Good credit is your friend, while bad credit is your foe!
But rather than living your life with enemies, make peace with your credit score and reconcile your differences for a better and brighter future – full of free travel on points and miles with credit cards (and more importantly for some – better interest rates on literally everything!) that a good credit score will provide you!
If you and your [not so hot] credit score are at odds, build back that broken relationship with the step by step process below!
Step 1: Know Your Credit
Knowledge is power, people! If you know your credit you can control your credit… so get to know it! Obtain your credit report from AnnualCreditReport.com! You will gain access to your credit report from all 3 major credit bureaus…and it’s FREE (Note: free once per 12 months)!
Once you have your report, examine it to ensure the information is correct and up to date. From here you can identify any errors or derogatory marks that may be weighing you down and move on to Step 2!
Step 2: Repair Your Credit
Now that you have examined your credit report and identified any errors/negative items, you can start righting the wrongs! This part isn’t fun, but it is very important to building your credit – always start to build with a solid foundation!
If there is an error on your report, dispute it. Contact the specific bureau that issued the report or communicate directly with a specific company/creditor that is reporting the misinformation.
If there is a derogatory item on your report, remove it. Sometimes this is easier said than done, but it is possible to negotiate with creditors to remove derogatory items from your credit report. My advice would be to contact the creditor and commit to payment (or other resolution) and include removal of the derogatory mark as a condition of payment/resolution. Another option would be to hire a lawyer to negotiate with creditors on your behalf.
If making contact with a creditor is not something you are willing to do, you can always just…wait. In most cases, a creditor can only report negative information for seven years (longer, if bankruptcy related). Wait it out and periodically check your report, noting when the derogatory item is removed.
Step 3: Build Your Credit
Grab your hardhat and your tool-belt! Now that you have cleared the errors/marks from your credit report, you can get to building!
While I love credit cards and encourage everyone to leverage their benefits, rather than rushing out and applying for multiple cards at multiple banks, consider these “credit building” options below:
Option 1: Open a secured credit card – These cards require no credit check or minimum credit score, so they are perfect when beginning a credit building strategy. With secured credit cards, you fund the card BEFORE using it – with anywhere between $200 and $1000. Your credit limit is the amount that you fund (pre-pay) and you can spend up to that amount. Essentially, it’s pre-paying your credit card.
The real benefit to this card is that the credit card company will report to the 3 major credit bureaus every month – this will help raise your credit score, as it will illustrate responsible use of credit. There are many options, but the Open Sky card is one that I have researched and that I think would be a good choice.
Option 2: Obtain a co-signer on a credit card – While your credit may not be established enough or healthy enough to obtain a credit card on your own, you may be able to gain approval with a co-signer. A co-signer will be on the credit account with you and will “guarantee” your credit as a sign to the issuer that you are credit worthy. You and the co-signer are joint account owners and are both liable for repaying the balance.
As a note, not all banks allow co-signers, so make sure that if you want to take advantage of this option that you head to the right bank!
Banks that allow co-signers – Bank of America, Wells Fargo, US Bank & Discover
Option 3: Become an authorized user (AU) – Another option will be to become an authorized user on an account. I have detailed the credit impact to authorized users in the past, but essentially becoming an AU just provides you additional access to credit, which is an important credit factor. Becoming an AU is great because all the major credit card issuers will report authorized user activity to all 3 credit bureaus.
Keep in mind, while you may have access to credit, you do not have the responsibility to pay, and therefore this option is not weighted as heavily as the two options above.
Note: Some issuers have age limits to be an authorized user (Amex 15 years old), but Chase and Citi have no minimum age requirement.
Step 4: Maintain Your Credit
You have completed the repair; you have completed the build; now for the easy part – maintenance!
This really is the easiest step of them all and can be summed up in one sentence…
Spend responsibly and pay your bills [in full] on time, every time.
Simple as that! Also, do not forget about your credit report and continue to check this at least annually to ensure that it is error and derogatory mark free!
Tip: Another great [and free] tool that I use to monitor my credit on a day to day basis is creditkarma.com so be sure to check that site out as well
Your credit is should be a friend, not an enmy, so treat it with care and respect! Just take it step by step…
Know it, Repair it, Build it, Maintain it!
If you accomplish those 4 steps you will be on your way to improved credit! Good luck you my friend!
Have any more credit related question? Feel free to email directly me at firstname.lastname@example.org
Happy Credit Building!