Start Charging to Re-Establish Credit

Dear Credit Card Adviser, I just read your article about paying off your credit cards. We paid off ours several years ago, and I recently went online to get all three of my credit reports and scores from each of the three credit bureaus. I was given a very excellent credit score on all three reporting agencies. I then tried to get a small loan for a used motorcycle and was told this dealership was unable to pull up my score, even though I had gotten it myself after paying a fee. I tried several other places for a loan after that and was told the same thing. They couldn't get my score or I had no recent activity, so they couldn't give me a loan. I also thought I was doing great by paying off my credit cards, but now I can't get even a credit card or a small loan because of no recent activity. Do you have any suggestions on how to get my credit going again? -- Sue

Dear Sue, While it's financially smart to pay off credit card debt, if you swear off all forms of credit after doing so, you could eventually cease to have a credit score. Think of it this way: A perfect payment history from several years ago doesn't tell a lender what your current credit risk is.

To obtain a loan, lenders will review your credit report and credit score. The two are closely tied. Your credit report must satisfy minimum requirements for a credit score to be calculated. In the case of the FICO score, a widely used credit score, your credit report has to have at least one account that has been open for six months or more, at least one undisputed account that has been reported to the credit bureau within the past six months and no indication that you're deceased, according to

Even if the issuers of those old credit card accounts kept the accounts open, they may have stopped updating your accounts with the credit reporting agencies. After six months, a lender wouldn't be able to pull your FICO score.

Of course, the lenders could be using credit scores other than FICO. As for the scores you retrieved on your own, you may not have pulled your FICO score, so the criteria to produce those credit scores could have been different.

Luckily, you can re-establish credit. According to FICO spokesman Craig Watts, if those credit card accounts are still on your credit report, you only need about one month of new credit activity on your credit report before a lender would be able to pull your FICO score. That's because you already would have satisfied one of the three requirements to calculate a FICO score: having at least one account that has been open six months or more. If those accounts are no longer on your credit report, then it would take six months of credit history before a lender could pull your FICO score.

To show some activity, you could place some charges on your old credit cards if they're still open. If they're not and you can't qualify for a regular credit card, you might want to consider opening a secured credit card, which requires a collateral deposit in case of default, or a store card to re-establish credit. Keep monthly balances reasonable and pay on time to build a good credit score. You don't have to carry a balance month to month to have a high credit score, and you don't get extra points for paying interest.

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