Building your Credit

Seeing as this is one of the more popular reasons why folks end up here, I figured I should at least have something regarding this.

Store Cards, Secured Credit cards, Auto Loans are the 3 easiest ways. If you’re rebuilding your credit, the latter two are your only two realistic options.

 Secured Cards are going to cost you an annual fee from $25.00 up, plus a minimum deposit of $200-500 to start with. Go direct to Orchard Bank, or Bank of America as two possibilities on decent cards with fairly low annual fees. Be sure to read all of the account restrictions, and if you don’t understand them, call customer service. My personal feelings on Capital One is to avoid because of the way they report your credit to the bureaus.

If you choose that option, be sure to never carry a balance of more than 30% of your credit line. Better still, pay it off entirely each month – you do NOT need to carry a balance to get the best reporting, but you do have to use it. Best option is to put one or two reoccuring monthly charges on there and pay them off each month. Don’t wait for the statement, do an automatic bill pay if you can. (And electronically so the Post office doesn’t screw your attempts to build your credit). After about 6 months of healthy, smart usage, approach the bank, ask to speak to the supervisor or retention department and explain you’re planning to close the account soon, unless they can unsecure it, or remove the annual fee. If they don’t, try again in 2 month increments until the year is almost up. 2 months before your year anniversary, cancel your reoccuring charges and then pull your annual credit report to get your FICO. Call them again, ask for the retention department, and explain you’ve cancelled the reoccuring charges, that your FICO is X and would they convert the account to an unsecured, no-annual fee card so you can continue doing business with them, explain that the APR is unimportant. (Because you’re never going to carry a balance, right? RIGHT????)

Finally, if they still will not convert you, be sure to apply for a new unsecured/No annual fee card and if approved, cancel the secured card (Which should be before you get billed the annual fee again) , as closing an account can temporarily lower your FICO. Be sure to find out how your deposit will be sent back to you.

Ideally, you want to move off from a secured card as soon as you can (Earliest is 6mths) and be sure that the issuing bank is reporting it correctly as such.

Auto Loans are another way to have your good payment history reported, and you don’t need to borrow a lot of money against your title. But check to make sure who ever you borrow the money from does report to all 3 major Credit Bureaus. Your bank may even be able to help you.

 Store Cards are pretty sucky overall, but usually easier to get than an unsecured Major Credit Card. Best option is a Target or Walmart card, put your groceries on it, and pay it off in full each month. You build up reward points or Rebates, so it will help save you money each month… but do NOT carry a balance, the APR on those cards is horrid and it will not help improve your Credit rating by having a balance.

Ideally, you should have no more than 2-3 Major Credit Cards, 1 store card (optional as it doesn’t help your credit that much), 1 personal unsecured line of credit, and an installment loan – like a car loan, but for as low an amount you can. 24mths of solid payments, and keep your overall Debt ratio at no more than 30% of your total credit limits and you should be on your way to pushing up your credit score.

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~ by creditcardboffin on July 3, 2007.

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