Building Credit. Even From Zero.

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It is easy today to apply for a store credit card that you forget all about in three years - but that account will remain on your credit report and affect your credit score as long as it is open. Having credit lines and credit cards you don’t need makes you seem like a higher credit risk because you run the risk of “overextending” your credit.

Also, having lots of accounts you don’t use increases the odds that you will forget about an old account and stop making payments on it - resulting in a lowered credit score. Keep only your used accounts and make sure that all other accounts are closed. Having fewer accounts will make it easier for you to keep track of your debts and will increase the chances of you having a good credit score. However, realize that when you close an account, the record of the closed account remains on your credit report and can affect your credit score for a while.

In fact, closing unused credit accounts may actually cause your credit score to drop in the short term, as you will have higher credit balances spread out over a smaller overall credit account base.

For example, if your unused accounts amounted to $2000 and you owe $1000 on accounts that you have now (let’s say on two credit cards that total $2000) you have gone from using one fourth of your credit ($1000 owed on a possible $4000 you could have borrowed) to using one half of your credit (you owe $1000 from a possible $2000).

This will actually cause your credit risk rating to drop. In the long term, not having the extra temptation to charge credit beyond your means is just wiser usage and will only help safeguard against the temptation to ‘overextend’ yourself.

If you have scores below 600, and are having a hard time obtaining a line of credit, consider a secured line of credit that has no minimum credit requirements to help you get started. You will also want to be sure that whatever secured credit card you obtain will report to all three of the major credit bureaus, which is not always the case.

For a card that fits the bill, we really like the secured Credit Builder Card, which is why we partner with them in providing it to consumers. It has no credit minimum which means you can still get approved with a “0” credit rating, and reports to all three credit bureaus so you can quickly start building your score back up by using it each month and paying it off. Whatever you choose, be sure it follows the above criteria to be as effective as possible.