6 Ways to Jump Start Your Credit Score

no creditWhen you leave home you’re welcomed into a brand new world full of brand new shiny toys just waiting for you to purchase them. But you don’t have any cash. You did just move out of mom and dad’s after-all. What options do you have?

Credit. You’re flooded with credit card offers. They’re practically begging to give you credit that you can spend. But no one mentions that this credit becomes a debt the second you spend it. No one mentions that if you fail to pay it back on time that your personal credit score will take a hit. No one mentions that it’s far easier to ruin your credit then it is to rebuild it. No one mentions that if you have a bad credit score that no one will want to offer you more credit.

Maybe you haven’t touched your credit and you have a ghost account. It’s not a negative or positive credit score, but you can’t do much with it because you have no history. You’re starting from scratch but don’t know your options.

1) Know Your Score

Millions of people have no idea what’s on their credit report. There are three major credit reporting agencies: Equifax, Experian, and TransUnion. You can request a free credit report from each agency once a year.

2) What Type of Credit is Best?

If you have little or no credit, then you will probably be limited to the type of credit you can get at the start. The easiest loan to get is a secured credit card loan. It works like this: Lets say you deposit $500.00 into a bank account, and the bank issues you a credit card with that amount. The $500.00 is collateral for the credit card. Once you’ve established a repayment history, then the bank will offer you an unsecured credit card.

Merchant cards/Gas cards/Retail Credit – these credit cards are easy to get and they will help you establish credit history. Because they are easy to get approved for, as far as credit score strength, they don’t hold as much weight compared to an unsecured credit card, e.g., Visa, American Express, MasterCard, Discover.

3) How do I Establish a Track Record?

Establishing a track record or history is just a matter of using credit and paying on time. In fact, paying your bill five or six days before the due date will add a few bonus points to your overall credit score.

One question that comes up often is, should we payoff the balance each month or leave a balance? Credit reporting agencies don’t divulge their formula for calculating credit scores, but we do know that having to much outstanding credit will lower your score, so holding small balances won’t hurt.

4) Use Credit Wisely

The ‘buy now – pay later” syndrome is what gets most people into trouble. One of the best practices used to jump start your credit score is…using credit cards for things you usually pay cash with.

As long as you payoff the bills with the cash you saved, then you will be establishing credit and maybe getting some rebates from the card company too.

5) Mistakes to Avoid

We’ll just list some things that can hurt your credit score:

– Applying for credit too often (known as hard checks)

– Keeping high outstanding balances on cards

– High debt to income ratio

– Paying late

– Not establishing credit history

6) Periodically Review Your Credit Profile

Errors and fraud are the two things most people have to cope with on their credit reports.

Reporting agencies make errors all the time. You may find names and addresses on your credit report that you’ve never heard of before. They may report a payoff as a charge off. The Fair Credit Reporting Act (FCRA) gives consumers the right to challenge errors on their credit reports, but you can’t challenge what you don’t know; this is why it’s important to check your report once a year (it’s free under the FACT Act). You can even get a credit monitoring service. I pay $5 a month through my bank. This also comes with a monthly free credit report from Experian.

What is the FACT Act? The Fair and Accurate Credit Transactions Act (FACT Act) was signed into law in December 2003. The FACT Act, a revision of the Fair Credit Reporting Act, allows consumers to get one free comprehensive disclosure of all the information in their credit file from each of the three national credit reporting companies once every 12 months through a Central Source.

How can I request my free statutory annual credit file disclosure? The FACT Act required that the national credit reporting companies establish a central source through which you will request the statutory free annual credit file disclosures. To obtain that free report, you must go to www.annualcreditreport.com

Fraud runs rampant in the credit business, and once you establish a good credit score you may want to check into services that alert you to any unusual activity on our account. The quicker you’re alerted to attacks on your account, the less headaches you’ll have with securing your credit profile.

It’s guaranteed that the criminals don’t give a seconds thought about the damage they do to your credit score, and repairing it can take months – a good reason to investigate those fraud protection services.

Think of your credit score as a tool to get credit to improve your life. If you dull this tool and weaken your credit score then you won’t get much credit out of it.

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  1. […] are three main credit reporting agencies, they are Experian, Equifax and TransUnion. Under the FACT Act you can request a copy of your report from each agency, and it’s free (one per year). To […]

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