I have never had a credit card, but still have bad credit...?

Question

I have paid some bills late and had a few small things go to collections, but nothing huge. I have my car loan and thats it as far a debt so how can I build up my credit score????

Answer 1

Well, it would help to know what makes up your score so you can understand how you got to where you are:

1.Payment history-35%
2. Total debts owed vs. available credit-30%
3. Length of time establishing credit-15%
4. Types of credit established-10%
5. Inquiries and new accounts-10%

Now, those "small things" that went into collections contributed to tanking your score. If you're late on something, your score drops. If it goes into collections, it drops even more.

Now, while having the car loan is building credit, you don't have any credit cards with available credit to help offset the total debt you owe on the car. For example, let's say that you owe $7,000 on your car, if you don't have any credit cards it shows that you don't have the means to borrow, so it makes it look like you owe more than you're capable of borrowing. The car loan is building installment credit, which is one of two types of credit necessary in building credit. Credit cards are considered revolving credit is the other type.

My suggestion to you in order to build up your score is this:

1. Open a checking and savings account at a bank if you haven't done it already. Most if not all major banks offer free checking with online billpay. This is a powerful tool in building credit mainly becuase it provides you with the means to pay your bills on time, which I mentioned earlier makes up 35% of your score. Also, being an accountholder at a bank also makes loans and credit cards easily accessible. Right now, a secured credit card would help in your situation. A secured card is the easiest credit card to get, mainly because you have to place a deposit upfront as collateral in order to establish a credit line of the same amount. For example, if you deposit $300, your credit line would be $300. Now the deposit can't be used to pay the minimum payment or what ever is owed on the card, unless it went to collections. 2 benefits are that the deposit is usually tied to a savings account which can gain interest. Also the credit limit can be increased by adding to the deposit which gives your more control over the credit line. It helps your score if you have high limits and low balances on your credit cards because the available credit provides a cushion between the total debt you owe and the available credit. The best way, I've found to use secured cards is to treat it as if it always had a credit limit of $50. Use only $20 and pay it off on time while you increase the credit limit by adding to the deposit every month. Continue to do this every month. Depending on the credit card company, usually after 9-18 months of paying on time and keeping the balance low, the card will either convert to a regular card or a better card is offered altogether. And most importantly, the deposit is no longer needed and is given back! This way, you will have custom built a credit card with a decent limit, without getting declined and going into debt.!


2. The next thing you should do the items that have gone into collections, try to pay negotiate paying them off in exchange for getting them removed from your report. This is called a "deletion payment". It's important that you not only pay the items off in collections, but also get them removed from your report as if it never happened to really rebuild your credit, just paying them off may not be enough. Now, I say that like they will remove them if you pay it will be an easy thing, it won't. It's going to take talking to the right person and negotiating to do it. I posted 4 links to a website that explains how to do that.

http://www.creditinfocenter.com/debt/settle_debts.shtml

http://www.creditinfocenter.com/debt/neg_rating_after_settle.shtml

http://www.creditinfocenter.com/debt/CanCreditorSue4SettlementDifferences.shtml

http://www.creditinfocenter.com/debt/ActualDebtSuccesses.shtml.

Be sure to read these before contacting the collectors to make arrangements, it might just make a difference.


Well, these are just a few things that you can do to build your score up, most of all don't let anything else go to collections, and you should be fine.

I'd like to thank you for listening and I wish you good luck!

Answer 2

Id start off by getting a Credit Report and paying off all past due accounts. then work to get the car paid off. It shouldnt be hard toget Credit cards either, Im only 20 and so far i have been sent 6 credit cards even tho i have been turned down for a car loan without a co signer with established credit.. I have had past due accounts on my credit report.. one for $485 and another for $78... I paid off the $485 and thats when I started to get my credit cards in the mail. So I figure pay off everything else and keep payments on time, then it should look good on your credit score!

Answer 3

Sorry to put it this way but......huh? Late bills and collections, nothing huge? If you have a limited credit file as you describe, then collections and late payments are going to lower your score.
Get those collections issues taken care of. Try to get letters from the creditors that if you pay X then they will completely remove the collection account.