How To Establish New Credit
By Mark B. Huntley, J.D.
Last Updated 04/16/2020
Summary: Three easy ways to establish new credit whether you have bad credit, no credit, or limited credit.
When it comes to establishing new credit there are many good and bad credit tools to choose from.
When you finish reading this article you will know how to implement three solid tools that will increase your credit score.
The three credit tools to be discussed will be the effects of being added as an authorized user, obtaining a Fingerhut catalog credit account, and getting a secured credit card.
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Get Added as an Authorized User
Being added as an authorized user (or what we call "borrowing a kidney") to a parent or family member's credit card should be everyone's first step to credit building.
Here's how it works…
When you are added to someone's credit card as an authorized user, the credit card company will report the history of that credit card account to your credit file at the credit bureaus.
Essentially, you "inherit" the credit history of that credit card tradeline, whether good or bad.
The type of credit you are inheriting is very important because you do not want to be named as an authorized user to a tradeline with any late payments.
You only want to be named as a secondary user to credit cards with perfect payment history or any past delinquencies will be reported to your credit file and hurt your credit score.
For someone who is just starting to build credit, this is a great tool to add credit history quickly to your credit file.
If you cannot find someone with a suitable credit card, all is not lost.
Some companies sell authorized user credit card tradelines that allow you to choose the best mix of credit history you'd like to add to your file to increase your credit score.
Purchasing an authorized user credit card gives you complete control of the credit building process, however, before pulling the trigger, you must be able to answer, 'Which Tradeline is best for me?'.
Sometimes this method of improving your credit is called 'piggybacking credit' because you are piggybacking off of the credit built by someone else.
But it can be extremely effective, in fact, the Federal Reserve conducted a study on piggybacking credit and found that people with a thin credit file saw a credit score increase as much as 96 points.
A great way to start establishing credit by asking a family member to add you as an authorized user or, if that option isn't available, you can purchase a credit card tradeline.
You are just a few short weeks away from a huge credit score increase!
I know I said that becoming an authorized user is the first step you should take in your credit journey.
But I lied…
While you are becoming an authorized user, you should also be applying at Fingerhut for credit to be used at their online store catalog.
Fingerhut has an industry reputation for giving credit to just about anyone and I mean anyone.
One of my Credit Knocks partners applied with about a 575 credit score and received $1,000 of unsecured credit, so yes, I mean just about anybody.
Even if your credit is in the 300's or 400's they will offer you the 'FreshStart' program where you purchase $50 and put only have to put $30 down for them to ship.
Your Fingerhut account won’t include an actual credit card because you can only use the credit to purchase items from their website.
Then make the regular monthly payments of $3.63 over six months, and they will upgrade you to their standard Advantage account.
Once you've been approved for a Fingerhut account, you will immediately gain access to their online store catalog.
There are thousands of items to choose from in a wide variety of categories, such as; clothes, shoes, jewelry, furniture, garden, camping, to name just a few.
When you make your purchases, you will be required to make a monthly payment just like you would on a credit card or any other revolving account.
If you make your monthly payments consistently, Fingerhut will increase your credit limit.
I have already received three additional credit increases of $300 which gives me a total credit limit of $1,900 after only six months.
Now here's the kicker…
In the next section, I am going to explain why secured credit cards are also a great way to start establishing credit.
But, I want you to understand that the Fingerhut credit account in the eyes of the credit bureaus will affect your credit score the same as adding a credit card tradeline.
However, if you are new to credit or have bad credit, you probably won't qualify for a traditional credit card and will have to purchase a secured credit card.
So what is my point?
Fingerhut will give you the same tradeline for free.
Fingerhut is a great deal if you are looking to establish credit.
Secured Credit Card
Lenders use credit scores to help determine the risk of giving you money on credit.
To qualify for a traditional credit card, you have to have a credit score in the upper 600's and have a history of credit.
One way to thicken your credit file and establish new credit is to apply for a secured credit card.
The difference between a secured credit card and a traditional credit card is that you have to deposit money with the lender to get a secured credit card.
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This money acts as collateral, so if you do not pay your bill, the credit card company will use your deposit to pay it for you.
Other than the deposit, a secured credit card looks and works just like a traditional credit card.
There is no way for anyone to know that your credit card is secured with a deposit.
Some secured credit cards have programs where the deposit is returned after specific criteria are met.
Obtaining a credit card and other revolving loans is tantamount to establishing new credit.
Hopefully, you found this information on how to establish new credit helpful.
The authorized user method of improving your credit score is free and extremely effective at boosting a new credit users file.
Applying for Fingerhut credit and getting a secured credit card will help your credit utilization ratio along with start building your payment history.
These two credit score categories account for as much as 65% of your FICO credit score.
Putting all three of these credit building tools together is a great way to start establishing new credit.