Learning your credit scores will enable you to monitor your credit health. If you need to build credit, one of the easiest ways to do so is to apply for a bank secured credit card.
It doesn’t matter if you have no credit (which can sometimes be worse than bad credit), this option works because you provide the money in advance to the bank and they hold it in an account. In the meantime, you still have access to your money in the form of a credit card. At our bank, a bank secured credit card can be started for as little as $300. Typically the interest rate will be rather high.
People sometimes think they can’t come up with that much money to give to the bank, but here is a way to get around that. Let’s say that you get paid twice a month. Your electricity bill is $100, gasoline will be $50 for the next two weeks, and you’ll spend $150 on groceries. Instead of paying the money you have on hand for those bills and groceries, give it to the bank and get your secured credit card. Now take the card and pay your electricity bill, buy groceries and fill up your tank a couple of times. This will take you to the maximum on your card (do not go over your credit limit!) and when your payment is due make a double payment or more if you can. This should be a time where you are scrimping and saving every dime. Continue to use the card for gasoline, but be sure to pay everything you spend on gasoline plus the double payment, each month. You will incur interest, but as long as you work steadily at paying off this card it won’t be too much even though these cards can often be 25% or higher in interest. Understand that during this time you are proving to the bank that you are capable of having a credit card, and so you must make your payments on time, and always pay more than the minimum.
One of our goals for this year is to build Mr. A’s credit.
My husband, Mr. A, is unusual in this day and age of credit card debt. He’s dealt on a cash only basis for most of his life. That means he doesn’t even show up at the credit rating companies. I began building my credit in 1984 with $500 and a secured loan so I knew we could do something like this for Mr. A.
I asked our banker what we should do to get things started. She suggested we do something similar for Mr. A but instead using a bank secured credit card. She told us we could get things started with as little as $300. We decided to go with $600 because Mr. A could use the card for gas for the whole month. We pulled $600 of our savings (money we are saving for upcoming bills) and opened a secured account for him.
As I mentioned in the scenario above, a great use for a bank secured credit card is to use it for gasoline. Almost everyone has to buy gas, and even if you purchase only a small amount each month you will still make yourself look good to the credit card companies. We’re going to have Mr. A use his card for gasoline, and we will pay it in full every month. It should be effortless to build credit for him. My banker suggested we ask that the account be switched to a unsecured account when he had had the card for a year.
UPDATE: After one year we called the bank to find out if Mr. A’s had become eligible for an unsecured account. He was, and they graduated him to an unsecured credit card with an interest rate of 16.99% which was better than the 24.99% on the secured card. They also increased his limit from $600 to $1100. They mailed us the check for the original $600.