Establish Your Credit History: 3 Revolving Credit Lines to Consider

A revolving credit line is often more accessible to a person with unestablished credit than an installment loan. With an installment loan, the entire loan sum is paid up front, so the lender is assuming more risk. A revolving credit line has a lower balance that is managed on a monthly basis. The lender only extends more funds after the borrower pays off the initial charges. Because these lines are easier to secure, they are a great option for individuals looking to build credit.

#1 Standard Credit Card

A standard credit card can be issued by any bank or credit institution. The most common types are Visa and MasterCard platforms in the United States, but a number of companies offer credit cards on a local or national scale. A borrower who already has an account with a bank can use that bank to secure a credit line. The bank will issue a small limit initially, but the borrower can increase this limit through regularly using the card and making payments. It is not advisable to simply add a borrower's name to an existing credit account, like a parent's account, if the goal is to build credit. Credit scores will go up higher and faster if the borrower manages the line independently.

#2 Student Charge Card

Students are among the biggest users of credit in the United States. From student loans to car loans, this group of people accrues a lot of debt for a period of time with relatively little penalty. One of the options available for students to make payments despite not having an income is a student charge card. The card can be issued at a moderate balance and used to make routine purchases. Students may see some restrictions on the card. For example, the lender may allow only on-campus purchases such as dining, purchasing books or buying other necessities. On the whole, though, student cards behave in the same way as regular credit cards. Banks may even make the cards more flexible than typical cards, offering payment deferral while school is in session or other benefits.

#3 Secured Credit Card

If a borrower has a bad credit history because of previous debt problems, using these low-limit options may not be sufficient or even possible. It is likely the individual will have to go one step further, using collateral to secure the credit line. In this case, nearly any form of collateral can be used. For example, a person with a savings account at a local bank can have a credit line issued in an amount slightly lower than the balance in that account. This allows the person to gain some liquidity without spending his or her savings. The bank assumes little to no risk because it can seize the account in a default situation. Other collateral to use includes automobiles, home equity, stock certificates and other personal assets. Borrowers are risking losing these assets if they default, but it is hard to default on a credit line since they offer very flexible payment terms.