Credit Rating Tips…These Steps Will Help
Give Yourself Some Credit Today
If you watch a lot of TV, it might seem like Americans are consumed with their credit scores. Remember the common freecreditreport.com ads? “F-R-E-E. that spells free.” Go ahead and check them all out, we’ll wait…
Of course, if you have actually obtained a car loan or home mortgage lately, then I know you will recognize whether your credit history is in good shape or not.
But what if you haven’t needed credit? That’s the situation my friend Chris finds himself in. He’s a 30-year-old professional who doesn’t own a car and, apart from some school loans, hasn’t needed to use credit. That’s admirable — no credit card means no credit card debt — but he knows good credit is essential to his future dreams of owning a home and starting his own business.
There’s a bit of mystery that sometimes surrounds credit scores, so I first had him find out his exact number. My favorite way to do this is through the free budget tracker Mint. Among its many valuable features, Mint tracks your credit score for you, automatically updating it each quarter, and even breaks out the elements that affect it so you know exactly what you need to do to move it higher.
According to Credit.org, a score below 620 makes it less likely you will be approved for a standard credit card. With his limited credit history, this is where Chris finds himself. Let’s take a look at his options for boosting his score.
The Friends and Family Plan
A pretty quick and painless way to raise your credit score is to ask a friend or family member with excellent credit to add you as an “authorized user” on their existing credit card account. Their credit account and related credit history will then show up on your credit report just the same as if you held the card yourself.
This is how I built up credit as a college student, and how I helped my former husband rehab his poor credit. It’s a very effective strategy, and your benefactor never even has to give you access to the actual card.
Sound too good to be true? There are some caveats. You have to have a high degree of mutual trust for this to work — a missed or late payment by either one of you will hurt the other’s credit, and if the primary card holder racks up a high amount of debt, that could hurt you too. And of course, if the primary card holder gives you a physical card and you charge something to it, they are legally responsible for paying for it.
Get That Credit Score Up!
Secure Your Future
Not quite as simple, but equally effective is to get a secured credit card. With a secured card, you deposit cash, usually $200 to $300, which is held in a bank account as security in case you don’t pay your bills. You can usually spend only up to the amount you have deposited, though some cards will gradually increase your credit line after several months of on-time payments.
The good news? Your credit score doesn’t know the difference between a secured card and a regular one. As long as you pay your bills on time, your credit score should improve.
I recommend using this type of card to auto-pay a bill you already have, such as your mobile phone bill or your Internet bill. That way, you’ll have monthly activity on the card and you’re not tempted to charge purchases you wouldn’t otherwise. To be extra safe, set up a second automatic payment from your bank account to the card each month to be sure it gets paid on time. Mint comes in handy here — if you link your card to it, Mint will remind you when the bill is due.
The bad news? Most of these cards come with annual fees, ranging from $19 to $49, don’t offer much in the way of extras and have double-digit interest rates. Of course, you’re going to pay the bill in full and on time every month, so that won’t be a problem, right?
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