To establish credit when you have no credit is a challenge, but responsible use of a secured credit card is one of the best ways to get you started. Flickr photo.

Carving out your credit niche isn’t as easy as it used to be. You can thank greedy Wall Street bankers and mortgage brokers that triggered a financial crisis and real estate meltdown for that. These days people just starting out in the world of finance face a tougher credit environment than people in their shoes just a few years ago. But it’s tough to get ahead without the responsible use of credit in your financial arsenal. Your biggest hurdle may be the simple fact that you have no credit history. To banks, credit card companies and other lenders you are an unknown risk. That means your credit is going to be hard to get or expensive.

Establish credit with personal responsibility

Credit is a “what came first” question. Was it the chicken, or the egg? If you don’t have credit, how do you get credit? Helium.com reports that young people new to credit usually need a co-signer to get either a credit card or a bank loan. This works out great if you quickly demonstrate responsible credit handling. Because sooner rather than later you’re going to want to have credit in your own right. This means always making payments on time. Late or missed payments will hurt the credit score of the person who was willing to step in as your co-signer. This is especially important if your co-signer helped you get a credit card. Always clear the balance in full each month and never pay interest. Simply put: if you can’t afford to buy something, don’t use your credit card.

Secured credit cards

If you need to establish credit (which you do) and a co-signer isn’t available, rent an apartment and pay all your bills on time. A solid payment record on rent, phone and utilities will start to make a difference. Then try a secured credit card. Bankrate.com reports that a secured credit card may be the only way to establish credit. A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $500 in the account; you can charge up to $500. You may be able to add to the deposit to add more credit, or sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits.

Don’t get burned — shop around

A secured credit card is similar to prepaid debit cards with one big difference: secured credit cards can help you build your credit. Wallet Pop reports that while these cards come with annual fees, some are available for only $25 or $30 per year. There’s no reason to pay the up to $80 some issuers charge, so shop around. Also, be sure to read the fine print about other fees to make sure you’re not getting suckered into a “fee harvesting” card designed to nickel and dime you to death instead of help build your credit.

Establish Credit

This starts by simply borrowing money — could be with a car loan, credit card or any number of different types of loans. What really establishes your good credit, though, is the way in which you pay back the money that was borrowed, how you handle the money and your consistency in payments. Creditors are basically looking to see if they can trust you with money. Loan amounts and credit limits start out low, but as you show that you can be responsible, you will build your credit, allowing you to borrow more so that you can buy a car, a house or any other major life purchase.

Protect Credit

With all the talk of identity theft, how can you protect your credit from a thief? It is very important that you are mindful of where your debit/credit cards and account numbers are. Only keep the cards you plan on using with you while you are out shopping. Don’t give out personal or account information to parties which you aren’t currently doing business with.

You can also protect your credit by paying close attention to all your billing statements, making sure all charges are legit and for the right amounts. It is your responsibility to report any mistakes on your bill in a timely fashion, usually 30-60 days, and if you don’t notice and report it, the debt is assumed yours and you will be stuck paying for it. Overall, in protecting your credit, vigilance is the cornerstone to keeping your good credit.

Improve Credit

This is often where most people get lost. It’s easy to get in over your head. With our cultural “want it now” mindset, it is all too easy to get behind and feel as if you are drowning in the sea of debt. There is hope; you can restore, regain and get back on track with your credit. It must start by taking responsibility for your debt. You can’t just ignore it. Contact your lenders and try to work out a new payment schedule. Often they will work with you in creating a payment plan that you can afford.

Immediately stop purchasing with credit. If you can’t pay back what you currently owe, don’t add to it. If you have substantial debt, it would be a good idea to contact a credit counselor. You can start with the National Foundation for Consumer Credit – call (800) 388-2227. It will help you find a counselor in your area. Be cautious of debt consolidation companies that offer you a quick fix to all your problems. Remember that it took you time to build your credit in the first place, and that it will again take time to rebuild your great credit.