Carolyn Almennigen | almennigen

How to Improve your Credit Score

Sep 21st 2010 at 3:19 PM

I know, the commercials are cute, even if the guy doesn’t lip sync that well. But, you don’t need to sign up for a program to improve your score. Here are some tips:

1. You are allowed a free credit report from a credit reporting agency every few years (three, I think). Experian is the most critical, so I’d do them first. There are three main agencies. These reports don’t contain your score, but they have lots of information you need to improve your score.

2. Unless it’s a choice between the bills and food, always pay your bills on time. It shows up for 7 years when you’re 30 days late, and I think they might be starting to report 10 days late now.

3. Bankruptcy shows up for 10 years (used to be 7) from the date of settlement.

4. Even with the worst record, you can start right away to improve it. First, if you don’t have a checking account somewhere, open one. Open a savings account also, even if all you have is five bucks. I find that credit unions have the best deals. You have to qualify for the membership, but with a little shopping around, you should be able to find one.

5. Then borrow or save 100 bucks or so; more is better. Take out a personal loan at your credit union for 90 days or longer for the amount you have. You’ll have to pay interest, but consider it the cost of improving your score. You don’t have to deposit the money to get the loan. If you do, it’s a secured loan and doesn’t do as much to improve your score but it’s a start. Pay more than the recommended amount every month for six months and pay the loan off early, but not before six months. Last I heard, loans less than six months old don’t improve your score as much.

6. Now, a month after you take out the first loan and have made a payment, go to another credit union or bank and take out another loan. You’ll have the good record of paying from the first loan, but you should still have an account there. Again, pay early and more than the recommended amount.

7. In another month, join another credit union or bank and take out a third loan. Again, pay early, etc.

8. Now you should have enough good payment records on your account that your score has improved. If not, wait until six months after the first loan and look again.

9. Another method to improve your score is to get a credit card. Make sure your will power is good or you’ll get yourself in deeper trouble than before. A secured credit card is easier to get, but shows up as secured on your record, so isn’t as good. But, after paying on a secured card for a few months, you should be able to get an unsecured card. Watch out for the fees and interest rates. Some places charge initiation fees, monthly fees and annual membership fees that with a credit limit of $300 you could actually start off with a $240 balance. I know; it happened to me.

10. A store credit card is usually easier to get than a visa or mastercard. Try smaller department stores first. Local chains are best.

11. Once you get a card, don’t take it up to the limit right away. They watch for that. Don’t pay it all off every month either. Buy stuff you were going to buy anyway. This might be a way to set aside some cash for the loan program shown above.

12. One of the things they look for is the ratio of how much credit you have available versus how much you have used. If you have a total credit available of $1000 and you have a balance of $500, then your ratio is 50%. They like it to be around 15 to 20%. “They” meaning car loan places, mortgage companies, etc.


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How to Improve your Credit Score

Dec 21st 2010 at 1:41 PM

First, I must warn you it takes a little money. If you're living hand-to-mouth, you may want to wait a while. You'll need to have $500 for about 6 months, and about $100 to spare. Here's how to go about it:

1. Become a member of the local credit union if possible. It usually only takes $5. If you haven't joined a local bank, do that also. You'll want to open a savings and checking account at each place. Order and wait for your personalized checks, then open a checking and savings account at another bank.

2. Take a personal loan for $500 from the first bank, using the $500 cash for collateral. Make payments on time for 2-3 months.

3. Then take out another personal loan for $500 from one of the other banks, using the $500 cash from the first bank as collateral. Make payments on this (as well as the other) on time for 2-3 more months.

4. Take out another personal loan for $500 from the third bank using the $500 from the second bank as collateral. Make timely payments on all three loans for 2-3 more months. Now you have three good references for timely payments, which will enable you to go to the next step.

5. Apply for a credit card from any of the banks. Not all of them, just one. If you're approved, buy something. Either return it or pay almost the whole amount when due. Do this for 6 months, then apply for another card from one of the other banks. Try to keep some activity on it each month. Then in 6 more months, try for a card from the third bank.

6. If you get turned down, wait a few months and apply to one of those credit cards for rebuilding your credit. Be sure to look at the fees and interest rates. I saw one with a $250 limit but $170 in fees up front. With a little hunting you can find one that's reasonable. Don't apply for a card more than one every 6 months; it looks bad.

7. You may also try for a store card if you get turned down for a regular credit card. They don't count as much as a regular card, but they do count, and are usually easier to get. Again, put some activity on it each month. You can apply for a store card 2-3 months after applying for another card, but I wouldn't suggest going any faster than that.

8. The next step is to get a car loan, when you need to buy a car. Loans for new cars are easier to get, but the value of the car goes down the minute you drive off the lot, so be wary. A year of current car payments, loan payments and credit card payments and you should be ready to get a mortgage loan.

Remember, you pretty much have to prove you don't need a loan before you can get one. This process takes a while, but it should work.

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