Maximizing Limited or Bad Credit

Credit, Information Leave a Comment

There are lots of ways to improve your credit, as we’ve reported previously, but getting the most out of a low (or nonexistent) credit score is a whole other thing.

Luckily, we’re here for you.

We’ve compiled four easy-to-follow tips that will help you squeeze every bit of buying power out of your credit capabilities.

  1. Buy a car.

This might seem counterproductive, but you have to remember what an auto-loan looks like on your credit report. It’s a secured loan, so banks know that you have collateral. They’re fixed-terms, so it won’t last forever. And while you almost certainly won’t get the best interest rate on this loan, once it is paid off you are almost guaranteed a better rate on your next one. Current auto-loan interest rates are hovering between 4.5% and 5%, so if you have no credit (or bad credit), your loan could be as high as 10% or even 15%. Don’t let this deter you – as the old adage says, you have to spend money to make money, and showing your willingness to pay and be responsible will go a long way in the long run.

  1. Get a store credit card.

When you have low or no credit at all, major credit cards aren’t going to give you a card. That’s simply the way they work. However, we live in the age of consumerism, and with retail stores dying out, more and more of them are becoming desperate to keep consumers coming back. One of the ways they’re trying to entice consumers is with easy credit. Granted, you’ll probably have an astronomical interest rate (20% or higher), but if you can keep your spending under control (spend a little, pay it off immediately), you’ll get the dual-benefit of both having an established card and show a strong payment history.

  1. Get a SMALL unsecured loan.

The credit industry is built upon lending and collecting – it’s what the business is all about. Lenders know that if they refuse to lend, they’ll go out of business. While the big boys of lending have the money and power to be selective, there are a lot of other businesses that want to build their own credit empire, and they’re the ones you can capitalize on.

Before we go any further, we cannot stress this enough: Whatever you do, never ever ever, under any circumstances, for any reason, go to a payday loan service. Those stores are literally legalized loan-sharks, and they will happily destroy your credit and your life.

Instead, go with one of the many online lenders who specialize in unsecured personal loans. Take out a SMALL loan and pay it back as quickly as possible. It goes without saying that you’ll have a high interest rate (based on your credit score they can range from under 10% to over 20%), but the important thing, again, is showing that you can be responsible with your finances. Because specific numbers aren’t reported to credit bureaus, borrowing $200 and paying it back looks just as good on a credit score as borrowing $2,000 and paying it back. You can also use these personal loans to consolidate your debt (if you have existing debt), and reduce the number of open accounts or get a lower monthly payment.

  1. Do nothing.

True story: There was a man, we’ll call him Joe, who was very bad with money. Joe grew up sheltered, so when he graduated from college he had no loans, no debt, minimal income, and no idea of how credit cards really worked. Joe would frequently overdraft his checking account because he didn’t keep track of his money. He then got a credit card to protect his overdrafts, but maxed it out on purchases — then, when he overdrafted, his credit card didn’t have the funds to cover it, so he got hit with an overdraft fee, and a credit-card fee for going over his limit. It got so bad that his bank actually closed his accounts without telling him, sending his overdue balances to collection, and refusing to give him so much as a savings account.

Joe decided to pay off his remaining debts and move to Japan. He lived overseas for a year, taking no new debt, and no derogatory marks on his credit record. When he returned, he tried to open a simple savings account at a new bank who ran his credit and offered him a premium checking account, gold credit card, and a $3,000 credit limit.

Now Joe has a credit score of 775 and gets loan offers mailed to him regularly. His one credit card raises his limits annually, and he has more buying power than he knows what to do with.

All of this, because he simply stopped borrowing.

So if none of the above options tickle your fancy, do the hardest thing of all and live skinny. Credit scores continuously fluctuate, so there’s no such thing as true stagnancy and if your score isn’t going down, it’s going up. Don’t be afraid to let it.

Leave a Reply

Your email address will not be published. Required fields are marked *