How To Get A Credit Card If My Credit Is Low
First things first, youll need to apply for a credit card. This can be difficult if you have no credit or have a low credit score, but there are dedicated foundation credit card accounts designed to help you start or rebuild your credit score.
These accounts typically begin with lower limits that may increase over time, provided you make your payments on time and keep your balance below your credit limit. as you improve your credit rating. They also offer typically low repayments and allow you to monitor your credit score as you go along.
Keep Credit Card Balances Low
Your credit utilization ratio generally counts nearly as much as payment history. Credit utilization is the amount of total debt versus total credit limit. Very high credit utilization, or amounts owed, means that your credit cards may be maxed out or close. For example, if youre carrying $3,000 in debt with a $4,000 combined credit limit, your credit utilization ratio is 75 percent.
The solution: bring down your balances. The lower your ratio, the better the boost. People with the highest credit scores typically use no more than 10 percent of their available credit.
Check With Your Utility Company
The majority of utility providers only report derogatory information to the credit bureaus, but if you live in Detroit and you pay your bills on time, youre in luck. DTE Energy reports all payment histories, both positive and negative. Customers who pay their bills on time benefit from responsible management of this household expense.
Not in Detroit? Contact your utility provider to find out if it reports to the credit bureaus, and if so, put the bill in your name. If not, you can still use the positive payment history to your advantage. Most utility providers are happy to provide a letter of reference for an account holder in good standing.
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How Long Does It Take To Raise Your Credit Score
For the most part, developing a strong credit score takes time. Credit reporting bureaus want to see that you have a history of paying your bills on time, and that you use credit judiciously. A FICO credit score ranges between 300-850. Scores above 670 range from “good” to “exceptional,” while anything below 670 is considered “fair” to “poor.” To get in the “good” to “exceptional” range you need to build a good bill payment and credit history.
Pay Your Bills On Time
According to Experian, payment history is the most influential factor for both your FICO and VantageScore. From a lenders perspective, an established history of timely payments is a good indicator youll handle future debts responsibly, too.
You want to avoid things like late payments, defaults, repossessions, foreclosures, and third party collections, says John Ulzheimer, credit expert, formerly of FICO and Equifax. And filing bankruptcy is a horrible idea. Anything that would indicate non-performance of a liability is going to harm your credit score.
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Apply For A Secured Credit Card
Getting a secured credit card is another great way to start building your credit from scratch. Youll typically deposit around $200 cash into the secured account or pay an annual fee. Each month, youll be responsible for making timely payments. After the account is closed in good standing, youll get that security deposit back and your credit rating may go up.
Keep Paying Old Bills
That old student loan may feel like an albatross around the neck, but years of on-time payments and the age of the account will boost your score. An account in good standing factors into your score until 10 years after it’s paid off and closed, so dont miss payments or pay late.
Pay off collection accounts, too, since the newest version of the FICO score ignores paid collections .
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Verify The Contents Of Your Credit Reports
Review each of these reports thoroughly, verifying the following details are correct on each:
- Details on payments made on time
- Debt payment history
- Balances due of accounts open currently
- Number of closed accounts
- Personally identifiable information is identical across all reports complete name, address, SSN, date of birth, etc.
Cautiously Pay Off Debt
Paying off your outstanding collections debt will help right? Not necessarily and we will explain more below. Sometimes it simply resets the clock and dings your history even harder. Three things to know here:
- The newest versions of FICO® and VantageScore® ignore paid collections
- Pay off the most recent delinquent accounts first because these hurt your score the most
- Non-medical collection debt hurts your score more than medical collections
Fixing unpaid collections can be another major component of improving your score. However, proceed with caution here as paying down some accounts in collection will not always improve your score but can actually reset the clock on how long it will take for that debt to fall off your report. Do your research.
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Factors That Affect Your Credit Scores
As we mentioned above, there are several factors that go into determining your credit scores.
Sneaky Ways To Improve Your Credit Score
There are certain times when it pays to have the highest credit score possible. Maybe youre about to refinance your mortgage. Or maybe youre recovering from a bad credit history, and you want to get approved for a credit card.
Its always good to have a healthy score, of course.
But if youre in a place where you really need to up that score as soon as possible, there are a few under-the-radar ways to speed up the process.
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Consider A Debt Consolidation Plan
If you’re really overwhelmed by minimum monthly payments, or you feel that you aren’t making progress on large credit balances with high interest rates, it may be time to call the professionals. Debt consolidation plans are an effective way to reduce rates and see more of your money go to the principal.
Plus, it could lower your monthly payment amounts on each card, giving you more money to put toward the debt. This could lower your credit score temporarily while you get payments underway, but some people find the trade-off worth it.
How Long Does It Take To Improve Your Credit Score
How long does it take to boost your credit score? Unfortunately, theres no one answer. Credit bureau Experian says it could take a few months to several years depending on how damaged your credit score is. There are no quick fixes. You need to commit to a long-term strategy of on-time payments if you want to fix your score.
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Popular Credit Cards To Build Credit With
There are lots of good credit cards to build credit with, including starter credit cards, credit cards for college students, and credit cards for bad credit. The best ones dont charge annual fees and have approval requirements that are easy to meet . Below, you can find a handful of the most popular choices, compared in key categories.
Don’t Close Your Cards
Once you’ve paid off a card, it can be really satisfying to cut it up! But don’t close your account. Keeping your credit card account open but unused helps give you a long, established credit history, and can improve your overall credit utilization ratio. . Although sticking the credit card in a drawer has it benefits you may also be able to request a credit card freeze. You may be familiar with a credit card freeze since it used whenever you report your credit card lost or stolen. In this case, you may use a credit card freeze if you want the card open in your name but don’t want or need to use the credit card for purchases.
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Be Patient And Persistent
Patience isn’t a factor that’s used to calculate your credit score, but it’s something you need to have while you’re repairing your credit. Your credit wasn’t damaged overnight, so don’t expect it to improve in that amount of time. Continue monitoring your credit, keeping your spending in check, and paying your debts on time each month, and over time you will see a boost in your credit score.
Will Paying The Minimum On My Cards Improve My Credit Score
No. This is a widespread myth. You need to pay at least the minimum payment due on your credit card every month so that your cards have an on-time payment history. You do not have to pay a single cent in interest to improve your credit score. In fact, paying your credit card balances in full every month will have the greatest positive impact on your score, because it will improve your credit utilization percentage.
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How To Improve Your Credit Score
Improving your credit score is a big step on the road to reaching some of life’s big milestones. But first, it helps to know what credit scores are and how they affect your life. Here are the basics:
are three-digit numbers calculated by a variety of different companies. Your score is used by lenders, landlords, phone companies, insurance companies and other creditors to determine how risky it is to do business with you. It can determine whether you can rent an apartment, lease a car, get a cell phone plan, and any number of other things you need and want in life.
The most common score is FICO , but VantageScore is another popular scoring model. These scores are calculated by the three national credit bureaus: Experian, TransUnion and Equifax. To determine your credit score, they look at a host of factors, particularly your bill-paying history and whether you deal with credit responsibly.
Use A Credit Card As A Tool Not A Borrowing Mechanism
You can use your credit card to build credit, improve your credit score, manage expenses, earn points or cash back, and so much more. Itâs important to use your card at least once every month as you try to build credit, but make sure youâre making purchases you can pay off at the end of each month. When you carry a balance over to the next billing cycle, youâll pay interest, and it can also negatively impact your credit score if youâre using too much of your . Instead of using your credit card as a means to borrow money, think of it as a purchasing tool with different types of benefits. Since credit cards have much higher interest rates than other means of borrowing, you can end up owing far more than youâve borrowed.
Forgetting To Pay Your Bills On Time
If you think paying your credit card bill late every once in a while isnt a big deal, youre definitely wrong. Believe it or not, but your payment history is the most important factor that makes up your FICO score, making an impact of 35%. This means a single late payment could cause serious damage to your score, but it also means multiple late payments could harm it even more.
The best thing you can do for your credit is always pay your bills early or at least on time every single month. If you dont take bills seriously and you simply pay them when you get around to it, youll likely regret it.
Use Less Than 30% Of Your Available Credit
Do your best to keep your balances way below your credit card limit. The amount you owe compared to your credit limit typically has a big impact on your credit score. If your monthly credit card spending is usually close to your credit limit, it can negatively affect your score even if you pay off your credit card bills on time. If you can get your spending down to 20% of your limit, thats a great formula for a real credit rating boost.
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Review Your Credit Reports
To improve your credit, it helps to know what might be working in your favor . Thats where checking your credit history comes in.
Pull a copy of your from each of the three major national credit bureaus: Equifax, Experian, and TransUnion. You can do that for free once a year through the official AnnualCreditReport.com website. Then, review each report to see whats helping or hurting your score.
Factors that contribute to a higher credit score include a history of on-time payments, low balances on your credit cards, a mix of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit. Late or missed payments, high credit card balances, collections, and judgments are major credit score detractors.
Don’t Take Out Too Many Cards
Sometimes it seems like a good move to open a new credit card with a merchant to get a discount on an item. But try not to go overboard and take advantage of many discount offers over a short period of time. Each new card comes with a “hard inquiry” on your credit report by the merchant, which can have a negative impact on your credit score.
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Open A Store Credit Account
Many stores offer credit accounts. Most are reported as revolving credit, the same as a credit card. Home Depot offers project loans. Many local home improvement stores also offer credit accounts, and some are available with the payment of a deposit in lieu of good credit. Staples office supply store has several credit products, including a personal credit account administered by Citibank. Before applying for store credit, be sure the vendor reports to the credit bureaus.
Also, keep in mind that some are better than others for people with poor credit scores, while others can help individuals recover from poor credit.
Hard Hits Versus Soft Hits
Hard hits are credit checks that appear in your credit report and count toward your credit score. Anyone who views your credit report will see these inquiries.
Examples of hard hits include:
- an application for a credit card
- some rental applications
- some employment applications
Soft hits are credit checks that appear in your credit report but only you can see them. These credit checks don’t affect your credit score in any way.
Examples of soft hits include:
- requesting your own credit report
- businesses asking for your credit report to update their records about an existing account you have with them
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Figure Out How Much Money You Owe
Gather all your bills and come up with a plan to pay them off. The snowball method focuses on paying off the lowest balances first, while the avalanche method focuses on paying off the balances with the highest interest rates first. If you have too many credit cards to keep track of, you could also consolidate your credit card debt into one balance transfer card to make it easier to manage your monthly payments.All three strategies could help you pay off your credit card debt more quickly, lower your credit utilization ratio and raise your credit scores. So, choose the plan that works best for you, and stick with it.
Avoid Expensive Credit Repair Companies
You might see adverts from firms that claim to repair your credit rating. Most of them simply advise you on how to obtain your credit file and improve your credit rating but you dont need to pay for that, you can do it yourself.
Some might claim that they can do things that legally they cant, or even encourage you to lie to the credit reference agencies.
Its important to not even consider using these firms.
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Building Credit Takes Time And Patience
Thereâs no quick fix when it comes to building and improving your credit score. In fact, trying to rush the process can actually have the opposite effect. Applying for multiple cards in a short amount of time can get you automatically denied, and the repeated hits to your credit report can have a negative effect on your credit score. Instead of looking for a quick solution, try looking at the long term one. Focus on meeting your existing credit card obligations such as paying your bill on time each and every month, staying within a reasonable credit utilization ratio, and using your credit card responsibly. Since your credit report stays on file for years, it takes time and patience to make an impact. But the steps you take today can have a positive effect on your ability to access credit in the future.
When managed responsibly, your credit card can help build and improve your credit score, making it easier to get approval to borrow money for bigger purchases in the future. Are you ready to use a credit card to build credit? Our can help narrow down the choices to find the right credit card for you.
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