Credit card companies want to make it easy for you to use your card.
They could care less on how much you spend.
They just want you to go on endless shopping sprees so you eventually miss a payment and patiently waiting to drop a fee.
Thatâs how businesses work.
They make money through a hidden approach.
I know, businesses and banks arenât that fun after all.
But we need them so follow the rules!
It certainly doesnât hurt to have a good score, takes minimal long term effort and relieves stress on your part.
As someone who has had a card now for 3 years, Iâm not here to brag, just offer my advice.
I truly believe it isnât that difficult to miss a payment.
I mean, unless you donât set up automatic payments or give your card to someone, there is no reason why you cannot easily boost your credit score.
Now boosting your credit score can only be (mainly) be achieved by making more purchases, which may or may not be great for you.
It doesnât mean you need to buy apple products every month.
It can be as little as a cup of coffee once a week if you are diligent.
As long as you are charging something to the card and pay it off in full, it counts towards a good reputation.
Debt + Small Doses
Before we dive into the nitty-gritty research that I went through to pull out for this piece, I want to express my hatred for debit cards and cashback.
Do you ever see on a site that you can finance something over 20 months?
I got a Peloton a few months ago and there was an option to pay $200 per month or something.
Now that is a trap.
No one will remember to pay their Peloton that way.
If you cannot pay everything in full as a down payment, then donât try to buy that item.
My first and only cards will and have only used are credit cards.
Debit cards teach you bad habits such as not needing to check your balance sheet a.k.a what you spent at the end of the month and be more frivolous with your spending because charges vanish from your checking instantaneously and you cannot refute any suspicious charges or return anything.
Yet, in middle school I only saw my friends carrying debit cards, establishing poor habits, full closets, overweight tummies and the rest is history.
All from overspending.
When To Get A Card
There is no reason you cannot spend 10 minutes, max, per month reviewing what you spent that month.
If that is not attainable, I suggest you arenât ready for a card and get a custodial one under your parent’s name so they can monitor it on your behalf.
Just because you are getting older and it’s your sweet 16, doesn’t mean you need to drive on your own and abandon the lives we loved until society said it wasn’t cool anymore for no reason all of a sudden.
Once we start living on our own or going to college, we need a card but before then, it is risky to give a child a plastic card because one, they can choke on it and two, they wonât understand the value component behind it.
In addition, what is important to note is that you must use the card each month or you will be charged a small percentage.
Iâm sure spending isnât tough for most people but paying it off is.
Since the average American carries $6,194 in credit card debt according to the 2019 Experian Consumer Credit Review, setting automatic payments is your best bet if you know you cannot dedicate 10 minutes each month to confirming what you paid for that itchy sweater you regret.
Calculation Time!
How this algorithm is created is through the information gathered on one of your three credit reports.
These scoring models use the FICO Score which ranges from 300-850 to determine how your credit history spending is going relative to what is left in your checking account.
In your checking, you donât need as much money as you think since it is better to have more in savings since at least it is earning .01% per year.
Especially when we are young, it can be tempting to want to invest all that money but it is important to understand that cash is necessary for emergencies.
What is certain is uncertainty.
Now back to the score.
Score Factors
-Your payment history on loans and credit cards
-How much revolving credit you use
-How long the accounts have been open
-The types of accounts you have
-How often you apply to cards
Some of them are out of your control, especially if you are older, but if you are young, it is best to establish good habits of simply paying off your bills each month and that will set you in the 1% range.
How To Get and Keep A 850 For Good
Timing Is Everything
As mentioned previously, this cannot be emphasized enough.
If you can spend an hour on Netflix or picking up dog poop, you have time to set up auto-pay or check each month how your bills are going.
It surprises me how careless we are when it comes to managing our own money and take the time to do other nonsense that wastes our lives.
Yes, we need to enjoy our lives, but to keep it that way, our finances need to be in order. If they aren’t, you won’t have a great job.
Our job isnât the only thing we need to focus on.
Our financial health is the most important thing in your life.
It will make or break you whether you like it or not.
Money does control us in some sense.
Set your priorities straight!
Baby Steps Towards Conquering Debt
Being financially free usually entails that you are not drained in debt such as student loans, car payments, and other expenses that the bank or government holds against you.
Paying off owed money is a gradual process and can take years but making sure this is habitual, will put you on the right track.
Paying off debt is the same thing as budgeting.
You must develop a plan to reduce your expenses and really, itâs not impossible, you donât need much in life.
All These Accounts!
Have you ever shopped at a new store and right before you are ready to swipe the card to pay, they ask you in an antagonizing, suspicious, Cinderella stepmother voice, âWould you like to open a Zara card?â
Yes, it is true, if you have more cards open and use them regularly, which Iâm not saying shopping is a great thing to do, but it will technically increase your score.
But that is the wrong way to look at it.
In order to increase your score, you must have a goal in mind.
Why do you want to do it?
To get a mortgage or simply brag to your friends?
If you want a higher score to impress others with no gain for yourself, you are better off missing a late payment than going bankrupt.
Unless you shop there daily, such as the grocery store, and get cashback in which food is a necessity, itâs not worth it to open a card.
Try to avoid as many places as you can where your information is stored.
As much as we want people to love us and be known, it is best to stay anonymous for your security, wellbeing, and portfolio.
If an employee at the shop that helped open a hard for you gets a hold of your name and credit card number, they could ruin your whole life and that’s not an understatement.
From sabotaging your reputation online to charging who knows what on your card.
If you decide to get a COSTCO or PetSmart card for instance, make sure you use it consistently because you need to instead of just for wanting to.
I advise doing research beforehand on the requirements of what information they need from you and if there are any recurring charges just to be safe.
Sneaky Closure
Keeping unused credit cards open is actually not a bad idea.
My mom has her old bank card from over 3 decades ago and it’s earning a slight interest of 3 cents per month but it’s something!
It isnât costing any money to keep it open or any annual fees so why not!
Only downside, less space for cute pics of your dog in your wallet.
When closing an account, your credit utilization rate will drop, and hence your score will fluctuate naturally.
Dispute Away
Just because you have the power, doesnât mean you can do it often because the bank, seller, lender, store, whoever it may be will catch on and deny you from shopping at that location again.
In that instance, the bank will just close your card.
Donât abuse the power to issue refunds.
If something is truly illegitimate that you did not purchase, then report it, otherwise, accept that you purchased the $600 Gucci slides and move on. I could never move on from that purchaseâŚ
Starting From Scratch
We all make mistakes and especially if you had late payments, negative information on your credit report, or filed for bankruptcy as a teen, it can affect you for years to come.
There is no quick fix for bad credit scores.
Similarly to a rich quick scheme.
It simply doesn’t work.
The length to pay it back is unknown because it varies depending on the reasons behind your history.
According to Experian.com:
These new elements will continue to affect your credit scores until they reach a certain age.
-Delinquencies remain on your credit report for seven years.
-Most public record items remain on your credit report for seven years, although some bankruptcies may remain for 10 years.
-Inquiries remain on your report for two years.
Good Credit Horizon
Obviously, this is good, but how good?
The younger you are, the less a good cred score it affects you because you aren’t buying a home or hopefully not pregnant.
But establishing the habits earlier the better when you find the best interest rate on a fixed 30-year mortgage in decades to come.
Time = Money so take advantage of it.
Some benefits of an excellent score which is over 700+ include:
-Help you qualify for the best interest rate
-Help you borrow more money for a car, education, house, etc. more easily
-Help qualify you for better and cheaper life insurance rates
-Seen as a better renter by your landlord
-If you apply for a finance job, before managing their clientâs money, they want to see if you did it for yours
-Telecom companies look before they lease you a smartphone
-Car dealers investigate before they lease a car
Please donât obsess over checking your score daily.
This is not Instagram just a credit score but it definitely is more important to keep up with than social media.
If you are paying your bills on time and not accumulating hefty fees on late payments or debt, keep doing what you are doing.
If you are a youngster reading this, evaluate what you need and promise you can create a strong foundation today so when you really need the score to help you, you wonât be trapped.
The worst thing you can do is compare yourself to others and see what other deem they need.
We are all on different journeys and have unique goals but the number one predictor of getting better at anything and faster is through financial literacy.