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Jim Droske has a perfect credit score of around 839 from Experian using a FICO score 9. He hit the final 850 mark in early 2020, but his score has since dropped after two inquiries appeared on his mortgage refinance report.
Regardless, today Droske has what lenders consider an excellent credit score. However, he knows he didn’t get there all night. Today, doing your lessons entails helping people build credit as Head of Illinois Credit Services, a credit counseling firm.
Curious about what he would recommend to those just starting out with no money or bad credit, I asked CNBC Select Lessons what he would do if he had to start fresh from scratch. “There is a lot to do and what to avoid,” he says.
Below, we share three steps a credit repair expert said he’ll take.
1. He will find any source of income
“First of all, you have to earn some amount of income so you can stay afloat,” your lessons say. “You can’t get anywhere without some kind of income.”
While this may seem obvious, the idea is that you should prioritize making money if you don’t have any. Only then will you have the ability to pay your bills, helping you build credit. Remember that your payment history is the most important factor determining your credit score.
The current economic climate makes finding a stable job more difficult than usual, but consider supplementing your income in other ways while we wait for things to recover.
Here are some ideas:
Use a cashback credit card for all your spends
For any essential purchases you make (such as groceries), use a credit card that gives you cash. The Capital One® QuicksilverOne® Cash Rewards credit card allows those with average credit to qualify and cardholders receive 1.5% cash back on all their purchases.
2. He pulls his credit report
If you have bad credit, find out what’s holding you back, says Druskey.
“Run your credit report and see what’s out there. Sometimes people don’t want to look because they know it won’t be what they want to see — but you have to.”
Your credit report is a good overall picture of your credit health standing. In it you will find a variety of information about your accounts, inquiries and general records. Overdue accounts (late payments) that you see remain on your credit report for up to seven years. Late payments also negatively affect your credit score for as long as they remain on your report, but their impact diminishes over time.
Pull your free credit report weekly at AnnualCreditReport.com. Check to make sure the information is accurate. About a quarter of Americans have an error in their credit reports, which can lower your credit score and affect your chances of qualifying for new credit.
3. It will build (or rebuild) credit as quickly as possible
Having good credit is important if you have ever wanted to rent an apartment, buy a house, get a car loan, or start a business. A good credit score helps you qualify for loans and credit cards, and higher scores earn you lower interest rates.
The sooner you start creating a credit profile, the better: Credit scores take into account the length of your credit history, or how long you’ve had credit in your name.
“You have to demonstrate that you’re managing credit responsibly in order to get good credit, so start rebuilding ASAP,” your lessons say.
Admittedly, it is difficult to improve your credit score when you have no money. The trick is to get into good habits while working with the resources you have. Protect your score by paying your monthly bills on time and avoid charging more than you can afford. If you have a balance on your credit card, try to pay off as much as possible (ideally, the entire balance). This way you can save interest and keep your credit utilization rate low. Credit card debt is the most expensive because of the high interest rates.
“Do Not Use credit cards like a loan, “Use them as a convenient way to pay for things. Only charge about 5% to 10% of your credit limit and pay it in full each month to avoid paying interest.”
For those just getting started with no credit at all, start with a secured credit card (designed for beginners), or see if a family member can add you as an authorized user to one of their credit cards. This way, you can undo their good credit behaviors and see your score go up.
You don’t have credit? Start building credit with this card
The Discover it® Secured Credit Card is designed for those who are new to credit or looking to create their own backup. There are no annual card fees, a rewarding cashback program and a generous welcome bonus. Discover will make a dollar-for-dollar match for all the refunds you’ve earned in your first year of being a new cardholder.
If you don’t have cash or have bad credit, don’t worry. Everyone starts from scratch at some point. Start by finding an income stream, then work your way up. Make sure you pay all your bills on time and protect your score by paying off as much of your revolving balances as possible each month.
“Bad credit is not a life sentence,” Drosck says. “The results can recover. The process is: reduce bad things, build proper good credit, and teach you to understand how credit and time work. And time heals too.”
For Discover it® Secured Credit Card rates and fees, click here.
Editorial note: The opinions, analyses, reviews or recommendations in this article are those of the editorial board alone, and have not been reviewed, approved or otherwise endorsed by any third party.