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Is It Ever Too Late to Establish a Credit History?

Sep 29th, 2020 • Damian Dunn

Hi there! I am a 32 year old woman who has no credit established. It is so embarrassing to me that I can’t get a loan or credit card in my name, so I decided 3 months ago to open an account to build my credit. Was that a good idea?

There are a few things to discuss here, but one stands out to me. 

Please don’t be embarrassed about your situation. You are where you’re at for one reason or another, or maybe no identifiable reason at all. You may wish you’d done things differently before, but you can’t change them now. Focusing on what you can control currently and doing your best to move forward will be the healthiest path for you. You’re actively working on improving your circumstances and you should be proud of that. 

Now, to answer your question. 

I’m going to assume that you opened a secured credit card to begin your journey towards a healthy credit score. If you’re reading this and have never heard of a secured card, don’t worry because I’ll explain it. A secured credit card functions very similarly to a debit card. For example, let’s say Bill goes to the mall and buys a new back massager at the gadget store and uses his secured credit card to pay for it. When Bill’s card is swiped, he’s pulling money out of an account that he’s already funded for future purposes. So, instead of using a debit card and spending money out of a checking account, he’s using a credit card and it’s pulling money from a pre-funded account with the credit card company. When the statement comes at the end of the month, Bill will send the credit card company a check for the purchases he’s made and increase the balance to its original amount in the secured account.

Why would Bill do this? Why wouldn’t Bill just use the debit card if it’s going to work in essentially the same way? One very important reason…

Activity on a secured credit card can be reported to the credit bureaus to help build credit history. While the individual transactions may not add up to a big sum of money (and they certainly don’t have to), making on time “payments” consistently will be a big help to showing that you’re a responsible user of credit. 

If you’ll indulge me, let’s look at just a few of the components of your overall credit score and how a secured card can help you improve a poor score. 

35% of your credit score is based on your payment history.

Are you making your payments on time? You’ve borrowed money and need to make a payment by the date on the statement. Send the check in on time, and your score will reflect it. Send the money in late and your score will show that, too. 

Another 15% of your score is based on your length of credit history.

How long have you had the line of credit open? If you’ve got a long track record reflecting responsible usage, that’s going to work in your favor. If you just opened the secured card, every month that goes by from here on out will benefit you. 

Between those two categories alone, we’re staring at half of the value of your score. Get those two things right, and you’re headed in the right direction. 

Finally, the other big slice of the pie when looking at your credit score is your credit usage. How much of your available credit are you using?

In order to keep your credit score high (or build it higher), you’ll need to keep your utilization rate (how much of your credit you’re using) at 30% of your limit or lower. In other words, if the credit limit on your card is $500, don’t charge more than $150 on one statement. This is very important as your credit utilization makes up another 30% of your credit score. 

Run the quick math and you’ll see that your payment history, credit history, and credit usage adds up to 80% of your overall credit score. Keep these things in line and you’re bound to see improvement in your score in the long run.

So, to answer your question, having a good credit score can be very helpful and it’s important to work towards that goal. If you’re going about this by using a secured credit card, that can be one of the better ways to get the ball rolling. However, do your best to focus on what you can control and avoid comparing yourself to others. Just because someone may have a better credit score than you doesn’t necessarily mean they’re any more financially stable or responsible than you are. Use your available credit wisely and your score will surely reflect that discipline in time. 

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