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Financial Literacy - Becoming credit savvy Click Here
Build a credit score from scratch
In these days of not-so-easy credit, consumers with limited credit histories can still build a great credit score.
Fast track to becoming credit savvy

How to establish a great credit score

Consider secured cards
Another option for getting started with plastic is a secured credit card. A secured credit card acts like a regular, general-purpose card but is secured with a deposit, usually for an amount equaling your credit limit.

"You put up X amount of dollars, $300 or $500, and you're issued a credit card that looks like everybody else's credit card -- it's not stamped 'secured card' or anything so you're not embarrassed,'' Cunningham says.

"But the issuer has no risk as you charge and repay that debt each month as you build a positive credit history," she says.

Get a bank loan
Consumers with a thin credit file and a good relationship with a bank or credit union may be able to get a loan using their savings account as collateral.

"As you pay back the loan, the bank will report your good borrowing behavior to the credit bureaus, whereas they would never report your checking or savings account," Watts says.

Alternatively, borrowers who can't quite get a loan on their own could consider finding a co-signer. For responsible borrowers, co-signing a loan can be a great way to build credit. The key word is responsible.

In this borrowing scenario, instead of the bank assuming the risk of lending money, the other signatory shoulders most of the burden. Many a well-meaning co-signer has been burned by flibbertigibbets -- children, friends, boyfriends and other assorted associates whom they mistakenly thought would pay back the loan.

"If the primary borrower defaults, it will show on the co-signer's history and the lender is going to go to the cosigner expecting payment," Cunningham says.

"Frankly, on the other side of that coin, one of my recommendations is for people never to co-sign. It has to be on the table in this case," she says.

Try 'piggybacking'
Similar to co-signing, piggybacking has attracted plenty of controversy, though for different reasons.

The term refers to the practice of using someone else's good credit as a way of building up your own.

For instance, if a mother adds her daughter to her credit card as an authorized user, the credit card company will not check the daughter's credit history and the daughter, as an authorized user, assumes no obligation for the debt, but the credit card company will report the account on the daughter's file.

"It's not necessarily a positive way of doing it. Some lenders view that as being a little bit sneaky -- especially if you do it with someone that you don't have a defendable relationship with," Ulzheimer says. "(A) father and son, (or) husband and wife -- that is a different story than two complete strangers that are doing it. Lenders take a dim view of that."

-- Posted: Jan. 26, 2009
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