If you’ve already read our last two blogs, What is Credit? and Your Credit Score, you already know more about credit than most people.
And you know how important your credit is in determining if you can get a car loan, and how much you’ll pay. (If you didn’t read those blogs, the answer is: VERY important.)
So what do you do if you haven’t had a chance to build credit, or you have bad credit?
Well, as we mentioned before, having no credit or bad credit isn’t necessarily an obstacle to getting a car loan. Lenders are much more relaxed about car loans these days, because they know a car loan is secured by the vehicle you purchase.
In other words, if someone defaults on their car loan, the lender can repossess their car and sell it to recoup their money. Other types of creditors, like credit card companies, don’t have that option.
Still, the better your credit, the more money you’ll save. Over the next couple of weeks we’ll give you some tried-and-true methods to improve or build your credit. Remember: most of these will not make it onto your credit report right away, so give yourself as much time as you can to get things cleaned up and looking good.
You need a copy of your credit report. This is especially true if you’ve had credit accounts in the past, but even if you don’t have any credit, you should consider getting one anyway. An FTC study in 2012 found that as many as 1 in 4 people had errors on their credit reports.
There are lots of sites out there that will offer to give you free credit reports if you just sign up for this thing or that thing. But “this thing” and “that thing” will invariably cost you money.
There’s only one place to go for truly free credit reports: AnnualCreditReport.com. This site was set up by the three credit bureaus – Experian, TransUnion, and Equifax – in response to a federal law that says you have a right to one free copy of your credit report from each reporting agency each year.
Once you have your credit reports, go over them thoroughly and make sure everything on them is accurate. There could be accounts you paid off that don’t show that they’re paid off, or accounts that never belonged to you in the first place. Like I said, these guys aren’t perfect and there can be mistakes that will hurt you.
If you find an error, there are a couple of ways to go about fixing it. You can contact the creditor directly and discuss it with them, for one.
Also, the individual reporting agencies each have online dispute filing:
Finally, the FTC Consumer Information website has some information on what to do if you find errors on your report, including sample letters to use if you don’t want to file a dispute online, or if you want to send a letter to the creditor directly.
It’s important to note that you need to follow up on your disputes. Some can be resolved fairly quickly and some will take time. And you may have to submit proof to refute the errors. Stick with it, though: it could mean a lot of money to you.
Pay What You Owe
Okay, this will probably sound like common sense but the first thing you should do is get all of your accounts current.
If you have overdue payments, make them.
If you have accounts that have gone to collection, pay them.
These are the really big things, and there’s very little else you can do that will have as big an impact on your credit as getting your current finances in order.
Even if this takes a while, there are some things you can do in the meantime that will help. Such as…
The Quick Fix
The sad truth is, there are very few shortcuts to improving your credit.
This is one.
As we learned last week, your credit score is based on things like payment history and length of credit history. This method gives you both of those all at once.
It’s called piggybacking, and what you’re essentially doing is “borrowing” someone else’s credit.
Someone who has a credit account in good standing, who has made their payments on time and has had their account for years, can add you to their account and voila, you get all “credit” for all their credit history on that account, just like it had been yours all along.
For example, if your mother has a credit card she’s had for years, she can simply add you as an authorized user. She doesn’t even have to give you a card.
There are a couple of downsides to this, of course. For one, you have to find someone who is willing to add you to their account. This makes some people nervous, because once you are authorized, you are technically able to make charges to the account.
Also, if they have financial difficulties and end up missing payments or defaulting on the account, that also comes back on you. It will damage your credit instead of fixing it.
But if you have someone you trust and who trusts you, there is no faster way to acquire a credit history.
Next week we’ll talk about how to turn the tables on credit card companies and make them work for you.