Q: I want to fix my credit, but I don’t know what’s on my credit report. I’m not working and don’t have any money. So, all the help I want and need has to be free. I’ve also tried to apply for the “bad credit” credit cards and still don’t qualify. What should I do?
A: First, you can easily get a look at your credit reports. By law, the three major credit bureaus—Equifax, Experian and TransUnion—must give you a free copy of your credit files every 12 months. You can order your reports by going to AnnualCreditReport.com. [By the way, this is the official and only site for you to get the truly free credit reports.]
You are not entitled to free credit reports. But, for your purposes, you can start with taking a look at your credit files. If you are having trouble getting one of those high-interest credit cards for people with “bad credit,” that means you’ve got a number of derogatory items in your files, which also means you’ve paid bills late, had a judgment against you or other things that indicate you may be a credit risk. And frankly, it’s a good thing you can’t get a credit card now, because that probably means you can’t handle it right now.
So, how can you “fix your credit,” as you say? Pay your bills on time. Seriously, that one tip is one of the best ways to improve your credit history. Your account activity and whether you are delinquent play a big factor in determining your credit score. If you are paying your bills on time, then work on reducing any outstanding debt you may have, especially on old credit cards that may have been cancelled.
Next, if you really need to improve your credit because you will be shopping for a home or a car or you’re afraid a poor history will affect your employment opportunities or insurance rates, then get a secured credit card. A secured credit card works like any other credit card except it requires you to put money in a bank account, which becomes a “collateral” account. For example, if you are required to deposit the typical $300 to $500, your credit line will reflect the amount of your deposit. If you put $300 in the collateral account, you can charge up to $300. But, you will still have to make monthly payments.
The key to using this type of card is to charge a little, and pay the balance off, to show you can handle credit. After several months of responsibly handling the secured credit card account, you may qualify for an unsecured credit card, at which point you can have the money in the collateral account returned to you.
Secure cards often come with a high interest rate and annual fee. So, make sure you don’t roll over balances from month to month. Also, watch out for a lot of fees. For a list of competitive secured credit card deals, go to BankRate.com. You should also check with your credit union if you are a member.