I used to joke that my credit score is “8.” Since credit scores are on a scale from 300-840, 8 is impossible.
But, really, whether you’re at 400, 600 or 800, this score can impact a whole host of financial decisions that banks, credit card companies and lenders make about you. So, in the interest of helping you put an extra $10,000 in your pocket this year, here are a few tips you can use to help rebuild your credit, one step at a time.
Let’s start with the very basics – you should have an idea what your score is. Even if you don’t know exactly, take a look at the volume of credit card offers you get in the mail. If they’re all from big banks and they talk about Platinum and how you can get pre-approved for a $10,000 limit…you are likely in really good shape (700 or better). And you don’t need this article.
If you’re getting envelopes that say “the best way to get back on your feet” or marked “secured card,” then this article can certainly help.
Next, check out this range of scores at CreditScoreRange.net. If you trust the flashing chart on the front, which is probably a good place to start, you can categorize your own score as Excellent, Good, Fair or Poor.
- Excellent – 750 to 840. (Again, move along. Nothing to see here.)
- Good – 660 to 749.
- Fair – 620 to 659.
- Poor – 340 to 619.*
*300, as far as we can tell, is the absolute rock bottom credit score and, while better than the 8 I used to claim, isn’t happening either.
So your credit score is Fair or Poor. Now what?
You can start by using what you have. Store card? Gas card? Something with a high balance? Use it, and pay what you can.
Debit cards don’t help you here: this is about your ability to build a credit history – which means taking other people’s money and borrowing it, then paying back.
In fact, one of the best places to start is to ask the question: “What’s in your wallet?” For instance, I have a credit card that I use once a month, pay off, and use again. It’s not really for emergencies, but it is for establishing a payment history.
One thing that I discovered in my wallet was a store card that I haven’t used in awhile…so guess what? Yes, I’m headed there – maybe to make a tiny purchase.
If you’re really organized, when you make that tiny purchase, move the money from your checking account over to savings, or write it as if it were a debit purchase. That way, when the bill shows up, you won’t be surprised.
Secured cards are NOT the devil.
Far from it – if that’s the only thing you can establish, then, by all means, go for it. Why?
Again, this is about “tradelines,” those things on the credit report itself that show your history with the credit card companies. When calculating scores, there’s a bunch of math – including whether you have cards and use them, as well as what the balances are, what percentage of the balance you have outstanding, etc. More data points give you more of a chance for positive data.
Small things first, then big
Yes, it hurts you to have too many “inquiries” on your credit report. When you get a credit card offer in the mail, it’s often a “pre-screened” thing – in that they looked at you beforehand and made a guess. BUT that doesn’t count as an inquiry.
Once you send in the application or fill it out online – THAT’S an inquiry. Too many small inquiries can hurt…But big ones can be a red flag.
For instance: an auto lender taking a look at your report to give you a loan for a $30,000 car? That’s much more potentially damaging to your credit than a card inquiry for a Visa with a $500 limit.
Finally: income doesn’t matter as much as you think
Make $1,000,000 a year and have a low credit score? Yeah, it can happen.
Make $25,000 and have sterling credit? That can happen, too.
Time is your friend, as your score reflects a HISTORY
So the upshot is that tiny steps can help you keep moving that score upward and upward. Take those steps, however small they are, and keep moving forward.
Your credit score will thank you.