As we have pointed out before, establishing credit can be tricky if you do not already have credit. The first thing any lender wants to do when you apply for an account is to check your credit report. And if you have no credit, there will not be anything on the report that suggests that you are worthy of any. It's a classic "Catch 22" situation. What can you do?

There are several solutions, but the best of them is for you to establish an account with a company that offers a secured credit card. Like the name suggests, such a card is "secured' by cash collateral. When you open your account, you will provide the lender with a cash deposit. This money will be placed into an interest bearing account in your name and as long as you have the card, the money will be held there.

Your card will be issued to you with an available limit that does not exceed the amount of the deposit. In some cases, the limit will be as little as half of the deposit amount, but more often than not, you will be granted a limit of close to the total deposit amount.

(These cards differ from prepaid credit cards, where there is no bank account that secures the card. With prepaid cards, the money is actually "loaded" onto the card itself. Your card has a limit of however much cash you gave them when you purchased the card. These cards may be "reloaded" for repeated use, but they are generally considered to be debit cards and do not help you establish a credit history, although there are some exceptions to this.)

Having applied and put up a deposit to secure the account, you will have a credit card that you may use just as anyone else might use one. The card is otherwise indistinguishable from any other "normal" credit card. You will receive monthly bills, and as long as you pay them on time, you will be earning credit in your name and building your FICO credit score. You may continue to use this card for as long as you like, but at some point you will probably want to try to obtain an unsecured credit card.

Unsecured credit cards tend to have lower interest rates than do secured cards. Plus they are less likely to include an annual fee for their use. And of course, they don't tie up some of your cash in a bank account that you cannot touch. For anyone who needs to establish credit, a secured card is the way to go, but you do not want to keep using one any longer than is absolutely necessary. They are just too expensive.

About the author:

Talbert Williams offers debt consolidation referrals and advice. For more information, articles, news, tools and valuable resources on debt solutions, visit this site: http://www.1debtfreedom.com