By Scott Cook
Like it or not, in today’s economy, developing and maintaining a good credit score is vital. Even if you’re a conservative person who believes that you shouldn’t buy anything until you have the cash – sooner or later you’re going to have to borrow money.
Sure, you can avoid using credit cards… yet what about buying a car or a house?
In this article, we’re going to quickly go over a possible plan that you can follow to establish your credit and to drive your score to 700 as fast as possible.
Not that you can’t go higher, it’s just that with a 700 score, most things you’ll want to borrow will certainly be within your reach.
Getting a credit score is a bit like the problem of most new job seekers. Everybody wants experience – so how do you get experience without experience?
Credit is like that too. When you have no credit at all, you’d think that was a good thing. You’d think that creditors would applaud you for not getting into debt, right?
Unfortunately, you’ve got a better chance to get into debt when you’re already in debt. Yes, it’s crazy, but that’s the system!
So, in order to get a toe hold in the credit world, the best place to start is with a small secured credit card.
A secured card is pretty simple. Instead of getting a card with a $250 to $500 limit, you put that money from your pocket into the account.
Then you make purchases and payments just like a regular card. Yes, it’s kind of dumb to put money in and then pay interest on purchases as if you didn’t, but it’s best to think of that initial deposit as a security deposit.
There are lots of factors that go into determining your FICO score. However, in order to get any score at all, you need a minimum of two (2) open accounts. Don’t worry, not long after you get this secured credit card, offers will begin pouring in.
It’s best to be careful here. Pick one extra credit card. This should be done a few months after you’ve been using your secured card. Set up a new unsecured card and that’s it – just two credit card accounts.
So, it should be about 3 months since you’ve started with the secured card and now you have that brand new unsecured card. It’ll probably have a low limit at first, something between $500 and $1,000.
Now it’s time to play the game.
Use both of these card every month. Make purchases and pay your bills on time. Do not pay the cards off each month. Many people will say this is the best thing to do… but it actually slows you down.
Instead, leave some balance on the cards. Pay over the minimum, but leave something for them to charge interest on. It’s what they want, and you’ll quickly find that they automatically raise your limits (on the unsecured card anyway) or you’ll get approved when you ask them to do so.
Getting those limits raised is important. It demonstrates that you’re a worthy borrower and it widens the gap between what you owe and what you can borrow.
This is known as your credit utilization rate. Keep it low and you’ll see that every month, your score is going up. You should expect to get to 700 anywhere from 10 to 14 months.
Of course, as your score grows, it should be strengthened with other forms of debt, but that’s a topic for another article. Good luck and happy score building.