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Getting approved for a credit card can be difficult without a positive credit history working in your favor. It’s a Catch-22: To obtain a credit card, you need a good credit history. But to have a good credit history, you need to establish good credit!

This no-win cycle can keep people with a non-existent, limited or negative credit history from getting approved for a credit card. But it doesn’t have to if you understand the type of credit cards available and how to build a good credit history.

When it comes to credit cards, the type of card you apply for will depend on your situation. If you’re a student, you’ll, naturally, sign up for a student card. But if you’re a non-student with a non-existent or bad credit history, a card that is secured or obtained with a co-signer may be your best option. With co-signed credit cards, the co-signer guarantees and is responsible for the debt. This means that the co-signing person is responsible for paying the full amount of the debt if the card holder doesn’t pay. In fact, when co-signed debt goes into default, three out of four times co-signers are normally asked to repay what is owed, according to the Federal Trade Commission.

Furthermore, the issuing bank can attempt to settle the debt without first trying to collect from the card holder. The bank can also use the same collection methods against the co-signing individual, including suing and garnishing wages. If the debt is not paid, it can leave a negative mark on the credit history of the co-signer, as well as the card holder.

Despite the risks, a co-signed credit card can be great tool for helping a friend or relative build their credit history so they can one day obtain a card on their own. Secured, co-signed and pre-paid credit cards offer viable options. But you should start building a strong credit history, so you can obtain a regular credit card on your own in the future.

First, you need to understand how credit card issuers determine credit worthiness. The approval criteria varies from among issuing banks, but generally relates to what’s often called the three C’s of credit: capacity, character and collateral. Capacity refers to your ability to pay based on your income and existing debt. Collateral refers to any assets you have that can secure payment, such as bank accounts or home ownership. Character refers to factors like your payment history, length of employment, etc.

To get a good idea about how your application will fare with credit card companies, check your credit history with one of the major credit reporting agencies: Experian (www.experian.com), Equifax (www.equifax.com) and TransUnion (www.tuc.com). These agencies access your payment information directly from the companies you have credit with, as well as from government agencies such as the legal court system.

Credit reporting agencies use the information in your credit history to determine your credit rating or credit score. Credit scores, also known as FICA or Beacon scores depending on the CRA, generally range from 350 to 850. Most banks will approve you for credit if your score is at least 620. If your rating is 720 or higher, banks will offer you their lowest interest rate.

Generally, y our credit score is determined by your payment history for the last two years. T echnically, CRAs calculate your score using a closely-guarded formula. TransUnion, for example, determines credit scores using a variety of factors, including: how you pay your accounts, how much you owe and how often you’ve applied for credit.

Are you one of those people who pay off your entire credit card balance each month? Do you carry zero balances on credit cards? Do you have credit cards that you do not use? If so, you probably think that you are doing your credit score a favor, but you are not. Thirty percent of your credit score is calculated and formulated according to your debt ratio. In order to have a debt ratio, you have to have open accounts with balances on them.

Why? Lenders look at several things when you ask to borrow money. First and foremost, they make sure that you pay your bills on time. Secondly, they look to see how well you pay off debts over the course of time. You see, lenders make money from the interest payments that you make each month. They want to see that you have made regular, timely interest payments in the past. If you pay off your balances each month, you are not paying any interest.

Now before you go wild and max out your credit cards, you should know that balance is the key to maintaining a good debt ratio on your revolving credit accounts. A good debt ratio is between 10 and 25%. This means that a credit card with a $1,000 limit should only have a balance of $100 to $250.

Following are some tips to help you improve your debt ratio:

* Multiple Cards – Carrying a small balance on multiple cards is better than carrying a large balance on one or two cards. If you only have one or two credit cards, apply for another and split your balances evenly. Be careful not to make additional charges. Keep your debt ratio less than 25%.

* Open Accounts – Do not close old credit card accounts. Keep them current by charging a small amount on them every six months.

* Credit Increases – Ask for credit increases on your credit cards. This will improve your debt ratio immediately if you do not charge anymore than your current balance on your card.

* Business Accounts – Pay attention to business accounts. Credit reports do not distinguish between personal and business accounts. You can use this to your advantage by maintaining a good debt ratio on business lines of credit.

So, what should you do if your debt ratio is higher than it should be? Open up new lines of credit and distribute your debt evenly. Be careful not to tap into your new credit lines. The goal is to improve your debt ratio NOT increase your spending limits. You should view your credit increases as mere numbers on your credit report rather than money that you can spend.

If your debt ratio is still high or if you do not qualify for additional lines of credit, pay more than your minimum payment each month until you get your balances down. Continue to make consistent payments on your credit cards each month and freeze spending until your debt ratio is less than 25%.

The view of people in debt changed throughout the 20th Century.  At first, it was unacceptable when turn of the century people began to buy homes however, that changed.  Debt became more and more acceptable, leading up to the roaring 20’s when people were so immersed in their debt problems that the future became bleak.  All these debt problems led to the Great Depression, which once again made debt a four letter word.  Throughout the 30’s, 40’s and 50’s, people would only get into debt to buy a home.  Heavy student loans, car loans with double digit interest rates and credit cards wouldn’t even have been considered.

However, as the 60’s began, and especially the 70’s, credit cards became more popular and people became more comfortable with debt.  All of this led to the 80’s, 90’s and 2000’s where debt became a way of life, and the only way certain people were able to afford big homes, nice cars and an affluent lifestyle.

All of this bring us to the 21st century, a time when debt problems have run amok, where people are turning to bankruptcy more and more, and where people are beginning to consider debt as an evil once again.  However, as most debt settlement professionals will tell you, seeing debt as an evil is a good thing.  Far too many people have allowed themselves to fall deep into financial ruin because they were comfortable with tens of thousands of dollars in credit card debt and other forms of unsecured debt.  Debt settlement experts work with people everyday who have forty, fifty and even sixty thousand dollars in credit card debt, debt spent on clothes, food and possessions these people don’t even own anymore.

The shame of debt problems throughout the nation, is that few people got into their debt problems by purchasing things they needed.  When debt settlement experts work with people who are trying to get out of mountains of debt, they hear stories about people buying boats, second homes, wardrobes, fancy meals and other frivolous items.  However, people become addicted to a lifestyle and feel empty without the ability to buy what they want when they want it.  Debt becomes an addiction, a way to gratify the desire to have things.  This leads to heavy debt problems, and a lifestyle of trying to own everything while not having enough to buy it.

Debt problems crush people, they wind up avoiding phone calls from lenders, not opening bills when they come and so forth.  All of this leads to stress, sleepless nights and some people even get heart attacks over worrying about their debt.

So, in the 21st century, hopefully people will be able to see debt for what it is…a necessary evil.  Debt allows people to buy houses, own cars and sometimes even go to school, but it should be seen as a necessary evil, not a necessary good.  Hopefully, this will be a truth that people will follow throughout the century, although history isn’t on our side.

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