Credit Scores play a key role in the credit card industry. Once someone has good credit, they are able to apply for cards how they please. The hard part is getting to that stage. Today we will discuss how to improve a low credit score.
You may hear people say they have no credit score. This is impossible. They mean to say they have no credit history, and a low credit score. Everyone had a number. Read more about your FICO credit score here.
When does one have a low credit score
There are two types of people with low credit scores.
- People with no credit history
- People with poor credit history
People with no credit history
In order to apply for credit cards, people with low credit history need to build credit. Banks do not trust people with no credit history, because there is a risk factor involved. Since the bank doesn’t know you, and no other banks have a relationship with you, and there is too much risk in granting you a line of credit.
But, there is an easy and painless process to fix this.
- Be added as an AU (authorized user) on a friend’s, spouses, parents credit card account. Stay there for a few months. The banks look at this as a line of credit under your name. Therefore it builds your line of credit. Read the risks of an authorized user here. As always, be smart. We recommend when adding someone as an authorized user not to give them the card. Destroy it. It will still build credit. There is no need to actually spend on the card. This may save unforeseen discomfort in the long run (use your imagination).
- Apply wisely. Many people hear about a great offer and jump on it. The problem is you need to know your limits. There are beginner cards for a reason. These cards carry higher APR, since there is more risk. These cards usually never have a free APR intro period. Apply for cards that need fair credit.
The same would be true when applying for a store credit card. These cards are rated for people with fair credit. The sign up bonuses on the above cards are nil, but it is a necessary evil. This will put you in the game to get the big bonus like the Chase Ink Bold, or American Express Platinum.
- Secure Credit Cards. These cards are designed for people with low scores. These cards require a deposit. They allow you to have a line of credit against the amount you set aside in escrow. You are responsible to pay the bill in full at the end of the month. The banks don’t look at a credit score, since there is no risk involved. If you default on the payments, they keep the escrow.
People with poor credit history
If you have a poor credit history you need help, fast. Having a poor credit will deter you in the short term and kill you in the long term. In the short term you will not be able to get new credit cards. In the long term you will not be able to get a mortgage, lease, student loans etc. The number 1 thing on your to do list should be to fix your credit score.
Read tomorrow how to fix poor credit
It is important to have a good credit score. someone with no credit history needs to build a score. This can be accomplished by being an AU, starter card or a secure card.