This story is featured in my new book, Soldier of Finance, now available at all major book retailers

IMG - How to raise your credit scoreA previous intern of mine, Kevin, was oblivious to what his credit score was. His parents had always told him to not open a credit card in fear that he would get in massive credit card debt and ruin his future.

Unfortunately, his parents were wrong.

I had him find out what his credit score was through and he was unpleasantly surprised. This is his story of finding out his credit score and what he did to improve it. Enter Kevin….


As a Junior and Senior in college I was always told that applying for a credit card could be my first step in the wrong direction.

I was given the warnings that I am sure many parents have given, and many young adults have received, the major outcome being that I would spend money without conceptualizing the possible consequences of not being able to pay it off.

Without actually handing money over for goods I would purchase, I would fall victim to losing the concept of having to work for items that I was receiving, as well as the curse of living above my means which many Americans fall victim to on a daily basis.

My response was always the same,

“How would I know until I was able to try for myself?”

Humbling Experience

When I was finally able to try to get a credit card for myself, my initial attempts were laughable to the banks I talked to. I had to walk into the banks and tell them what is probably the typical story for anyone who is in their final years of college, or have just graduated very recently from college. It went like this,

“I am un-employed, have no credit history, and have a couple thousand dollars in college debts that I will have to start paying on in the next year or two.”

Lets face it; this is not exactly the most appealing story when you are trying to convince someone to give you a line of credit!

Two banks denied me, but one of the bankers let me in on some info which has helped me raise my credit score over 100 points in the past five months which I think everyone should be aware of. The gist of his story was that I should stop trying to apply for credit cards and getting denied, his reasoning was when you apply they do a hard credit check which in turn will actually lower my credit score even lower!

Get It Secured

He also told me that no major bank was going to accept my credit application anyway, but there was another way. This other option was to sign up for what is called a “secured” card, which is offered through Capital One. Now as you will probably decipher yourself when I tell you the agreement of a secured card is that it is horribly one-sided in favor of the lender, but I assure you it is a small price to pay for what it has done for me in the past five months.

The secured card is like a credit card, except you have to give them all the money in advance of what would be your credit limit on a normal credit card. At first this process confused me, I thought that I would give them my initial check for the limit, then as I spent the money, it would deduct from this initial down payment. The actual process is they hold this deposit as your limit, then do not deduct from it as you spend on your secured card, rather all expenses on the card are treated like a regular credit card.

There is also a $34 dollar a year fee to have a secured card, so you can begin to see how the deal is definitely in their favor for giving you the chance. After you have made the deposit, it is then a real credit card, all of the expenditures are treated as if it where not a secured card in the eyes of the credit unions therefore establishing credit in your name.

This is the route I had to take, and I suspect there are many people out there who are also in a similar situation to what I was in. Even though you have to put all the money up front, as well as pay an annual fee for giving Capital One all of the money you would theoretically spend, it is still very much worth it from a longer-term perspective.

First Credit Score Check: Ouch!

I checked my credit score in March of 2011 right before I decided I would like to try and get a credit card and had a credit score of 621. I set up a Capital One card with a credit limit of $1,100. This credit limit should be a function of what you have, and also what you plan on using the credit card for. According to many bankers and friends I talked to, you should try to run a 75% utilization rate on your credit card to maximize your potential to raise your credit score.

So if you only spend around $300 a month, you should only give Capital One a $500 dollar down payment so that you are utilizing your credit rather than having a $1,000 dollar limit and only spending $300. My expenditures were approximately $700 dollars a month so the $1,000 dollar limit fit my needs.

Smart Spending

After I had gotten my secured card and started spending, I would make sure that I would only spend money I already had, or would receive before the next pay period. I ended up paying off my credit card roughly four times a month ensuring I never carried a balance from one month to the next. I would never let my card exceed $800, and I would never pay it off if the card balance were under $300 unless the pay period was coming to an end.

I would spend every penny on my credit card from the smallest expenses such as a drink from the gas station, to major purchases such as airline tickets or hotel rooms. I repeated this process for five months to establish a credit history always paying on time, and always making purchases on my credit card.

Second Credit Score Check: Yes!

In August of 2011 I had to purchase a car so that I could switch jobs, when I filled out the credit application to see if I qualified for the lower financing rates, my credit score came back as a 731.

This meant that in five months I raised my credit score from 621 to 731.

This is a very big deal because at 621 I would have been denied a loan for the car, or would have had an interest rate that exceeded 9% on the auto loan. Since I chose to get a credit card, in this case a secured card, I was able to take the car loan on my own, and qualify for their special 3.99% financing for the car.

The difference in the loan between the two different interest rates would be $750 over the life of the loan, far surpassing the $34 dollar annual fee, and the opportunity cost of Capital One holding my $1,100 for the five months they held it.

Message To The Parents

To all of the parents out there on the fence about letting their college kid apply for a credit card, or to all of the college students who have been denied a credit card, or are also on the fence of whether it is a good idea, I can tell you it worked for me in five months and will change my financial future for many years to come.

It is a foolproof way to receive a chance to raise your credit score when it is not possible through a regular bank credit card, and is a safe way to earn credit if you do not trust your kid or self with a credit card that is not collateralized with your money. The worst that can happen with your secured card is that you cannot pay your bill; Capital One closes out the account, and pays off your credit with the money you have already given them causing your credit score no further demise because you defaulted on a payment.

The secured card worked perfectly for me and I have now been accepted for a credit card at a major bank. I closed my secured card because of the annual fee associated with it, but I would recommend it to anyone who would like to raise his or her credit score.


Get the Money Dominating Toolkit

  • 6 Tools to Get Your Money Back on Track
  • The Ultimate Goal Achiever Workbook
  • 2 Free Chapters to my Best Selling Book
  • 21 Days to Destroy Your Bad Habits Worksheet

Comments | 8 Responses

  1. Chris says

    I have a personal question. My teenage son has had a lot of personal problems, dropped out of college, and lost all his financial aid and is even uneligible for a federal student loan (just some background). He has a bill at school and was turned over to a collection agency. How will this affect his credit? He has not needed a credit rating yet – as he had a full ride to school and paid cash for his truck. He will be 20 soon. Thank you for the advice.

    • CJ says

      Chris: He should pay off the bill in collections asap. It will be on his credit report for the next 5-7 yrs, depending what state he lives in. Anything in collections will bring your credit down, but my understanding is if he pays it off he can ask the collection agency to take it off his credit report (there’s 3 – experian, transunion, and equifax). They may not take it off though.

      • Chris says

        Thank you. He is unable to pay it at this time. However, we have discovered he never got a bill with a due date and on his online statement at the college, he has no payments due until November 2013. So hopefully, he can set up a payment plan by then (or have it paid off) and it can be taken off his record then, b/c it looks like it was a mistake with the college.

  2. MelissaD says

    Quick question if I may – ( to assure I understand ) If your credit card is $500 you should spend rougly $200 on it monthly and pay it down to zero each time?!

    Thank you!

  3. Jason says

    I’ve been reading one review after another on raising credit scores. And each of them have confidently stated that the BEST utilization of the credit limit had been between 10%-30%-50% and now I see 75% here. Is there a definitive statement from, say, Equifax or someone to say that it’s 75%? Forbes said 10% is best, even venturing up to 30% is fine. I read 50% on some comments on another post, elsewhere.

    • Creyws says

      If you’re paying your balance in full every month like he was, multiple times so I see, his utilization was probably reporting at much less than 75%. All reputable sources say to stay at or below 30%.

  4. Anonymous says

    I recently got my credit score checked and ever since I have been stressed out. My score is 479. I didn’t understand credit entirely when I got my first few cards. I failed to make payments on time, I closed two cards out shortly after opening them, and my third card was sent to collections. I’m trying to rebuild my credit. I just don’t know where to start. I currently only have a balance on one of my cards, but that card has been closed on me. How am I supposed to improve my credit if I no longer have a cards and such a low score that won’t get me approved for another card?

    • nick says

      Pay the collections off first or they will probably harass you til you do. Then get a secured credit card. Open Sky CC is a good credit card to get, they say they don’t check your credit score so every one is approved, which is also one less hard pull on your report. The annual fee is only 29$ as well. After you get a secured card only use it for tiny purchases and only allow it to report less than 10% of its limit to the credit bureaus. Also if you know anyone in your family that has good credit you can talk to them about adding you as an authorized user solely based on the benefits of credit, not being able to spend their money.

Leave a Reply

Your email address will not be published. Required fields are marked *