6 Reasons Why Avoiding Credit Is Costing You

Remember that Credit is Money

As a teenager, I was repeatedly told that establishing credit and using it responsibly to build a high score was paramount to my long-term financial success. Too bad I completely ignored the latter part of that advice and found myself in a mountain of debt by the age of 21. And it’s around that time that I decided to complete a self-study course on financial literacy by a well-known expert. A bulk of the information shared seemed practical, but there was one section that left me scratching my head.

It was the part about debt-management; the instructor insisted on avoiding debt at all costs or it could be detrimental to your long-term financial health. While there is some truth to this statement if a debt is not managed responsibly, I’ve found that ditching credit altogether in favor of cash can come back to haunt you.

Here’s why:

1. Potential Lenders Can’t Properly Evaluate Your Application

Turns out having no credit is just as bad as having poor credit. Reasoning: lenders use your credit profile to gauge your credit risk based on several factors, such as payment history. But if nothing’s there, chances are your application for credit will be denied, or even worse, you may only qualify for the inferior products.

2. Exorbitant Security Deposits

If you just moved into a new place and need to activate cable, internet, electricity, water, or any other utilities, the provider may require a hefty refundable deposit if you have a minimum payment history. The same rule applies to cell phone providers: they’ll want to collect a lump sum upfront to be used as collateral in case you default on your monthly payment for services later on down the line.

3. Limited Credit Card Options

That irresistible credit card offers you see on television or internet advertisements are usually reserved for consumers with excellent credit. While lenders evaluate an array of factors to determine if you qualify for the most competitive offers, having a score on the higher end of the spectrum will definitely boost your chances. Until then, you’ll have to settle for a secured card or one with an outrageous APR should you decide to apply.

4. Good Luck Securing Travel Reservations

It’s practically impossible to make travel arrangements without some form of plastic. And if you use debit for lodging or rental reservations, don’t be alarmed if a large hold is placed on your card and remains intact for a week or so following the trip.

5. Limited Options When Renting

Need to rent an apartment? The landlord will want to run a credit check, even if you’ve proved you can afford the monthly payments. If you have little to no credit history, don’t be alarmed if they require first and last months rent along with a security deposit, or reject your application altogether if there are more qualified applicants on the waiting list.

6. Increased Insurance Premiums

Lenders, creditors, and landlords aren’t the only entities that may want to take a peek at your credit. “Approximately 95% of auto insurers and 85% of homeowners insurers use credit-based insurance scores in states where it is a legally allowed underwriting or risk classification factor,” according to the National Association of Insurance Commissioners. And the lower the scores, the higher the premiums. The good news is if you reside in California, Hawaii, or Massachusetts, you aren’t subject to this screening.

Bottom line: I’m not suggesting you apply for every credit offer that comes your way or else you could end up buried in a sea of debt, struggling to stay afloat. However, you shouldn’t completely ban them or you will have to fork over more dough than you initially bargained for should you need to borrow cash later on down the line.

7 Ways to Build Your Credit Score Without a Credit Card

Credit Score

Unless you have a ton of cash at your disposal, you’ll probably need credit at some point in your life. Whether you’re buying a home, car or big-ticket luxury item, the first thing that most lenders typically look at is your credit score.

If you have limited or no credit history, you’ll need to begin building your credit and boost your score before you apply for a major loan. Unfortunately, many believe that opening and using a credit card is the only way to go.

Here are a few alternatives to help raise your credit scores without the magic plastic:

1. Ask companies to report on your behalf

Do you have any recurring bills that you pay on a monthly basis, such as rent, utilities, cable, or a cell phone? Try giving the providers a call and request that they report your account activity to the three major credit bureaus, TransUnion, Experian, and Equifax.

Do this only if you have responsible payment habits, as payment history accounts for 35 percent of your credit scores and can have a significant impact if there is not a lot of other data in your credit reports.

Also, bear in mind that these companies are not obligated to report to the bureaus, and your request is simply a favor that they have the right to deny.

2. Become an authorized user on another credit card

Of course, there are pros and cons of becoming an authorized user. If the cardholder has a strong credit background, two thumbs up for you because signing on as an authorized user will enable their stellar behavior to improve your credit profile somewhat (perhaps not as much as you think). But, if things are the other way around, your credit scores could take a hit.

Either way, if you opt-in and have a change of heart, the information will quickly vanish from your credit file when you request to be removed from the account.

3. Open an account with a credit union and take out a small personal loan

Some credit unions have restricted membership and limited accessibility, but credit unions generally offer financing options at lower interest rates than traditional banks. To give your credit score a boost, apply for a small personal loan.

If your request is denied, inquire about a secured loan in which your money, say, a certificate of deposit or savings account, will be used as collateral. The request will more than likely be approved because the risk to the institution is minimal. And you may have to pay a tad bit of interest, but the rate usually beats what’s available in the credit card world.

4. Apply for an installment loan

Installment loans paid in a timely manner over an extended period of time build your credit scores because they show creditors that you are a responsible borrower. The types of credit in your file make up only 10 percent of your score, but the impact has the potential to be 

Retailers sometimes offer promotional installment loans to customers with little to no introductory interest for a limited period of time. If you have the cash on hand, it may not be a bad idea to take this route. But be sure that you have the total sum of cash available upfront to make timely payments and eliminate the balance before the interest kicks in.

5. If you’re a student, take out a federal student loan

A credit check is not required to obtain a federal student loan. All you need to do is fill out the Free Application for Federal Student Aid (FAFSA), and you’re all set. Since it is an instalment loan, it can help boost your credit score.

But don’t get the loan and blow through the money. Instead, aim for one that is subsidized and deposit the money into a safe interest-bearing account so the funds will be available when repayment starts.

6. Research peer-to-peer loans

Companies such as Prosper and Lending Club offer peer-to-peer loans in an environment where borrowers are connected with individual investors. The interest rates are usually lower than those of traditional financial institutions. And the lenders are eager to loan unsecured funds because the return they derive is competitive with other investments. (See “4 Things to Know About Peer Lending.”)

Most of the peer-to-peer lenders report to the major credit bureaus.

7. Try an alternative credit score

By reporting your payment history to an alternative to the big three credit bureaus, you can create a nontraditional credit score. Check out a service like Payment Reporting Builds Credit, known as PRBC, to learn more about how an alternative credit score service works.

Do you know of any other ways to improve your credit score without using a credit card? 

Source: http://www.moneytalksnews.com/7-ways-build-your-credit-score-without-credit-card/?all=1

It’s Not All Credit Scores: Other Things Your Lender Might Be Looking At

When applying for a credit card, it’s relatively easy to get a seal of approval if your  FICO score meets or exceeds the lender’s benchmark.

But that’s not necessarily the case with other types of loans, such as small business loans, personal loans, or even some car loans and mortgages. In order to assume the risk you may bring to the table, some lenders might scrutinize a number of factors to determine if you’re a good fit.

The five C’s of credit

Lenders may also weigh another set of factors called the five C’s, or as Investopedia puts it, “five characteristics of the borrower, [that attempt] to gauge the chance of default.”

1. Character

Even if your credit score is through the roof, potential lenders may be interested in you personally as well as your credit profile, particularly for loans made to small businesses. Says the Minority Business Development Agency:

Character is the general impression you make on the prospective lender or investor. The lender will form a subjective opinion as to whether or not you are sufficiently trustworthy to repay the loan …

Subjective opinions will normally be less important to most lenders than the things represented by the other C’s, but depending on the type of loan you’re getting, they could still play a role.

2. Capacity

Will you be able to keep up with the monthly payments that accompany the loan? Is your debt ratio (what you owe vs. what you own) below the lender’s acceptable limit?

To answer this question, potential lenders may evaluate your stream of income, both fixed and variable.

When analyzing your income, creditors will more than likely be interested in the duration of your employment to determine the stability of your income. Is there room for growth? Frequent job changes or extended breaks in employment can be a red flag.

Your outstanding debt to the pretax income ratio, also known as the debt-income ratio, can also come up, especially for large loans such as mortgages.

Are you practising sound debt management habits or cutting it close? Excessive late payments, exorbitant outstanding balances, and constant adjustments in credit limits reflect a higher level of risk, and the APR will be assessed accordingly if the loan is approved.

3. Capital

Do you have the funds available to make a down payment and reduce the risk of default?

If you’re making a purchase that requires a down payment, such as a car or a house, having the cash on hand to contribute without completely depleting your reserves is important. The larger your deposit, the lower the loan amount, and the less risk the lender has to assume. In addition, the lender likes to know you have cash reserves. Otherwise, you put yourself at risk of default if you have unexpected expenses.

Mark Twain said it best: “A banker is a fellow who lends you his umbrella when the sun is shining but wants it back the minute it begins to rain.”

4. Collateral

Are large assets available to help secure the loan?

When a lender loans based on collateral you provide, it’s known as a secured loan. Loans like those used to finance cars and houses are common examples.

Obviously, if you’re borrowing for a house or car, that asset will become the collateral. But there can be instances when a lender will look for additional sources of security in the event you should default. One typical example is with business loans.

5. Conditions

What are the current market conditions, and are your finances stable enough to remit timely payments over the term of the loan?

Wells Fargo notes:

Lenders may want to know how you plan to use the money and will consider the loan’s purpose, such as whether the loan will be used to purchase a vehicle or other property. Other factors, such as environmental and economic conditions, may also be considered.

And one S: Social Media 

If you are seeking credit, be mindful of what you post on social media. As we reported recently, some lenders are mining Facebook, Twitter, and other social media outlets to reach conclusions about creditworthiness. This factor could be especially weighty for applicants who have little or no credit history, according to CNN.

If you’re financially well-established, you might not have to worry about social media when applying for a loan. On the other hand, it’s never a bad idea to be mindful of what you broadcast to the world.

Source: http://www.moneytalksnews.com/how-lenders-evaluate-your-creditworthiness/?all=1

CTOS credit score card roll-out in Q1 2015

CTOS

KUALA LUMPUR: Credit reporting agency CTOS Data Systems Sdn Bhd will roll out credit scorecards by the first quarter of 2015 in a bid to benchmark credit profiles of individuals. Details of the credit scorecards are yet to be finalised.

The scorecard will provide a three-digit number that measures the probability of repayment of a borrower through information gathered by CTOS.

"But we hope to launch it earlier, because I believe that there is a need in terms of consumers understanding of their creditworthiness," CTOS CEO Eric Chin told reporters at a media briefing here.

He explained that the scorecard, called CTOS-FICO score, will be a more sophisticated way of evaluating the creditworthiness of individuals and SMEs in a bid to promote a positive credit culture in Malaysia.

CTOS in collaboration with FICO, which is a pioneer in credit bureau scoring technology, will be the provider of bureau scores to credit grantors in Malaysia.

Through that, Chin said, one with a strong score could potentially leverage for better interest rates from banks, transforming the credit market to be more consumer-driven.

CTOS, which is registered with the ministry of finance, collects and processes information from public resources and its subscribers in relation to the creditworthiness of individuals and businesses.

It also provides business intelligence and credit risk management solutions to businesses with banks, financial institutions, law firms, utility providers and telecommunication companies as clients.

Chin said the credit reporting agency industry in Malaysia is in its infancy, with substantial opportunity to grow its products and service offering.

"Malaysia stays at the data and information provision level, but should move up to analytics and decision support level," he noted.

Eric said CTOS is looking to grow its SME customer base by five-fold from the current 3,100 to 15,000 and increase its product range such as credit score, fraud score and credit capacity index to banks.

Chin is optimistic about loan growth in the banking industry, whereby access to credit is a fundamental element that fuels economic growth.

"This year there is a bit of moderation, but with the ETP (economic transformation programme) projects coming in, we're definitely optimistic on the loan growth," he added.

Creador is the largest shareholder of CTOS with a 70% stake and a total investment of over RM200 million.

Creador founder and CEO Creador Brahmal Vasudevan stressed that Creador is a long-term investor in CTOS and will stay on for at least five to 10 years.

He expects CTOS, which posts about RM60 million revenue annually, to register 20% growth in profits and revenue, helped by its strategic plans.

Creador is a private equity firm and its investment portfolio includes Bonia Corp Bhd, GHL System Bhd and Oldtown Bhd, to name a few.

When asked of new investment targets, Brahmal said Creador's focus will still be on the consumer sector, citing that the group "is working on a few things".

"Hopefully by early next year, we can share something … We would like to look at areas like retail, consumer products and so on," he added.

Brahmal said there is an intention to list CTOS in the future, but it won't happen within the next one to two years.

5 Tips to Get Your Mortgage

Mortgage

Financial institutions may be more stringent and thorough in vetting your housing loan application; you still can get your application considered favorably. Here are the things you can do:

1.       Debt to Income Ratio: According to Wikipedia, a debt-to-income ratio (often abbreviated DTI) is the percentage of a consumer's monthly gross income that goes toward paying debts. The bank may still approve your loan even your debt ratio is above 30%, it is prudent to maintain it at 30% and below. It means for every $100 of your income only $30 or less should go to paying your debt (such as personal loan, car loan, and housing loan).

2.       CreditWorthiness: Are you paying your credit card bills in a timely fashion. If you don’t your credit rating will be impacted negatively. It implies that you are not able to manage your personal finance and honor your financial commitments. In Malaysia, you can get a copy of your report from the Central Credit Reference Information system once a year. It is a record of all your loans and payment pattern. When you default in payments, it is reflected in the data. A bad record will get your application rejected even if you meet other requirements  

3.       Save for a bigger down payment: One effective way to get a loan is to apply for a smaller amount. You need to save for a bigger initial payment. You borrow less, incur less interest, and get shorter loan tenure.

4.       A permanent job with a permanent address: It is an important factor that you are able to hold down a job and not moving about without a full-time career and a fixed place to live. It tells others that you may not have a regular income to service your loan.

5.       Budget: Have you factored in the amount you need to pay the bank every month and other debts you need to service? Your monthly budget should be within your income or else you are going to incur new debt. You will be in a danger zone when you need to borrow more to cover your monthly expenditures. Be wise and be comfortable living within your means to avoid a financial crisis.  

A housing loan is a good debt because landed properties appreciate in value over time. Wisely review your financial situation before you sign on the dotted line for a mortgage.

Source: 5 Tips to Get Your Mortgage

10 Effective Ways to Establish Your Creditworthiness

Now that America is out of the AAA list, there are only 15 countries in the world with AAA ratings from S and P. Singapore is the only Asian nation with such a prestigious rating. China is only rated AA-. How do you establish a personal rating as good as triple-A? Here are the 10 ways to get it:


 1. A regular source of income: There must be a regular source of income. It means you are holding a job or you are running your own business with a steady income. There must be documentary evidence of your earnings such as your pay-slip or your tax returns.

2. A permanent address: This is the place where you live and you are not moving around frequently. It shows that you are stable and well-established.

 3. Create a credit history: When you do not have a credit history, it is perceived by bankers that you are not trust-worthiness to obtain a loan. Get a small loan and settle the loan in a timely fashion. There you are. You have just created a perfect credit history.

 4. A Current account: Operating a current account is another way to establish your creditworthiness. Keep your record clean by not issuing bounced checks. It is an indication that you are capable of managing your financial affairs.

 5. A Credit card: Having a credit card is an excellent way to build a firm foundation for your credit rating. As long as you always pay on time and pay the full amount, it confirms the trust in you by financial institutions.

 6. Pay bills promptly: Do not delay payments; it affects your credit rating negatively. It is an indication that you are not in full control of your life and finance.

 7. Avoid skipping payments: It is the worst thing you can do to destroy your credit rating. It is a sign that you are in financial problems and you are putting creditors on alert.

 8. Low credit card balances: A high credit card balance means you are spending more and paying less. It is a concern for a creditor.

 9. Keep debt within 30% of your monthly income: Are you building up more and more debt? When you have more debt, it means you have less to spend on your essential items. There is a danger that you may not be able to service your debt.

 10. Budget for it: Your budget should cover all monthly installments payments so that you will pay fully and promptly to protect your creditworthiness.


 Is your credit rating as good as AAA?

Source: 10 Effective Ways to Establish Your Credit Worthiness

10 Little-Known Actions That Sabotage Your Credit Score

We’ve shared some great ways to boost your credit score. But what if you’ve worked really hard to raise that very important number, only to make a bad decision that sends it to the trenches? Or what if what you thought was a smart move for your credit comes back to bite you?

Maintaining stellar credit goes beyond paying your bills on time each month and keeping your balances low. Unfortunately, there are a number of little-known factors that can tank your credit score.

1. Local government debts

Behind on your property taxes? About half of U.S. counties sell property tax liens to debt collectors, says The Washington Post. Contact your local office and see if payment arrangements can be made.

2. Parking fines

Have you been ignoring the notice you received in the mail about a past-due parking citation? If the issuer gets fed up and decides to turn the account over to a collection agency, your credit will take a big hit, and the outstanding amount will soar once the interest, penalties, and administrative fees are tacked on.

3. Past-due library books

If you’re an avid reader, be sure to turn in those books on time or make sure to promptly pay any overdue fines or fees. Some libraries turn unpaid fines over to collection agencies.

 4. Cellphone bills

Ditched your cellphone contract for a more attractive plan with another provider? Hopefully, you took care of the outstanding balance and termination fee, or your credit score will take a hit.

5. Cash-only purchases

Using cash for all of your transactions is not a bad idea, especially if you are trying to avoid returning to a debt-ridden existence. However, if you are new to the credit world, it is practically impossible to boost your score without some form of debt.

I’m definitely not suggesting that you open a new credit card or use your card all the time, but unused credit card accounts can be hit with dormancy fees that could damage your credit if you don’t realize they’re there.

An unused account could also be canceled, which reduces your available credit and could also be detrimental to your credit score.

6. Car rentals

Planning to rent a car using your debit card? Be prepared for the hard inquiry on your credit file that could result, plus a big deposit. The impact of a hard inquiry on your credit score varies by individual, but those newest to the credit world are usually hit the hardest because of the limited amount of information available in their credit profile.

Says Credit.com:

If the credit checks and deposits are too much for you to handle, search for companies, such as Alamo, that waive these requirements for debit card holders. Or, visit your nearest Rent-A-Wreck to retrieve a cash rental car with no strings attached.

7. Over-the-limit credit card balances

Not only will you be hit with a fee, but your credit utilization ratio will skyrocket, damaging your credit score.

To potential lenders, nearing your card’s limit indicates you are overextended and could have a hard time taking care of your obligations in the near future.

8. Too many credit card applications

Rate shopping for car and mortgage loans is a good thing and likely won’t drop your credit score, but applying for too many new credit card accounts in a brief period of time is a red flag to lenders.

9. No diversity

Lenders are interested in knowing if you can handle both revolving and nonrevolving debt, and the mix of credit you have constitutes 10 percent of your FICO score — the most commonly used credit score.

10. Closing credit cards

Not only could this increase your credit utilization ratio, but it could also shorten the length of your credit history — although closed accounts will remain on your credit reports for seven to 10 years.

Source: http://www.moneytalksnews.com/2014/05/23/11-little-known-actions-that-sabotage-your-credit-score/#ZkkdJUEiuVZP8fI4.99

I'm Debt-Free, So Why Did My Credit Score Drop?

Getting out of debt is a good thing, so why do some consumers see their credit scores decline after paying it off? There’s a common misconception that you must be in debt to have good credit, but that’s not the case. You do, however, have to use credit to earn a good credit score, and it’s sometimes difficult to see the difference.

Credit cards are probably the best example of this: If you pay your credit card bill every month, you are not in debt, and you’re building credit by using the card.

Swear Off Debt, Not Credit

If you’ve just paid off your credit cards, you may be said to yourself, “I’m never falling into debt again.” That’s a great goal, but if your plan involves cutting up the cards and never using them again (and you have no other debt, such as a mortgage or student loan), you may find yourself without a credit score.

It’s different among credit scoring models, but you have to have some recent credit activity on your credit report in order to have a credit score. If you don’t use your credit cards after paying the outstanding balances, the issuer will likely close the card due to inactivity, meaning they won’t report to the credit bureaus anymore. If that was your only form of recent, active credit, you’ll lose your credit score.

You can avoid this by using your credit card sparingly and paying the bill immediately. If you didn’t have a credit card before emerging from debt, you can get a secured card and apply the same strategy. Consider asking a trustworthy friend or relative to add you as an authorized user on one of their credit cards. That’s not a choice to be taken lightly by either party, so do your homework before trying it.

Prepare for Some Changes

Continuing with the credit card example: Paying off credit card debt can lead to a variety of shifts in your credit score. If you were using a high percentage of your credit limit, your credit score may improve, because you will have reduced the ratio of your debt to your available credit (here’s why that credit score factor is important). On the other hand, if you stop using the card, the issuer may close it, which would reduce your available credit and hurt your credit utilization rate.

Your mix of accounts also contributes to your credit score. Say you had student loans and credit cards, and you’ve just paid off your last student loan. If you don’t have an active installment loan on your credit report, your credit score may go down, but this isn’t nearly as important to your credit score as making payments on time or keeping your credit utilization rate low.

It’s easy to see how your various credit accounts impact your credit standing if you know how scores work. You can get a free, monthly snapshot of your credit and credit scores with a Credit.com account. Having a good understanding of your credit should allow you to reach your goals of getting out of debt without hurting your credit in the process.

How to Appeal a Denied Credit Card Application

Have you ever applied for a credit card on the spot in order to take advantage of a great promotional offer?

You think you’ve been pre-approved, but that’s one of the common myths about these offers that come in the mail. What happens when your application is denied or held up for further review? Are you just out of luck?

Not necessarily.

Note: The scenario I just described is a prime example of why I encourage consumers to carefully research credit cards and their qualification criteria prior to applying to decrease the chances of a denial and avoid the ding an application can have on your credit scores. The denial won’t affect your credit scores, but the hard pull on your credit report when you apply for a new credit card will.

Fortunately, the initial denial can be appealed by taking a few simple steps.

Potential reasons for denial

Before I get to the process, it’s essential that we cover the potential reasons for the rejection of your application. Time is of the essence, so start by requesting a copy of the credit report they used to make the decision, along with a thorough explanation of why they turned you down.

In some instances, you may have a credit report or application error that can be reversed rapidly through an appeal, or perhaps a computer glitch generated a false rejection.

Here are some other reasons your application could have gotten the axe.

• Too many late payments. If you can’t make timely payments to other creditors, why should this company take a risk on you? In most cases, there is a grace period of 30 or 60 days before the issuer reports the delinquency to the major credit bureaus, so late payments in your reports indicate that you are having a difficult time managing the outstanding debt you already have.
• High credit utilization ratio. Swiping away, but making, say, only minimum payments each month? This is another red flag to creditors and demonstrates that you are biting off more debt than you can chew.
• Credit newbie. Too new to the credit card world? If you don’t have a track record by which the creditor can assess your creditworthiness, they may not be willing to take a chance on you. You can always try a secured card to help build your credit.
• Poor credit score. Credit card issuers typically set a minimum threshold for applicants. 

Limited income. A small paycheck could mean that you may be inclined to use your credit card without being able to pay it off in a timely manner. This obligation could quickly drop to the bottom of the list of monthly priorities if things get a little tight.

Employment history. Are there gaps in your employment history? Or maybe you’ve held a large number of jobs in a brief period of time. Either way, potential creditors may perceive your fluctuating income as a major risk factor.

Assuming none of those reasons applies, the next step is for you to plead your case to the credit card issuer.

Step 1: Pick up the phone

By doing so, it may be possible to speak with a company representative who has the ability to reverse the decision. During the call, you want to do the following:

• Explain how their product will help you accomplish your objective. Maybe you are new to the credit world and you have decided to begin your journey with their product.
• Put your other relationships at the forefront. Having this brand-new shiny piece of magic plastic is a good fit because you already possess a number of their other products — a bank account and a debit card, for instance.
• Be patient. They are doing you a favor, so a bad attitude can kill your chances.
• Stroke their ego. Emphasize that the features of the card best suit your needs.

Step 2: Mail the requested documentation promptly

If they aren’t willing to make a reversal via telephone but have agreed to give the application another round of reviews, be sure to send all of the documents that will strengthen your case as quickly as possible.

Step 3: Write a letter

You can also try writing a letter. It should include the following:

• Introduction and reason for the letter.
• State your case and why you are a good candidate.
• Contact information and a statement reiterating your interest.

Still no luck? You can always search for another piece of magic plastic or work on building your credit profile until you meet the qualification criteria.

Source: How to Appeal a Denied Credit Card Application

Why Am I Having a Hard Time Getting a Credit Card?

Baffled man image via Shutterstock

If you’ve been applying for credit cards, but issuers repeatedly are declining you, it may be time to examine exactly why you are getting dinged. It certainly doesn’t have to do with your personality. More than likely, you aren’t getting approved because you either haven’t established a credit history or you’ve got a poor credit history.

Find out your credit score

When it comes to credit approval, everything is dependent on your credit score. Getting your credit score from a place like myfico.com is the first step in your investigation. Your credit score consists of five elements: payment history (35%), the amount owed (30%), length of credit history (15%), new credit (10%), and type of credit (10%).

All of these factors are what determines the level of risk you present to a creditor. They have no idea who you are. They are taking a risk on you. All they have to go on is your credit history, and you have to prove you are a good credit risk.

Build your credit history

Let’s say you do not have much of credit history. Then you’ll need to establish one. There are many ways to do this. The best way to begin is to obtain a secured credit card. With a secured card, you deposit a certain amount of money with the credit card company that it will use to pay off anything you charge if you default. Now you have a card you can use, and if you pay off your balance on time every time, you will establish a powerful baseline. The secured credit card will report your good behavior to the credit bureaus.

Another approach is to get utility services, like gas or electric or cable TV. Credit bureaus consider your on-time, in-full payment of these services to be of value in risk management because you receive services before you pay. But you must check to see if your utility company reports those payments. Most will, but only if you’re delinquent.

You can also see if your landlord is a member of, or would consider joining, WilliamPaid. This service reports your rent payments to Experian RentBureau. If you can also get a loan to buy a new or a used car, and make those payments in a timely manner, that will help. So will a mortgage or a personal line of credit, providing you make those payments on time every time.

Once you start down this path, go back to those five elements of your credit score. Pay on time every time. Try not to use too much of your available credit. Establish new credit as often as possible. Vary the kinds of credit you have.

Identify what’s holding you back

If you have a credit history, but can’t get a card, then chances are one or more of those same five elements are holding you back. You need to pay on time every time. If you are using up too much of your available credit, remember that issuers analyze your debt-to-income ratio. The higher that ratio is, the harder it is to get new credit. These are the two biggest obstacles you’ll face. Applying for a secured card will also help.