Photo Credit: The Truth About
I was just sitting here and noticed that someone searched for “credit scoring is a scam and a fraud.” Kind of an interesting search. Frankly I never thought of it like that.
But that reality is that point of view isn’t all that far off. You see the impression people have about a credit score isn’t so much a fraud and much as it it just wrong.
The credit scoring models were developed to allow creditors to mass screen people for credit offers and to minimize risk in lending. They are not a grade or mark about personal finance excellence.
As an example, a person that avoids debt and does not take out credit has no score at all. Yet they seem to be conducting their financial affairs with the utmost of prudence.
But a credit score isn’t worthless. A good credit score gives people access to credit when they need it or want it at the lowest rates. Since the credit score is indicating the person is a low risk of defaulting, lenders want to get that person to buy their loan product and attract them with cheap interest rates or access to their product.
People that have had a bad credit bump in the road or ongoing financial difficulties will have a low credit score. The score is a warning to creditors to either stay away and say no or to increase their price of credit through the interest rate to cover projected defaults.
When deciding how to deal with issues in life, and especially financial issues, falling a slave to your credit score is a bad idea. I’ve watched so many people make really bad decision because they are afraid it will hurt their credit score. At times like that the more appropriate answer should be “Who cares about the credit score.”
A credit score is actually not a scam, sham or fraud. But it is a game.
Why is it a game? Well it’s an easy system to deal with and overcome. A bad credit score isn’t a death sentence and it can be easily overcome. Look at how easy it is to play the game.
Boosting Your Credit Score With Good Credit Using a Secured Card
Using the report card analogy, if you wanted to bring up your GPA you would need to earn some better grades to do it. It is the same with your credit report. If you want to bring your score up you need to start having new and good credit reported about you.
The best way to do this is to get and use a secured credit card. In fact get two different ones. I put together a section of the site that lists reviews for secured cards. Look at the secured cards here.
The advantage of getting a secured card is that you will get the credit card and not get a rejection on your credit report that will further hurt your credit. A rejection can be easily spotted by looking at the inquiry section of your credit report and seeing there is not a corresponding card opened. And with your current bad credit, if you applied for an unsecured card, you would get rejected.
The reason you will get the secured credit card on the first attempt is because you need to put up a deposit with the bank that is equal to your credit limit. The deposit will earn you interest and in the unfortunate event you were unable to pay your card and defaulted, the bank would use your deposit to pay the debt.
When looking for a secured card you want one that will report to all three credit bureaus. This is key. We need your new good payment history reported.
Now when I say use the card, you do not need to carry a balance from month to month. Just use the card for regular purchases and pay the card off either immediately or at the end of the month.
Also, if you get a secured card with a $300 limit, never have more than 35% of the limit on the card. Even though your initial limits may be low, you don’t want to max them out. You can always increase your limits by increasing your deposits. You can increase your credit limit by increasing your deposit with the card company.
I suggest getting more than one card so you can get as much good juice flowing to your credit report without having too many credit cards open. You could actually go with three if you wanted to, but no more than that.
Just make sure the card will report to the credit bureaus.
So let’s get it straight what a credit score really is and play the game well. If you have to take a credit hit, so be it, but then get back in the game and clean things up.