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With authorized user accounts being taken out of credit scoring models starting next month, the issue of how to establish credit has suddenly become a hot topic. Here&39;s a question we received last week:

How do I obtain new accounts to boost credit score when no one will give me credit?

It used to be so easy! Just have relative or friend with good credit add you as an authorized user on an established account.  They wouldn&39;t even have to give you the credit card. Your credit would benefit from their established credit as soon as the authorized user account appeared.

Now that FICO has decided to stop counting authorized user accounts in their credit scoring models, this easy strategy is out the window. No more loopholes, it&39;s back to establishing credit the hard way. There are a few good ways to get started:

1. Secured Credit Card - Secured cards work by having you deposit a cash amount into a savings account to "secure" the credit limit. If you put $500 in the savings account, you&39;ll have a $500 credit limit. Getting together this deposit may be tricky, but you&39;ll save a lot in rates and frees over unsecured cards. When the card is closed or moved to being unsecured, you&39;ll get your deposit back with interest.
2. Student Credit Card - A student credit card is a great option for anyone who is a full or part-time student. You don&39;t even need to be attending a major university. Many cards will accept community college or online college students as well.
3. Unsecured Subprime Credit Card - You can also find unsecured (no deposit needed) credit cards for people with bad or no credit. However, these offers are often paired with extremely high interest rates and fees. Be sure to read all the small print when considering these offers.
4. Retail or Gas Card - Not quite as good as a secured or unsecured card but also an option for establishing your credit.
5. Auto Loan - Auto dealers will often go the extra mile to help a buyer with bad credit or no credit find an auto loan. Just be very careful about the interest rates and costs of these loans. It doesn&39;t make sense to buy a $20,000 car at 18% APR when a secured card would work just as well.

Now, let&39;s talk about what&39;s not an option for establishing your credit:

1. Pre-Paid Credit Card - No matter what their marketing says, pre-paid credit cards do not help you build your credit history. They might report to some no-name credit bureau, but they don&39;t ever send data to the credit bureaus that really count.
2. Checking Account - Checking, banking and savings account don&39;t help to establish your credit. Even an ATM card with a Visa or MasterCard logo doesn&39;t count.
3. Any Account that You Will Not Use Responsibly - It&39;s better to have no credit history than to have a credit history full of late payments and problems. If you can&39;t afford a credit card or loan right now, wait until you can.
4. Co-signed Accounts - Okay, so technically co-signed accounts can be a good way to establish your credit. However, I think the risks are too high. If one person makes a late payment or defaults, both credit reports are damaged. And if one person can&39;t pay, they&39;ll come after the other.  Stick to getting your own account if you can.

Good luck establishing your credit!

Emily Davidson – Credit.com&39;s Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit scores, loans and personal finance as the CreditBloggers.com moderator.

 

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