Articles & News About Your Credit

Three Ways To Build Credit

One of the most effective ways to build your personal credit is to add new, positive accounts to your credit report. When you add new accounts, your high credit limit (the total credit available to you) will be increased. This is a big turn-on for potential lenders; the "pre-approved" offers will start arriving in your mailbox. The goal, of course, is to earn better credit as reflected in a higher credit score.

But, as in many things in life, there's a catch-22. In order to GET good credit, you usually must HAVE good credit. Ask anyone with a high credit rating, and they'll tell you they are flooded with offers of credit cards with reasonable rates every single week. However, there are ways for those of us with less than stellar credit ratings to add new credit accounts to our files. In this article, we'll briefly describe a few methods, some good, some questionable.

Method #1: Secured credit cards. This is a good but somewhat limited way to build credit. Secured credit cards are usually easy to get, in terms of approval. But, they require cash up front (the amount of the card) as a "secured" deposit. So your money is tied up in the deposit until you either close the card or convert it to an unsecured card after you've built your good credit history. The unsecured credit cards typically have lower credit limits-often the amount of the deposit. These are not the most effective way to add to your high credit limit, but at least you won't be running up a credit card bill you can't pay.

Method #2: Sub-prime merchandise cards. This is a card attached to a line of credit that allows you to buy merchandise from a specific vendor (usually the company that sold you the card). In most cases, you buy the goods through a catalog or online mall. While there are some 'shady" operators offering sub-prime cards, the legitimate ones can be helpful. Here is how it works: you buy $1,000 of merchandise. You put down $300 cash, and finance $700 on the sub-prime merchandise card, and make payments. Your credit line will be reported to one or more of the major credit bureaus, thereby increasing your high credit limit. The sub-prime cards are easy to get, and if you maintain a good payment history with them, you'll soon receive pre-approved credit offers. Note: don't confuse these merchandise cards with sub-prime credit cards! Sub-prime credit cards have very low credit limits and require a large fee upfront to open. Beware!

Method #3: Authorized user accounts. Adding a family member or friend as an "authorized user" on an existing credit card account has long been used as a way to establish credit. Many parents add their children as authorized users in order to help them build their credit history. It benefits the "authorized user" since they now share the glow of the good credit rating of the original card holder. However, the creators of the FICO credit scoring system (Fair Isaac Corporation) announced they are changing the way their scoring models treat credit card accounts that belong to authorized user cardholders. This comes as shifty credit repair organizations were selling "authorized user" account access to consumers with credit problems. This credit repair loophole was part of the motivation for the FICO score change. So, it appears there's no great advantage now, particularly if you have to pay some company to be named an authorized user.

Building good credit is definitely worth the effort. A logical way is to start with one or two new accounts, and make sure you keep current with your payments. Your credit score will thank you for it.

To learn the inside secrets to fixing your credit fast, visit the author's website at: http://credit-secrets-bible-online.com

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