How to raise your credit score when all else fails
She cannot get a bank account, and her application for a secured credit card was turned down.
A reader recently left a comment about her credit score that I thought was worth sharing. Here's what she asked:
What can I do to build my credit if:
1. I cannot get a "real bank account" due to ChexSystems.
2. I got denied for Orchard Bank secured credit card.
3. I currently do now own any credit cards.
It seems impossible at this point to raise my credit score. I've tried numerous things, and I keep getting rejected. Is there anything I can do to raise my FICO score?
Before we dive into some suggestions, let's look at the reader's dilemma in some detail.
First, the ChexSystems she refers to is similar in concept to a credit score. The difference between ChexSystems and a FICO score, however, is that FICO grades your use of credit, while ChexSystems keeps tabs on how you use bank accounts. Bounce a lot of checks, for example, and your ChexSystems rating could disqualify you for a traditional bank account.
Second, the Orchard Bank secured credit card the reader refers to is specifically designed for folks with poor to fair credit. The secured card requires a deposit in the amount of the credit limit to guarantee payment of future bills, so it's a bit surprising she was unable to qualify for the card. As a side note, one nice feature of Orchard Bank is that it will prequalify an applicant without a hard pull on their credit report, and list those cards for which they qualify.
Raising your FICO score
It can be disheartening when you want to improve your credit score but nobody will extend you credit. If you or somebody you know is struggling to raise a FICO score, here are some suggestions:
Credit report and score: The very first thing to do is get a copy of your credit reports and scores from the three major credit bureaus. You can get your reports for free from AnnualCreditReport.com, but you won't get your scores or an explanation of what your credit report means. A number of companies offer FICO credit scores for free -- if you jump through certain hoops -- and an explanation of why your score is what it is. Post continues after video.
Secured credit card: For those with really bad credit (e.g., bankruptcy, foreclosure, write-offs), a secured credit card is the single best way to rebuild credit. You have to pay a deposit that will be equal to your credit limit. Most secured credit cards require a minimum deposit of $200. You then use the card like any credit card and pay your bill each month -- on time, of course! Your payments are reported to the three major credit bureaus. Orchard Bank is an ideal choice, in part because they will upgrade you to a traditional credit card once your credit improves.
For the reader who was turned down by Orchard Bank, I'd apply for a different secured credit card. The fees on the better secured cards are reasonable, and it's one of the fastest ways to pull your credit out of the abyss.
Store or gas credit card: If a secured card doesn't work out, consider a store or gas credit card. Even with bad credit, you should be able to get a store- or gas-branded credit card. The card will likely have a low credit limit and a high interest rate. But if you pay the card off in full each month, the interest rate won't matter. And it's another way to slowly build your credit.
Time: Finally, it's worth noting that sometimes you just need to give your credit file some time. As negative items eventually get removed from your credit history over time, your score can improve. Patience may not be what you want to hear, but sometimes that's all you have.
There are other ways to improve your credit score, of course. For example, you'll want to make sure there are no errors on your credit report, and get them corrected if there are. You also want to limit the number of credit applications you submit, as credit inquiries can lower your score.
If you've been in a situation similar to that of the reader who left the question above, tell us how you are improving your credit score. We love to hear about success stories.
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