Innovations and Payment Systems

Want to refi? On-time payments will build credit score

Ask The Credit Guy 
The Credit Guy, Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers’ questions about credit, counseling and debt issues.

Ask a question.

Question for the expert

Dear Credit Guy,
I have a high interest 23.5 percent simple interest loan for a 2004 pickup truck I purchased three months ago. The reason the interest is so high is because I have a low credit rating due to insufficient credit (540 FICO score). I want to be able to refinance this loan as soon as possible to lower the interest rate. My questions are: 1. What are the fastest and most effective ways to raise my credit score prior to refinancing? (I have been and will continue to pay this note seven days in advance of the due date, so far I have for three months) 2. I have maintained in my checking account a balance of over $600 a month for three months and will continue to do so. Will this improve my credit worthiness or attract credit card companies to offer me lines of credit? 3. I would like to acquire as many credit cards as I can get in order to increase my credit score. How can I get them even though I have a low credit score? Please advise.

Answer for the expert

Dear Victor,
You are on the right track to improving your score. You have an installment loan (paying the same monthly payment each month for an agreed upon length of time) that you are paying on time and as agreed. Once the loan is more than six months old, you should see an increase in your credit score, providing your lender is reporting the loan to the credit bureaus. Check to assure that your loan is being reported and if it is not, request that the lender report it.

Potential lenders want to know that you will continue to pay your loan as agreed for the long-term, not just the short-term. The more time that passes with positive reporting on your loan, the better it is when it comes to improving your score.

You are also correct that you need to add some revolving accounts to your credit history. Ten percent of your credit score is calculated based on new credit and another 10 percent is based on type of credit. You need to have different types of credit to receive needed points on your score. has several recommended credit cards for people with no credit history or insufficient credit history like you. Your goal is to acquire a card with the highest credit limit for which you qualify with the best terms for you. Once you have a card or two, keep your balances very low, if you plan to carry a balance, and make sure you pay on time, every time.

Keep in mind that the interest rates on the credit cards for which you will qualify with an insufficient credit history will be on the high side. Make sure you can afford the payments at the higher interest rate if you are going to carry a balance.

Your checking account balance and activity is not factored in your credit score. However, your income and banking habits are reviewed when you apply for credit. So keep up the good work with your banking account as it does improve your creditworthiness, even though it doesn’t improve your score.

One other thing is working in your favor. Although the credit cycle has tightened up a bit due to the threat of recession and the mortgage crisis, the recent rate cut by the Federal Reserve has lowered interest rates across the board. Keep up your work on improving your credit score and with the Fed’s help, it should be easier to refinance at a more affordable rate in the near future.

Take care of your credit!

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a reader each week.
Send your question to The Credit Guy.

What’s up next?

In Innovations and Payment Systems

Zodiac cards: Virgo

Introducing VirgoCard, the one financial instrument whose terms of use are so deeply mired in legal obfuscation that we Virgo perfectionists will never tire of trying to crack the code.

Published: March 26, 2008

See more stories
Credit Card Rate Report Updated: September 18th, 2019
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.