Jean Chatzky
Being denied a loan for a home or a car — or anything — can feel like a punch in the gut. But no matter how you got to the place where you don’t qualify for the best APR rates, or how long your credit has been less than ideal, all is not lost.
There are strategies you can take to begin building your credit back up. Yes, it may require some time and lots of patience on your part, but you won’t regret the effort. Here are a few suggestions to bump up your credit starting now:
Knowledge is power. You are entitled to a free credit report and score any time you like through SavvyMoney. Pulling your credit information — which is like a report card for how you handle money — won’t impact your score. It’s also a good idea to request a report from the bureaus (Experian, Equifax, and TransUnion) frequently so you can make sure no errors are showing up on individual reports. (You are entitled to a free copy of your credit report each week.)
- Report Errors. If you see anything on a report that’s not correct, report it. About 20% of all credit reports have mistakes, so you need to scour the document to ensure everything is in proper order. A mistake could mean a lower score even if you did nothing wrong. The Federal Trade Commission has noted an increase in credit report errors reported by consumers.
Automate to Avoid Late Fees
Your credit score is largely based on your payment history, counting for about 40%. Scores range from 300 to 850, the higher the better. Here’s the thing: Even one late payment on a credit card can lower your score by as much as 100 points. That’s huge. And that’s why it’s so important to pay your bills on time, or even early, every single due date.
- Autopay. One way to do this is to use online banking and set up automatic payments. Make it easy on yourself. You can do this by setting up electronic calendar reminders on your smartphone, tablet, or laptop, to help nudge you to pay your bills a day or so early.
- Mark Your Calendar. If you are old school, put a big red dot on the paper calendar in your kitchen or office, tape a note to your bathroom mirror, or find some other clever way to remember.
Pay Down Debt
Lenders don’t want to see sky-high balances on your credit cards. That means making an effort to pay down balances if you’re carrying them — and then refrain from maxing out your cards if you can help it. Owing more than 30% of your credit limit can be a red flag to potential lenders. You should instead aim to use between 10% and 30% of the total credit available.
Use It or Lose It
If you don’t use a credit card for six months or longer, your credit card issuer could cancel the account, and that, in turn, could ding your credit score. If it was the card you held for the longest period of time, that’s a double whammy, because the longer your relationship with your lender, the better it is for your score.
- Keep it Current. To keep an unused card current, make a small purchase once a month then immediately pay the bill.
Consider a Secured Credit Card
If you get turned down for a traditional credit card because of a low credit score or no credit history, you can try opening a secured credit card. This type of card allows you to give the card issuer a certain amount of money upfront, which becomes your credit limit. Over time, perhaps 18-24 months of good behavior, many secured cards will transfer to a regular credit card.
With reporting by Casandra Andrews
Chris O'Shea
