Raising Your FICO Score With Secured Credit Cards
When you are working to raise your FICO score, is one secured credit card enough? A reader, Robert, had this question:
I just recently went bankrupt, Chapter 7. I am trying to re-build my credit. I have a Orchard Bank Credit Card. I have a line of credit of $500.00, and I have been making full payments on a timely basis. Here’s the question. To better my FICO score should I apply for a second credit card? Please advise.
Robert
Robert,
FICO suggests having at least three different revolving credit accounts if you want to maximize your score. However, you probably don’t want to get all three cards at once.
How long have you had your Orchard Bank credit card? If it’s been a few months, it is ok to go ahead and apply for another secured credit card. You will want to wait a further three to six months before trying to open another credit account. Having too many inquiries (when companies check your credit report because you applied for credit it creates an “inquiry”) will lower your credit score – especially after a bankruptcy.
Space out your credit card applications to prevent damage to your credit score. Also, there are a couple of other things you will want to keep in mind as you rebuild your credit.
Keep your balances low
You stated that you had been paying your credit card off in full each month, and on time. That is the very best thing you can do for your credit score. The second best thing you can do for your credit score is to never charge very much on your credit card. If possible, keep your credit use to 10% of your available credit, or less. That means that you should never charge more than $50 on a credit card with a $500 limit.
I know it sounds wacky, but it matters tremendously. Your credit card company reports the amount that you charge to the credit bureaus each month. Even if you pay the balance in full, they still record the amount that you charged.
How much of your credit limits you use is responsible for 30% of your credit score, so keep that number as small as possible. Make sure you do use your cards though, otherwise you won’t get the benefit of them reporting positive payment.
Your third credit account:
Your third credit account will probably be a little different. If you wait 4-6 months to apply for your third line of credit, it’s possible that you may be able to get a normal unsecured credit card instead of a secured or sub prime,”bad credit credit card” that is full of fees. Just be sure to check your credit score before you apply for an unsecured credit card. Make sure that you have well over a 600 credit score, or it won’t matter.
Have you cleaned up your credit report?
The next step in repairing your credit score is to clean up your credit reports as much as possible. Challenge any incorrect information on your credit score. Every single negative account that you can remove will raise your score.
For a complete guide to removing negative items form your credit reports, you can view this article:
Thanks for your question!
We had another, related question from a reader named Ayesha:
I am trying to build credit. Will I be able to get a credit card?
Ayesha
Ayesha,
Yes, you can definitely get credit, but it is unlikely that you will qualify for top of the line credit cards. If you have no previous credit history, you can try applying for these starter credit cards:
If you have a past negative credit history, your best bet is to apply for a single secured credit card to start. That means that you will have to deposit money with the issuing bank in order to get credit. If you fail to make the payments on your account, they will take your deposit and use it to pay the bill. As long as you do make payments, the secured card will convert to an unsecured credit card in about a year. You will get your deposit back at that point.
If you have a past negative credit history, you should avoid unsecured credit cards that target people with bad credit – they charge far too many fees, and you will never get your money back.
You might also want to consider looking into pre-paid credit cards. It usually costs $10-$15 a month for those cards to report to the credit bureaus, but people are rarely turned down when they apply for them. (Again because your own money is financing the line of credit.)
It’s not hard to build credit. If you use these types of accounts, and you make your payments on time each month, your credit score should go up pretty quickly. Just make sure you do not charge very much money on your cards. Make sure you never even come close to your limits if you are trying to build credit.
Thanks for your question!
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