While limited credit access is a systemic issue, it is still important that individuals take small steps whenever possible to improve their credit. Here are four steps you can take to start this process.
Step 1: Read Your Report
Once you understand the difference between credit scores and credit reports, request your credit report from Equifax, Experian, and TransUnion. Federal law allows you to receive a free copy of your report every 12 months.
Step 2: Plan to Improve
If you want to improve your score or build your credit history, try one or more of these strategies:
Use a credit card.
- Apply for an unsecured credit card if you qualify. Unsecured credit cards are the most common, as they do not require a security deposit to be approved.
- Sign up for a secured credit card if you are ineligible for an unsecured one. Secured credit cards require a deposit upfront, which is either a percentage of or equal to your credit limit.
Take out a credit builder loan.
- A credit builder loan is effectively a savings program. With a credit builder loan, like this one from FAIR Financial, lenders put the money into a savings account instead of giving it to you directly. Once you repay in full, the lender releases the money and earned interest to you.
Report rent, phone, utility, or bill payments through paid services.
- You may be able to self-report rent or other bill payments to the credit bureaus through a company. Fees and conditions likely apply, so do your research before opting-in.
Step 3: Avoid Credit Repair Scams
Credit repair refers to the process of fixing, restoring, or correcting a poor credit standing by either you or a company working on your behalf to dispute mistakes or wrong information with credit agencies.
Of note, there is nothing a credit repair service can do that you cannot do yourself. If you elect to work with a company, do your research to avoid scams:
Step 4: Develop and Maintain Good Habits
Building your credit score will take months, so don’t be discouraged. Stick to the process by doing the following:
- To ensure you make your payments on-time:
- Set up automatic payments for at least the minimum, but ideally more than the minimum.
- Put a reminder on your calendar or phone with the due date and amount.
- If paying by mail, give enough time for delivery (at least seven days).
- To keep your credit utilization low on your credit cards:
- Request an increase to your credit limit, if you feel you can manage it.
- Make small purchases that you can pay off right away.
- Reduce your outstanding balances by following a debt repayment plan.
- To build a good credit history:
- Avoid applying for many credit accounts at once. Space out applications about six months apart.
- Keep old credit cards open and active by using them at least once every few months.
- Check reports annually and dispute errors as needed.
Money Management E-Newsletter: January 2020