Move Beyond the Starter Card with a Personal Loan

Dear Let's Talk Credit,

Let me give you some background about me, sorry for a long message. I am an international student. I got my Social Security Number and got a bank credit card with a $500 credit line in May 2013. So far I have requested to increase my credit limit after every three months andcurrently have a $2,500 line.

My FICO score is 718. I never missed any payment, always paid my balance in full. I've been working with an annual salary of around $42,000. I tried to apply for other cards in the past year but got rejected because of limited credit history. So, my question is, to build a good credit history and start earning rewards (air miles, etc.), should I get a secured card from one these particular banks and build some history with them and then apply for good cards? Or should I keep increasing my credit limit with my current bank card? Please give me some guidance on this.

- Sanyam

Dear Sanyam,

Congratulations on the great way you are managing your bank credit card. You have built a solid, positive credit history of on time and as agreed payments with this one starter card account. What you are lacking is a proven history with other types of credit accounts. Creditors like to see that you can manage multiple and different types of credit lines. For example, an installment loan would give you an account history of making the same monthly payment every month for a predetermined number of months.

A secured personal loan with a financial institution would qualify as an installment loan and you could use money in savings or a CD as collateral for the loan. These loans have fixed terms and monthly payments, and typically carry low interest rates. Choose a financial institution to apply for a secured personal loan that also has a rewards credit card that you are interested in acquiring. Once you have completed the terms of the personal loan successfully, you will likely qualify for the rewards credit card.

Another way to build your credit history is to purchase a needed item at a retail store, using their credit card with a same as cash offer. These offers are often interest-free for a defined amount of time, usually 12 to 24 months, as long as the entire balance is paid within the interest-free period. But it's critical that you pay the entire balance within the agreed upon time frame. Not paying on time could be very costly because you would be charged interest on the entire balance from the date of purchase.

Let's keep talking!