This is the first part of our series: Do it Yourself Credit Repair. Today we’re focusing on trade lines. How can adding trade lines help you raise your credit score?
Most people think that to fix one’s credit they must first remove derogatory entries. Not true. If there are not at least three good trade lines on your report, your first step is to establish the trade lines and it should be done right away. We’ll explain why shortly.
Start With A Credit Report
First, knowing what isn’t listed on your report has to be determined and this is accomplished through a careful review of your credit report. To do this you’ll want a consumer-based report so the inquiry doesn’t cause a negative notation.
There exists many consumer-based credit monitoring services to help you with this. Most cost little or nothing for the first month and then typically cost $15 monthly after that for as long as you subscribe to the service. Do not attempt to get a one-time free report as you’ll need to check your credit report monthly in order to monitor your progress.
Count Up Your Trade Lines
Once you have your report, list the good entries and determine if there are at least three healthy trade lines. If there are not three, you’ll need to establish them. We do this first because it can take a long while to remove the derogatory entries, and during that time, we will want to build credit. The reason for this is at the end of the day, if you have successfully removed bad credit but there is not at least three good trade lines on your report, your score will not have gone up effectively and another year will be needed to improve it. So, best to get the trade lines started right away.
How to Add Trade Lines
How does one go about adding trade lines with bad credit? You could go buy something on time (if you can qualify for it) but the high interest rate you pay may make it too costly. However, you may have no choice but to add a trade line in this manner. The key would be to buy something on credit that isn’t a high-priced item. Purchasing an auto for example would not be a cost effective way to build credit. Better to purchase something that costs $1,000 or less that can be paid off completely within 6 months.
Before you do that, try this: Apply for a credit card designed for consumers with less than perfect credit. The interest rate is high but the reward for perseverance cannot be denied. Your FICO score will go up. When using this card, use 60-65% and pay it off monthly. After 6 months, request a higher credit amount.
If you don’t qualify for this type of card, apply for a secured credit card. A secured card is one where you fund the account to make the credit card useful. Usually it takes three hundred dollars or so for these cards. Make certain the one you choose reports to all three bureaus. You’ll want to use the card and pay it off each month so that your three hundred dollars can be used over again throughout the year. When you are done with this card, the three hundred dollars are given back to you, assuming there is no balance owed on the card. Examples of these two types of cards can be found on our web site under “Give Yourself Credit”.
Another possibility is purchasing a membership to a buyer’s club. Some of these companies will report a credit line up to $5,000.00(!) to all three reporting agencies once you have activated your membership and bought something from them.
It is also possible to purchase another person’s credit line history. Basically, you become an authorized user on their credit card and as a result, all their history goes onto your credit report! Be aware that sometimes this type of trade line will not be useful for those whose objective is a mortgage loan. The lenders recognize the entry as a “borrowed” credit line and will not always count it towards a home loan qualification.
Once you have put in place the three credit lines, you can begin removing the derogatory entries that are listed on your report. Steps for that process will appear in future blogs. Thanks for reading!