CREDIT WEALTH STRATEGY
Adding Positive Credit to Your Credit Report
People with bad credit often only concentrate on removing negative information when repairing their credit. But that is only part of the equation. Adding positive credit to your credit report is an integral part to rebuilding your credit history and raising your credit score.
Adding positive information to your credit report will help to balance out some of the negative information. Paying off old debt is of course a great way to increase your score, but, you also need to remember to not increase the balances on other accounts. Also, you need to establish new credit so as the old and moldy bad accounts start to slowly fade away, they will be replaced with current and postive accounts.
Establishing or rebuilding a credit report is not a quick-fix situation. It takes a year or two to complete. Don’t fall for promises of a “glowing report in a matter of weeks” from credit repair agencies or other scammers. Just follow the basic outline presented here.
Obtain a Secured Credit Card
For those who can not get approved for an unsecured credit card, a secured credit card is an excellent alternative. With this type of card, you will be making an intitial deposit into an account to secure the credit line on the card. You can get this card even if you still have some bad credit in your credit report. By putting $500 into a savings account, you will be allowed to charge up to $500 on the card.
Even though you are securing your credit with a deposit, payments must be made on-time and the account balance should be kept low. Make sure this credit card company reports to all three credit bureaus as this will help increase your credit score.
Get an Installment Loan
You need a mix of different types of credit types, which include revolving credit (credit cards) and installment accounts. A credit union is a great place to apply for a small installment type loan. Credit unions are very forgiving to those who have less than perfect credit and you can get a small duration loan (no more than a year or two) to show you can pay on time and you will also end up paying little in interest.
Get a Retail Credit Card
Many stores extend credit without tremendous regard for the credit standing of the applicant. These stores usually can be found in industries with small products or traditionally high mark-ups. Here are a list of creditors who will often extend credit to those without much credit history:
- Department Stores
- Furniture Stores
- Tire Stores
- Appliance Stores
Keep Account Balances Low
Keep those balances low – and by low I mean do not charge more than 30% of your available credit limit. If at all possible, aim for 10% of your available credit limit and your credit scores will get better and better as long as you pay all of your credit obligations on time. Consumers who max out or charge close to their credit limit are more likely to experience problems repaying the debt should a change of circumstance occur, such as loss of income or illness. The lower the utilization rate, the better your credit score.
Become an Authorized User on a Friend’s Credit Card
If you know someone (a good friend or parent) who has good credit, you can “borrow” their good credit ranking. This friend must have credit cards and must trust you enough to allow you to become an “authorized user” on their card.
- Have your friend call his credit card company and request that you be placed on his card as an authorized user. A copy of the card will be sent to you but you never have to use it (you can simply return it to your friend).
- Your credit file will should soon show an open account with all of the positive history that your friend has created over the years from that credit card. A small footnote will show that you are an authorized user of that card.
- Remember, though, when a new credit grantor reviews your file, he may insist that the balance on the card appear on your debt-to-income ratio balance sheet. That shouldn’t disqualify you for credit if your income is sufficient and you don’t have an excess of debt on your file.
Keep the Accounts Active
Once you’ve successfully received new lines of credit, it is important to have some activity going on each month. We don’t suggest you pile up large debt– maybe $50 dollars or so in a balance. Pay the minimum when the bill arrives even though it will cost you a little in interest charges. And pay it on time. This is what future loan officers and other creditors want to see. (Inactive accounts with a zero balance aren’t displaying a tendency to handle existing debts.)
You need to display at least one year of positive credit habits to be taken seriously, especially by a mortgage company. Start now or you will always be a year or two from a good credit standing.