Even in today’s new age, millions of American still do not have a credit card nor own any line of credit. While it’s possible to pay cash for all expenses, nobody really has enough cash reserves to pay for all the important milestones like your college education, your first car or when you are looking at getting a house one day. In one way or another, a credit card may come in really handy as long you fully understand all the responsibilities that come with it. Entering the world of credit could get overwhelming with all the many things you have to know of. The intention to borrow money always go hand in hand with wanting to get yourself that tiny piece of plastic. Good if you are only using your credit card for gas or groceries when you are out of cash. But when you intend to use it for a bigger purchase, like your dream car perhaps, you would be needing some sort of credit history.

Everyone who is just starting out definitely does not have a credit history as of yet. But you could build yourself one. There are many ways to establish credit, but not all of these methods are always right. Here’s a few things that will help you get off on the right foot.

Check Your Credit Report. You might ask, “How can I have a credit report when I just had my credit card? Or I am just about to get one?” You can never be that certain. In the U.S., Experian, Equifax and TransUnion, knows as the “Big Three”, are the major credit reporting agencies that maintain credit reports within the country. Your credit report is used to generate your credit score and is also used by lenders to determine how much of a credit risk you are. If you are sure you never applied for any form of credit, then you shouldn’t have an open file with any of these agencies. Before you fill up that application for your first credit card, check with each of the credit reporting agencies to make sure there isn’t a false credit report open in your name. The cases of identity theft are overwhelming. Never discount the possibility of someone using your name and stolen Social Security ID to apply for credit.

The “Big Three” have set up a central website, toll-free telephone number, and mailing address that you use to order your free credit reports.

Web Site: www.annualcreditreport.com

Toll-free Telephone Number: 877-322-8228

Address: Complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Once you get your free credit record and if you happen to find a mistake, contact the credit reporting agencies immediately. You would need to work with them to clear your record. Credit errors can damage your credit score for seven years. Because of the huge importance of your credit history, all borrowers, not just first-timers, are encouraged to check their credit reports at least once a year and scan them to make sure everything looks as it should.

Open a Bank Account. The information on your checking and savings account may not be included in your credit report, but they can be useful to prove a level of financial responsibility, especially for the young adults. In applying for your first loan or credit card application, for instance, lenders will request your bank information to have an idea on how you handle your money. Still, credit reports are the best way for lenders to rate your creditworthiness, but your bank record could help build the trust.

Pay Your Bills — On Time. You may be aware that your bill payment records are not at all used to calculate your three-digit FICO score, the known popular credit score. But do you also know that FICO isn’t the only credit score available to potential buyers? Though many credit reports only track money that you’ve borrowed, some alternative credit scoring models incorporate bill payment histories as one of the main criteria for creditworthiness.

Get a Co-Signer. Building your credit from scratch doesn’t always require you to do it alone as most lenders will allow someone with an established credit history to co-sign the credit application with you. Family members with the same surname as yours are always the best bet; it could be you parents, older siblings or a family friend even. With having a co-signer, the lender no longer has to make a credit decision based solely on your thin credit history and you can “piggyback” on the stellar credit score of your co-signer. Just make sure that your co-signer actually has a good credit history.

Get a Secured Credit Card. A secured credit card is a wonderful way to get your feet wet in the world of credit. Regular credit cards or the “unsecured” cards have no collateral backing up your line of credit. With that kind of credit, the credit card issuer permits you to borrow up to your credit limit without any guarantee that the money will be repaid. If the cardholder is not at all that responsible in using his card, he will drown himself with debts and poor credit records for a really long time.

On the other hand, a secured credit card is tied to a collateral held in a financial institution or your bank deposit. Your credit limit would then be equivalent to your bank deposit. But payments for purchases made from your secured Credit Card won’t be drawn from your bank’s account balance. If you have $500 in the bank, then your credit limit would be the same and if you try to charge beyond that limit, the purchase won’t go through. A Secured Credit Card can be a good training tool to prepare yourself for a regular card in time. Many secured credit lenders will let you graduate to a regular credit card after a certain time on a secured card.

Prepaid credit cards, though they are convenient and not complicated, they wouldn’t be of any help to you in building a credit history because they’re not really credit cards. They’re just debit cards in disguise. And your debit card activity won’t matter, even, coz they won’t be reported to the credit bureaus.

Sticking to one or very few credit cards rather than constantly trading in for other cards could also have a positive impact on your credit history on the long run. A certain percentage of your credit score is based on the length of time you’ve maintained a credit account. Building a good credit history over the long term entails a lot of caution and wise decision to be able to avoid mistakes, both big and small, that can stain your credit report for years.