Don't I need a credit card to help improve my credit score?
First let's talk about the number one reason people want a good credit score. With a credit score around 720, you can borrow money at the best rate. Is that the only way you can get a good rate? No! Lenders today are more likely to look at your FICO or credit score first because that is the easiest way to determine if they think you will pay back a loan.
Before the FICO score, lenders would actually look at your financial history and determine your ability to pay back a loan based on how well you actually paid back your debts. The bank views someone with a history of being late with their payments as a risk for future loans. On the other hand, someone that can show a 'changed' history of on-time payments will be considered less of a risk, and the bank will be more likely to consider the loan. This type of lending is called "manual underwriting". Few lenders will actually take the time to look at your recent financial history before making their decision; most of them are just too lazy. Today the FICO score means everything.
So, what should you do if your credit score isn't all that great? First, determine if borrowing money is absolutely necessary. In most cases, borrowing money is the easiest and quickest way to get some extra money, but it is rarely the smartest. Is it possible you can wait on the 'thing' you want to buy until you have actually saved the money? Anything in the garage or attic that you can sell?
Sometimes you will have to borrow money. The only real purchase that we feel you are justified in borrowing money is for your house. Most of us will never save enough to purchase a house for cash. So if you are ready to get that home, and your FICO score is less than desirable, look for a lender that will do manual underwriting. It may take a little bit longer, but if you have gotten your act together and have corrected your past bad financial habits, it will be worth it.