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Here's a summary of my current position:

  • Current credit rating of 600/610 (I think. I'm positive it was in the lower 600's 4 months ago)
  • I've had a card for a year, $500 limit, no late payments, currently $50 balance
  • Attempted to get a car loan 4 months ago, turned down because I could not prove income (long story)
  • Recently (4 months ago) got a big income boost, going from 20k to 60k
  • Also 4 months ago I applied for a Target RedCard, and was declined
  • I'm in my mid 30's (if that's significant)

What's my next step? I'm afraid to apply for more credit because I understand applying will lower your score. My goal is to make positive strides as quickly as I can. My living expenses are currently $1400 a month below my after-tax income, and I'm socking that money away in the hopes of using it as a down payment on a home next year.

I'm really a bit stumped as to what to do next, other then continuing to make minor charges on my one card and paying it off monthly.

4

Something is missing from your scenario.

If you don't know what it is, start by going to http://annualcreditreport.com and get your free credit report. Review it, and figure out if you have outstanding balances or judgements that you're unaware of.

You should be using your card every month and pay it on time.

  • I got the free credit report- Equifax only- there are two old debts that I had paid off as soon as I got the new job (signing bonus!) and both of those JUST reported in May that the debts are paid - so that should help. I also have a medical bill I was unaware of from 2009 for $1045 which I'll take care of later this week. [there had been a number of bills related to that incident, i had thought them all squared away] – Will May 19 '11 at 0:45
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If you are not banking with a credit union, open an account. Speak with a person there an explain you are wanting to build your credit history. They will likely have a product designed for the purpose.

Also, to agree with duffbeer703, why is your score so low at this point? Make sure your three credit reports do not have anything incorrect on them and challenge wrong items.

If everything is fine on the report, you just to have more credit and use it for a longer period of time.

I presume you are building credit for a large purchase such as a house. Please be very careful with borrowing money and do your best to avoid carrying balances.

  • I had a some major problems from late 2001-2004. I never had lots of credit to begin with. I'm taking care of old outstanding bills, but I think it takes time to have that reflect on the score. – Will May 19 '11 at 0:27
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I notice that a lot happened four months ago. You were denied credit twice. Your income went up from $20k to $60k. I'm wondering if you were denied credit based on your $20k income. Since you couldn't provide proof of your income I wonder if they used $0 for your income.

Debt to income ratio is one significant factor included in the credit score calculation. You may not have a lot of debt, but if you don't have any income even a few hundred dollars on a credit card would throw your debt to income ratio into a panic.

I'm assuming that your change from $20k to $60k income involved a change of jobs. Perhaps now you can provide proof of income. You would certainly need to do that before being approved for a mortgage.

Well that's my two cents about what may (or may not) have gone wrong last time. As for what to do next I would agree that the most helpful thing you could do is check your credit score and fix any errors that might negatively impact your credit score. (There might also be non-errors that need addressed such as open credit accounts that you thought you had closed.)

When building credit history, time is on your side. If you just go on living your life and paying your bills promptly, your credit will slowly climb to an acceptable level. Unfortunately in the time frame you mentioned (~1 year) there isn't really enough time to build it significantly.

You bring up a valid point about credit applications reducing your credit score. Of course, that effect is somewhat minimal and temporary (2 yrs according to the thread linked to above). But again 1 year is not enough to recover. If you're considering applying for additional credit as a means to improve your credit score it may be too late to reap the benefits before your mortgage application.

Of course if you could pay off any debts, that would help your debt to income ratio. But it would also reduce any house down payment you could save up and thereby increase the amount of your mortgage.

Better just save those pennies (or preferably Washingtons and Benjamins) to put toward a down payment.

  • I was denied the car loan based on the old income -- I was denied the Target RedCard based on the new income -- although the application asked for income but does not ask for employer information, so I can't imagine they verify or weigh it too highly. Are there credit cards that will actually check your income in deciding to give you a card or not? – Will May 19 '11 at 0:23
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Obviously the only way to have good credit is by owing money, and making payments as scheduled. To do this I would do everything I could to place all of your required expenses on a credit card. This can include paying rent, food, transportation, etc.

These are all payments that you already make, but simply move then through a different payment vehicle. It sounds like at this time you may not have a credit card that allows you to do this, but I would watch out for those cards that come in via mail with all kinds of special deals.

While you have not mentioned if you have any of this, make sure that you keep up with your past debt and negotiate repayment if needed.

Once your credit improves, you should begin to see doors opening that are problems now.

  • Gotta disagree with all. Some I could live with, but it only takes one unplanned event to turn this suggestion into bad news. – MrChrister May 16 '11 at 5:30
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    His sole credit card has a limit of $500. He shouldn't be using more than $150 (30% of limit) of that in any given month (even if paid in full each month. If he exceeds that 30% marker then this will have a negative impact on his credit report. – Frazell Thomas May 16 '11 at 21:08
  • @MrChrister: Why is this a problem? These are required outgoing payments, and as a result should have no negative impact. Sounds to me like an unplanned event would be problematic in either case. Note that I recommend getting another new credit card since his current one has a low limit. – sosc May 17 '11 at 0:13
  • @Frazell Thomas: I'm not sure this is the case. Do you have any references that can attest to that statement? – sosc May 17 '11 at 0:13
  • @sosc Look at the Amount Owed section from the company that makes the FICO score product that most lenders use: myfico.com/Downloads/Files/myFICO_UYFS_Booklet.pdf – Frazell Thomas May 17 '11 at 1:16

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