When faced with low or no credit score, there is one necessity, motivation.
The problem with low scores is that it costs you money for the things you need the score for. Things like car loans, truck loans, lines of credit, credit cards, insurance premiums and so on. If you are happy with the rates and terms you get with low scores, then you are not motivated to save money.
I have been discussing this with a woman lately who would like to buy the condo she is leasing. She has sent me countless emails about her credit and even a copy of a credit report she received form one of the "free credit report" companies. Her scores are low, but more than that she currently has nothing on her report that is positive. She had problems (a bankruptcy) about four years ago and didn't do anything at all to re-establish any kind of new credit history. In addition to that she had a number of collections since the bankruptcy. This is the typical pattern for those who have had money problems in the past, they "fall off the grid".
In order to establish and then increase a credit score you need to have current accounts in good standing. It needs to start sometime. If you are young and have no score and haven't had money problems, you probably don't have a score. to get one established you need to get in the game the bureaus created. Three to five credit cards, an installment loan and a mortgage is the ideal mix. You won't get a mortgage if you have no previous credit history and most likely you won't get an installment loan (car loan) without a history either. But you most likely can obtain a credit card or three or four.
Since there are only five things that control your score, 35% is payment history, 30% is balance to credit limit ratio on revolving debt, 15% credit history, 10% mix of credit, and 10% inquiries, it is easy to control the future score.
The two items that are the most important is pay all of your reported bills on time. If you don't, then don't expect your scores to big high. They won't be. Make sure you are on time or early. The next is keep your balances low or paid off on your credit cards (revolving debt) the credit cards are loans, not gifts, and need to be treated as such. The reason today to have credit cards is not to buy stuff. You need credit cards to obtain a rental car, reserve a hotel room and to help manage your scores, not to charge a bunch of stuff and keep a high balance that you can't even think of paying off in the next year or two.
Low balances on your cards is the most sure fire way to increase and/or maintain high credit scores. If you have had credit issues or no credit in the past, small credit limit unsecured cards or secured cards are the quickest way to increase your score. Charge only minimum amounts each month and pay them off. Never allow the balance to exceed 10% of your credit limit. If your card has a $500 limit, then never exceed $45. Remember you are trying to obtain the highest score possible not incur debt that you can't pay off. Save the big debt for a car loan or a new home loan.
Now back to my conversations with the young woman who wants to buy her condo. I have given her specific recommendations that cost her little if anything to do. Things like either secured or unsecured credit cards and a number of merchant cards that almost always issue for small credit limits. After weeks of emails back and forth, she has yet to implement any of the strategies I have laid out for her. She says "what if they won't give me a credit card" or "what if they want this or they want that" my answer is you won't know unless you try. This is called selective avoidance. She wants this to happen but is not motivated enough to do this for herself. Now she informed me that if she can't get financing for her condo in the next few months that she may have to move because the owners want to sell it to someone else if she can't buy it.
Here is the bottom line. If you want to get or improve your credit scores, then you will have to do the things that will make that happen. you have to be motivated to make a change! If you have had credit problems, stop doing what caused the problem and start doing the things that will correct the problems and increase your score. I can't, and no one else can help you if you don't want to help yourself. I have all kinds of strategies and help for those that want to make their lives better, but I really only want to help those that want to help themselves. As far as the young woman (as Dear Abby would say "Dear Miss Unmotivated...) who would like to buy her condo? Good luck.
About this Author
Don Davis can be reached at 360-652-9994 or email him at dond@htlnw.com or visit his web site at http://www.HTLNW.com for other contact information.
Don specializes in residential and commercial lending mostly in and around Snohomish County, North King County, Skagit county and generally in the state of Washington.
Don has spoken at numerous workshops and events and written articles regarding credit scoring and related topics and has helped many people substantially raise their individual credit rating.
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