Roughly 47 percent of employers pull credit reports before hiring new employees, according to the Society for Human Resource Management. It’s not uncommon for employers to rescind an offer or decline making one after seeing a poor credit score. Some speculate employers fear such employees are financially irresponsible or prone to suspicious behavior. Poor credit can also prohibit you from getting a credit card, getting a low interest rate on a home loan or securing an auto loan.
So how can you restore your credit to good standing? Banks and big financial institutions make building credit quickly seem like a complex mystery. But all credit building really boils down to is borrowing money and paying it back on time. The hard part is finding credit-building opportunities, especially for those with poor credit scores and mounting debt. Here’s some help:
Use Your Rent
Sites like Experian and TransUnion will include rent data on your credit report. Unfortunately, you can’t just log in and report that information yourself. Instead, your landlord can use an agency like RentReporters to report the data for a small fee. But small and independent landlords may not opt to do this for you and are under no obligation to do so. But there’s another option. Pay your rent through WiliamPaid.com for a small fee and the activity will show up on your credit score.
Get a Credit-Builder Loan
Scout around for a local credit union offering credit-builder loans of up to $1,500. Credit unions typically offer lower interest rates to their customers and are easier to secure loans through than traditional big banks. Customers put the money loaned into a savings account to accrue interest and make regular payments on the loan until it’s paid off. After the loan term ends, collect the interest or reinvest.
If you can’t take out a credit-builder loan, reevaluate your spending and income potential. Those receiving regular annuity payments may get a few hundred dollars a month, which in turn gets spent on bills, groceries and a social life. Your money may serve you better if you sell annuity payments for a lump sum of cash now, and then you apply that money toward a credit-builder loan, a secured credit card or any outstanding debt you have.
Get a Secured Credit Card
Unlike traditional consumer credit cards, a secured credit card requires cash collateral upfront. If you add $400 to the card, that’s exactly how much you can spend, unless the creditor extends a line of credit for good payment activity. Secured credit cards usually carry annual fees and offer less flexibility than traditional cards.
Experts suggest charging 10 percent or less of the amount on a secured card each month to further boost your score. The ratio of debt verses what’s left on your card can inch up points on your score. But this also works in reverse. If you have a $400 secured credit card and charge $390 on it, the high ratio of debt verses your credit line can actually deduct points from your score. But within a year of responsible use, you should see your credit score improve enough to apply for other traditional credit cards with higher limits.
Peter Galvin is a retired financial planner who has enjoyed writing and spending time with his three children since his retirement in ’09.