How to Get Credit when you don't have it?

Kevin McCormally: I am Kevin McCormally of Kiplinger's and I am here with Janet Bodnar, the Deputy Editor of Kiplinger's Personal Finance Magazine, to talk about establishing a credit record. Janet, you know, one of the great catch-22s of personal finance is you can't get credit unless you have a credit history and you can't get a credit history until you have credit. What's a young person going to do? Janet Bodnar: Well, there are more things that young person can do now than ever before because what's happening is that credit agencies are actually gathering what they call non-traditional financial information. Kevin McCormally: What is non-traditional financial information? Janet Bodnar: Non-traditional financial information will be information about, for example, do you pay your rent on time, do you pay other recurring bills on time for example, your cellphone bill or your utilities. Now Fair Isaac, which is the company that complies the FICO credit score, actually has a new credit score called the Expansion score that includes this kind of non-traditional information. Kevin McCormally: Well, how does -- whether or not you pay your rent, how does that information get to Fair Isaac? Janet Bodnar: Good question, Kevin. Luckily, there's a new website, it's called prbc.com and what that stands for is Payment Reporting Bills Credit and what you can do is you can go to this website, you can start a file, you can enter your information; your rental information or your other bill information. What the website will do is verify that for a fee $15 or $20, but then it will make that information available to Fair Isaac or to other credit agencies that ask to see your record. Kevin McCormally: Is there anything else people can do to establish a credit record? Janet Bodnar: Well, one of the simplest things you can do is just start by applying for a Retail Credit Card or for a Departmental Store Credit Card. Sometimes those are easier to get even if you don't have a long credit history. Kevin McCormally: Okay, but what if you are turned down? Janet Bodnar: If you are turned down, another probably the most sure-fire thing to do is to apply for a Secured Credit Card. Kevin McCormally: What's that? Janet Bodnar: A Secured Credit Card is a card where you would make a savings deposit into a savings account that would be equal to your credit line and then of course, you will be charged a fairly high rate of interest and there would be an annual fee involved, but you would never want to pay a setup fee for an account like this. Kevin McCormally: So, is the Secured Card a good idea? Janet Bodnar: It is a good idea because even though it's costly for the first year, if you make payments on time, at the end of that year, you will have built a credit record. So, you will qualify for better terms or you can apply for another card. Kevin McCormally: Thank you very much, Janet.