Sometimes money and career questions can feel so sensitive and personal that it makes sense to stay anonymous when asking them. This is why the Savvy Confessions community group is the perfect place to vent because all postings are kept anonymous.
In the latest Savvy Confessions, a reader asks for help on improving her credit score and wonders if she should take out a loan just to raise her score. I reached out to credit expert Bethy Hardeman from CreditKarma.com, a site that provides free credit scores, financial education, and personalized savings recommendations.
I'm trying to figure out a way to improve my credit score other than waiting it out. I'm doing everything right so far, I have a secured credit card, which I'm only charging $15 a month to every month. The limit is $300. I don't have any other credit cards. I don't have any good debt, unfortunately (i.e., school loans, a mortgage, or a car). And I'm not planning on getting any in the near future. I don't have any negatives on my credit report.
The only think I can think of that I can do is to take out personal loans. I don't need to take any out, but I'm thinking of doing it just to improve my credit score because I feel like I'm out of options. Anybody know anything about that? Or rather than personal loans, any more ideas on how to improve my credit score?
To hear what Bethy has to say, read on.
Hi there! This is a great question. It's tough to build credit from scratch, but you've made a great initial move: getting a secured credit card and charging just a little each month. And I assume you're paying off the balance each month, right? Having a history of on-time payments is necessary to build good credit.
I would advise against taking out a loan just to build credit. This is never a good idea and actually might not improve your credit as much as you hope. Because your on-time payment history is such a huge factor in your credit score (about 35 percent), that's what is going to build your credit, which will take time. It's true that having various types of credit (credit cards, an auto loan, or a mortgage) is good for your credit, but it only contributes to about 10 percent of your credit score. That's hardly worth getting into debt over. Find out what other factors affect your credit score here.
A better idea would be to either apply for another credit card (continuing to use your smart credit card-usage tactic) or request a credit-limit increase on your current card. In a blog post last year, we investigated the effects of certain financial actions on different types of credit scores (poor, fair, good, and excellent). (See the post here). For a poor credit consumer, a credit-limit increase resulted in a credit-score increase of more than 50 points. See which credit cards might be appropriate for your credit range here.
Lastly, make sure you're monitoring your credit score at CreditKarma.com and your credit report by getting a free copy at AnnualCreditReport.com from each of the three bureaus once a year. I suggest staggering your credit reports throughout the year. Go through your reports with a fine-tooth comb, making sure there aren't any errors to dispute. This occasionally happens and disputing an error could improve your credit. I hope that helps! Best of luck to you on your road to improved credit health.