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Insufficient Credit Profile: Here’s What to Do

Sept. 4, 2014
Credit Cards, Credit Score
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You’ve been hearing about the importance of having a good credit score, but you realized you have an insufficient credit profile and are wondering what to do. Having an insufficient credit profile should motivate you to act, and you can do lots of things to jump-start your credit history.

You can create a credit history both by applying for credit and using it, as well as establishing a history without actually putting yourself into debt.

No debt? No problem

There are several ways to establish a credit history if you have an insufficient credit profile, and you can do it without running up debt. The trick: You have to convince creditors to help you with this process.

Your first stop should be your service providers. Things like electricity, gas, oil and even cable or satellite TV operate much like credit providers.

They are providing you with goods and services on the promise that, when their monthly statement arrives, you will actually pay up.

Generally speaking, these services have relationships with credit bureaus, but they only report the bad stuff — such as you not paying your bill.

However, check with each and every provider to see if it is willing to report your on-time payments as well. Some will and some won’t, but it only takes one to establish that history.

Landlord help

Another approach is to work with your landlord. He’s a credit provider, too. He’s letting you live in his housing and banking on the fact that you’ll pay your rent.

Some credit bureaus will accept payment history information from landlords.

There is also a service called WilliamPaid, which will both automate your monthly rental payment and report those payments to an offshoot of one of the big credit bureaus called Experian RentBureau.

Secured credit cards

If you strike out with these – or even if you don’t – one of the most effective ways to build credit is with a secured credit card.

Normally, credit cards are unsecured. The issuer lets you charge up a storm, then hopes you pay them back when the monthly statement arrives. If you don’t pay, they have to pursue you for collections.

With a secured credit card, you actually deposit a pile of cash the issuer can draw on if you are delinquent. So if you put up $2,000, you’ll get a credit line of $2,000.

You aren’t really going into debt with this option, because you’ve put up the cash already, so it’s a bit like pre-paying. If you pay off those charges each month without the issuer ever having to touch the cash deposit, you’ll start to build that credit profile.

Other providers

Beyond other traditional alternatives, there are products like LendUp. This consumer finance company allows you to get small-dollar loans, and the more responsible you are in paying them off, and taking credit education courses online, the lower your rates will be on subsequent loans — and they will report your good payments to the credit bureaus.

This is a somewhat dicey proposition. The first loan is effectively a payday loan, charging $15 per $100 on a 30-day loan. You can work your way up to borrowing $1,000 at 29% APR.

That’s the highest APR you’ll see on credit cards, for subprime borrowers. Some advice if you choose to go this route: Since this is an expensive proposition, borrow the money and pay it back immediately.

That establishes your history and gets you moving up their ladder to the point where you can get that important credit bureau report. It’s basically buying a set of good credit bureau reports, but not a good deal as far as actually taking out a loan.

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