Three words: secured credit card. Unlike their unsecured cousins, secured cards require that you put up a cash security deposit first. Then, you can use the card to make credit purchases up to the amount of your deposit.
Yes, it's credit on training wheels, but wait for the kicker: When our clients do this one simple thing, their credit score goes up 20 - 40 points!
So, get a good secured credit card and use it wisely. Here's why you need to do it now:
- Credit is going to be more important than ever before - Banks are steadily increasing the credit score needed to qualify for a mortgage. These days it's around 640, which is about 20 points higher than it was a year ago. If you are only a few points away, a secured card could make all the difference you need.
- Everyone is feeling the crunch - We've talked to hundreds of prospective home buyers over the past months, and we can report that every one of them has seen their credit situation worsen.
- Now is the time to begin rebuilding your credit - Credit improvement takes time. If you start now, you'll have a huge advantage over your fellow home buyers once everyone agrees that things are getting better. To borrow a quote, "In the land of 500 credit scores, the 600 score is king!"
So, get yourself a secured credit card, but make sure you do it right. Here's how:
- Make sure the credit card company reports to all three credit bureaus (Equifax, Experian, TransUnion): This is too important to make assumptions, so be sure to ask the question and get a definitive answer. Remember: If they don't report, then getting the card will not help your credit one bit.
- Avoid nuisance fees: Look for a card with minimal or no application fees, processing fees, or annual fees. They do exist, but you've got to search for them.
- Start off small: We have seen clients improve their credit score within 30 days just by having a $200 secured card. Don't get tricked into "supersizing" your card with features that you don't need: Stick with the bare bones for now.
- Do not keep a monthly balance: In fact, just stick the card in a drawer once you get it. You don't have to use the card to see the credit improvement.
Our recommendation: Right now, we really like the Orchard Bank Secured MasterCard offered by HSBC. You can apply online. Orchard reports to all 3 bureaus as a regular credit card. There is no application or processing fee. The annual fee is only $35, and is waived for the first year. Best of all, the minimum security deposit is only $200!
Give this a try and then come back and let us know how it worked out for you. Or, if you already have a secured credit card, how has it helped your credit score?
