Trying to build credit Ask Dr. Don by Don Taylor, Ph.D., CFA, CFP • Bankrate.com

Dear Dr. Don,
I've been living in the USA for 1 1/2 years. Initially it was very hard for me to get a credit card, but finally the bank where I have my checking account offered me a $500 limit with a deposit of $99. I've been using it for almost five months making full and early payments.

Yesterday I tried to buy a car from a car dealer, but when they ran my credit report there was not enough information to get me approved. Why am I having so much trouble building credit even though I have this credit card and have been paying it on time? What else do I need to do in order to build a good credit and be eligible for approval on car or home loans?
Thanks,
-- Silvia Sedan

Dear Silvia,
Your bank offered you a type of secured credit card. It's a nice card for a secured card, because most secured credit cards have a credit limit equal to the amount on deposit. Yours is five times the deposit amount.

The payment history on a secured credit card isn't always reported to the credit bureaus. Because your bank is actually extending credit, it's very likely that it is reporting your payment history, but you'll want to make sure of it. 

Ask the bank, or get a free copy of your credit report. Under the Fair Credit Reporting Act, or FCRA, you're entitled to the free credit report because you were denied a loan. Ask the lender which credit bureau they requested your report from, and then ask the credit bureau(s) for a free report. Bankrate provides the contact information for the three major credit bureaus.

You can also take advantage of the provisions of the Fair and Accurate Credit Transactions Act to get your free report, but there's no reason to use up that free report now when you're entitled to the free credit report under the FCRA.

Lenders look at your credit score as part of the decision to extend credit. Your credit score is based entirely on what is in your credit report. According to myFICO.com, the information is grouped into five categories and carries the following weights.

Information your credit score is based on:

You're rushing things, hoping to get a car loan at a competitive interest rate with only five months' payment history on a secured credit card. I'd recommend waiting until you had at least six months' credit history, and then take a look at what lenders like E-Loan or DriverLoans can offer you, and compare those rates to Bankrate's national average of 7.93 percent for a 60-month car loan. 

Talk to your bank, too, and see if your banking relationship can help you get that loan. If you're eligible to be a member of a credit union, talk to the credit union about financing, too. The Credit Union National Association can help you find credit unions in your area. From there you'll have to contact the individual credit unions to see if you're eligible to be a member.

Since auto loans are secured by the car itself you can shop around for financing without hurting your credit score. Concentrating the loan applications in a short period of time makes it obvious that you're comparison shopping and the multiple credit checks doesn't hurt your credit score. Here's what myFICO.com says about this topic on the page that addresses credit inquiries.

Looking for a mortgage or an auto loan might cause multiple lenders to request your credit report, even though you're only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks at your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

Still, you can't get around the fact that you were recently denied credit. That will stay on your credit report for two years, although it should only affect your credit score in the first year. Read the electronic booklet, Understanding Your FICO Score for more information about your credit score.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "financing a home," "saving & investing" or "money."