I graduated from college in april 2004 with less than stellar credit. 
those were lean times. I settled a credit card and missed a bunch of payments. 
the result of which is that now, even though I make almost 70k annually and 
have a bit of cash in my savings account, my credit history and score are lousy. 

my score is around 590 and I have two entries in regards to my late payments.
all issues have been resolved but they are still there as one would expect. 

I would like to improve my score. I would like to get up to 700. but I can't even 
get a target visa or the likes and secured credit cards seem terribly expensive. 

so here is what I am interested in:

Please outline how I, a new york city resident, 29 years old, can improve my 
credit score significantly, hopefully within six months. I have $600 available 
to do this and could technically come up with another $2300 but they are in 
a 4.5% savings account and I am somewhat reluctant to give that up. 

What are the three to five steps you recommend I should do? Be precise. 
if you want me to get a secured credit card, tell me which one and why, tell 
me how much I need to invest, tell me when to pay how much (my inclination 
would be to open one up and pay it off right away but I understand that might 
not be wise.)

I am tired of guessing my way around this field and would like someone 
with actual knowledge of the financial industry to outline a step-by-step plan 
for me for the next six months to a year. 

it is okay for you to have financial interests in the services you recommend 
but I would expect you to disclose them. I will add a $20 tip for a
truly outstanding
answer.

Hi krautland-ga -

It would seem that you have excellent prospects for improving your
credit score as you are no longer in debt.  But the ironic thing about
high credit scores is that you have to pay off debt to get them. Also,
you should pay off this debt quickly and regularly.

You are essentially starting over; the same applies to you as applies
to someone starting out fresh.  You have to (re)establish a good
credit rating.

Below are recommended steps to attain a good credit rating compiled by
American Express with the assistance of the Federal Trade Commission:

"FIRST, consider applying for a credit card issued by a local store
and use it responsibly. Ask if they report to a credit bureau. If they
do ? and if you pay your bills on time ? you?ll establish a good
credit history.

"SECOND, consider a secured credit card. It requires that you open and
maintain a bank account or other asset account at a financial
institution as security for your line of credit. Your credit line will
be a percentage of your deposit, typically from 50 to 100 percent.
Application and processing fees are not uncommon for secured credit
cards. In addition, secured credit cards usually carry higher interest
rates than traditional nonsecured cards.

"THIRD, consider asking someone with an established credit history --
perhaps a relative -- to co-sign the account if you don't qualify for
credit on your own. The co-signer promises to pay your debts if you
don't. You'll want to repay any debt promptly so you can build a
credit history and apply for credit in the future on your own."

Credit matters
http://www.pueblo.gsa.gov/cic_text/money/credit-report/rscredit.htm

The FIRST item is quite easy in New York City.  A department store
like Macy's will often ask if you want the store's credit card when
you pay for a purchase.  Just say yes, and they will invariably give
you one.  Use it and pay it off at the end of the month.  Use it the
next month and pay it off promptly.  Etcetera, etcetera.

The SECOND item, a secured card, is also a good choice.  You will use
your $2300 savings as collateral against a credit card balance.  You
don't have to use the bank savings to pay off the card, just make
regular payments as usual.  And be sure to pay it off every month.

Also, be aware of scams associated with the marketing of secured cards:

Secured Credit Card Marketing Scams
http://www.ftc.gov/bcp/conline/pubs/credit/secured.htm

The THIRD item is self-explanatory.

Have you checked that your credit report is correct in every way?  If
you dispute some of the conclusions you have the right to correct
them.

"How To Dispute Errors on Your Credit Report

   "1. Make a copy of your credit report and circle every item you
believe is incorrect.

   "2. Write a letter to the reporting agency (the address will be
printed on the report). Explain each dispute and request an
investigation to resolve the issues. If you have supporting paperwork,
send it along, coding pages to match dispute paragraphs. Do not send
your originals.

   "3. Send all materials by certified mail, return receipt requested,
so that you can prove the packet was received.

   "4. Send a similar letter of dispute to the creditor whose
reporting statements you disagree with."

How to Correct Errors on a Credit Report
http://homebuying.about.com/cs/yourcreditrating/a/correct_errors.htm

I'm not going to recommend what choices you should make among the
three recommended above by American Express with the FTC.  I will say
that the store card seems an easy, logical choice.   Also here are two
web sites  that issue or rate secured cards:

VISA (secured)
http://usa.visa.com/personal/cards/credit/visa_secured.html?ep=a_cpc_google_secured+visa+card

The 10 Best Credit Cards for Consumers (Secured)
http://www.bankrate.com/brm/rate/cc_ratehome.asp?web=brm&state=US&prodtype=cc&R1=1&card_type=Secured&card_class=All&max_recs=50

As you can see by the bankrate.com website, both finance charges and
annual fees may be quite high with secured cards.  As you should be
paying off your entire bill each month, the finance charges will not
affect you. Perhaps at the end of one year, you can qualify for an
unsecured card and will not have to pay a high annual fee again.

Finally here are some highlights from the website below on improving
your credit score:

1.  Pay bills on time

2.  Don't close out old credit cards even if you don't use them (this
may not apply in your case)

3.  Don't open a lot of new accounts.

How to Improve your FICO Score
http://www.myfico.com/CreditEducation/ImproveYourScore.aspx

You mentioned that you'd like to raise your score within the next 6
months to a year.  It may take longer than that.  And don't forget, a
Macy's or Lord&Taylor or Saks or Barnes and Noble or Best Buy or
whatever card will go a long way to helping you raise your score. 
Just get one and pay it off every month.

If you decide you want to go the credit card route, you might want to
check first with the bank in which you have your savings account.


Here are some more sites that may be of interest to you:

Consumer Action
http://www.consumer-action.org/archives/English/library/credit_cards/2002_Secured_CreditCard/index.php?English/library/credit_cards/2002_Secured_CreditCard/index.php

Secured Credit vs Unsecured Credit
http://credit.about.com/od/whatiscredit/a/securedcredit.htm

10 questions before getting a secured credit card
http://www.bankrate.com/brm/news/cc/19990823.asp

Credit Cards for People with Bad Credit
http://www.creditcards.com/bad-credit.php


Google Search Strategy
Search Terms: secured credit card
://www.google.com/search?q=+secured+credit+card&hl=en&hs=78U&lr=&client=firefox-a&rls=org.mozilla:en-US:official&start=10&sa=N

Search terms: secured credit card site:.gov
://www.google.com/search?q=+secured+credit+card+site:.gov&hl=en&hs=kop&lr=&client=firefox-a&rls=org.mozilla:en-US:official&start=10&sa=N

Search terms:  improving credit score
://www.google.com/search?q=+improving+credit+score&start=0&ie=utf-8&oe=utf-8&client=firefox-a&rls=org.mozilla:en-US:official

Here's to an improved credit score,

Alanna-ga

---

Request for Answer Clarification by krautland-ga on 15 May 2006 22:33 PDT

alanna, 

excellent answer, thank you. 
but I have one further question: considering that target has already
declined to give me a credit card (I thought that one might be easy to
get), do you think a barnes and noble or macy's store card would be
still possible for me to get or should I assume that's not going to
happen and not risk damaging my credit report any further right away?

thanks,
krautland.

---

Clarification of Answer by alanna-ga on 16 May 2006 10:18 PDT

krautland -

Unfortunately inquiries to your credit bureau do affect your score
(slightly).   Probably the safest way to go is with a secured card
which you can shop around for. Also, check with your bank to see what
they would recommend.

I'm glad you liked the answer and thanks for the tip.

alanna

If you can join a credit union, they seem to have reasonable loan
programs you could take advantage of and pay off promptly. At least
mine does, but they are military affiliated and have folks that know
when they'll get paid and are easy to find.

To krautland-ga:

I agree with much of what alanna advised you to do; however, I would
like to add a suggestion. Because good ratings on installment loans
mean more to the credit reporting agencies than credit cards, I
suggest that, in addition to getting a credit card, you also go to
whatever bank you have your savings account at and take out an
installment loan for about $1,000. Use your savings account as
collateral for the installment loan so you will get a lower interest
rate on your loan.

You should know that using the savings account as collateral will mean
that the bank will freeze a portion of your savings account (probably
$1,000 for a $1,000 loan) until the loan is paid in full. If you
should need the money in your savings account for an emergency, you
can simply pay off the loan to un-freeze your savings account. Be sure
that the bank does not place a pre-payment penalty in your loan
documents for paying the loan off early.

Once you get your loan, pay off $500 of the loan's balance with the
first monthly payment. You are doing this because you want to lower
the utilization ratio on this loan.  Your utilzation ratio is the
percentage of the outstanding balance on your loan to the credit limit
on your account. The higher your credit utilization ratio, the lower
your credit score and vice versa. By immediately paying your loan down
 to the 50% level, you have automatically improved your credit score
because you now have a low utilization ratio on this account. I would
also recommend paying down whatever credit card you get to at least
the 50% level or lower.

People who have paid all of their bills promptly can still have a low
credit score because their accounts are all maxed out. A high
utilzation ratio can hurt your credit score dramatically.

Next pay off your new installment loan according to the terms the bank
has set forth. You can even use an automatic payment system that
allows the bank to take your monthly loan payments directly from your
savings account. Then you will be certain to have a prompt payment
record.

Go to this web site for other tips on improving your score: <a
href="http://www.namethatvalue.com/credit/improvescore.htm"
target="_blank">Improve your credit score</a>

You also may want to invest in a good book on credit scoring. The best
I have read is "Credit Scores and Credit Reports" by Evan Hendricks.
This web site has a link on how to buy the book: <a
href="http://www.namethatvalue.com/credit/fico.htm"
target="_blank">Your Credit Score</a>.

BobRose