Ask Money

Building up credit score

Chris Farrell Sep 27, 2010

Question: My husband and I have been recently married (over a year now) and both of our credit ratings are probably 300 each or even non-existent. We both have had serious illnesses that caused us to go into severe debt and we have not been able to pay our bills. We are both on social security disability still, but thankfully we both have recovered nicely from our illnesses and are starting medical assistant training school this month. My question is: How do we improve our credit score best? We know about the fix-your-credit fast scams so we don’t do those. We would like to hopefully repair credit ourselves by maybe getting a credit card but when we try to get the credit, the lenders want money up-front as a deposit for a secured credit card. Is it a good idea to get a secured card, or pre-paid and put money into it? Thanks so much, Jody, Columbus, OH

Answer: I’m glad that you and your husband are healthier. You’re also getting the kind of training that should boost your job and income prospects. It sounds like it has been a long path to get to this point.

Now, it won’t be that hard to boost your credit score after a period of paying your bills on time. The trick in your circumstances, as you’ve learned, is getting the chance to start building a credit history. And yes, you want to steer clear of the credit repair outfits. There are too many scamsters in that business.

You also don’t want to get a prepaid credit card. The reason is that even though it looks like a credit card, it isn’t. It’s a piece of plastic with a store of electronic cash. But with a classic credit card you are really taking out a consumer loan. The information from a prepaid credit card isn’t reported to the credit bureaus, so using one won’t boost your credit score.

You can try the traditional route of seeing if you can get a gasoline credit card. Use it when you fill up at the gas station and pay the bill off at the end of the month. Eventually you’ll qualify for a cheaper regular credit card.

If that doesn’t work I would recommend taking out a secured credit card. It’s a good idea. You’ll open up a special savings account with a bank or credit union. (You’ll probably get a better deal with a credit union.) Your credit limit on the card is about the amount on deposit. You’ll make some interest off the security deposit, but in reality it will add up to practically nothing. Secured credit cards come with higher fees, too, than the traditional “unsecured” credit card. But after showing a pattern of paying off the secured credit card bills on time you can shop around and switch to a traditional credit card.

Again, the personal finance key is not to fall into debt but to establish a pattern of paying off in full the credit bill over time.

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