild your scores and get your financial health back on the road to recovery.