Unless you can buy your dream house with cold hard cash (which would be stupid). I am going to go ahead and say that you are also too old to not think about your credit score. So let us keep “increase credit score” on our To Do list and on our 2017 New Year resolutions list.
It is ridiculous the number of college students and college graduates that have never pulled their credit scores or owned a credit card. I have even spoke with some that are worried about going into credit card debt, meaning they have not done their research or are still financially immature and irresponsible. Taking up financial responsibility at a young age can give you enough cushion room so you do not have to be in a bind for money when you need it. It will also play a factor in your credit score when you do decide that you want to borrow a large sum of money for a house or car.
What does having good credit mean?
Having good credit is basically saying that a bank or lender can trust you with money. This means that if you want to buy a house or car you do not have to spend your own money to do it initially, you can borrow it. This definitely does not mean that you get free money because you absolutely have to pay it back. But, If you play your cards right before you need to borrow, the odds will be in your favor. You will also see that you can actually get some perks for spending, such as cash back and discounts, on websites and apps you use every day. Once you get to a certain credit status and building rapport with your credit cards you will also find yourself giddy with excitement keeping up with all the perks you get.
Why should I be concerned about my credit now?
Why somebody would want to use their own money for any transaction when they do not have to in 2017 is BEYOND me. Especially since most cards offer at least 1% cash back and bonuses for spending. Also, If you would like to get a mortgage for a house or a car loan you will be very disappointed when you walk in to a bank with a 20% down payment and they still deny you a loan because you do not have a credit history. Even if you are not ready to borrow money yet, you should still use a credit card to your advantage.
I got my first credit card when I was 22 and the limit for that card was measly compared to my limit now, but it was way more than I had in my bank account so back then I was grateful. I used the Credit Karma app to look for a card with no annual fee, at least 1% cash back and some sort of introductory bonus. I was living paycheck to paycheck, like most college students, until I got my credit card. When I got my card I charged all of the bills I could on the first of the month (Light bill, phone bill, car insurance, cable bill, grocery, etc.) because I did not have to pay off my card until the end of the month. Even then, if I did not have the entire amount, I could pay at least the minimum payment (not recommended) or pay until I was at 29% of my limit. Because I did not have to pay back the credit card with my money right away, I was given much more freedom to save money and invest into other things to flip my money. Having that credit card also helped on rainy days where unexpected payments occurred, like when I had to buy a new set of tires the day before rent was due.
How can I increase my credit score?
It is literally free to build your credit. You should not be falling into traps from independent credit “fixers” online that say that they can bring your credit score up. Do your own research on how to take the negatives off of your credit.
- Let us start with pulling your credit first.
Creditkarma.com gives you one free credit report from all 3 bureaus a year. My suggestion is if you have never pulled your credit before, pull from only one bureau instead of all three at the same time. The scores from each bureau may be slightly different because each bureau has different factors that affect your score but initially you want to get a gist of what you need to fix for your credit score.
- Take a look at the negative factors on your credit first
Some negative factors include collection debts, the amount of times your credit is pulled, and closed accounts. When I first pulled my credit I was in the high 500 range because I had some unpaid bills that got sent to collections and I opened and closed credit cards on the same day (probably trying to get some sort of promotion). The first thing you want to is look up the statue of limitations on the type of debt and negative marks you have on your report. I had a couple collection debts that was over the statute of limitations so I disputed those first with the credit bureau and they were taken off. Then I disputed collection debts under $300 with the credit bureau. I explained that I had no knowledge of the debt and that I did not get a letter via certified mail about the debt. The collections agency has 30 days to respond to the dispute, if no response is given then the credit bureau has to take the debt off. Typically, for small debts, collection agencies do not find it in their time to respond in 30 days.
For the larger debts, I disputed them as well but it did not work so I contacted the collections agency by phone first and worked out a payment with them. I told them to email me a letter stating that if I pay this amount the debt will be removed off of my credit within 60 days. I then sent them a money order with a copy of the letter (keeping a copy of the receipt and tracking the mail). Keeping tabs on your payments to debt collectors is for proof to the credit bureaus in case the debt is not taken off by the collection agency.
Some negative factors, such as the amount of times your credit report is pulled or when you closed a credit account will only come off of your credit with time. You should still pay attention to those and report any errors that you see to the credit bureau.
- Start building your credit
Once you have removed most of the debt collections off of your credit you will see that your credit score has increased tremendously. My score raised about 70 points when I cleared all of my debt off and it took me about 6 months to clear everything. Now you will want to start building your credit. my suggestion is to download and utilize the Credit Karma app on your phone. The Credit Karma app updates your credit score every Monday and shows you what has been taken off and what you still need to work on with suggestions and tips. I only go with cards where I have a “good” or “very good” chance.
You will need to be careful with credit card selection and only select one at a time because signing up for a credit card lowers your credit score (not by much, but still). Also, credit card companies pay attention to how many times you have tried to sign up for any card which may affect your approval rating. One rule of thumb is that if you apply for a credit card, wait at least 6 months to apply for another. If you have no negatives on your account and just need to build your credit, look into getting a credit card with your bank first. Bank credit cards are not always the best options when it comes to bonuses but you should start somewhere.
You should also carefully read the fine print when selecting a credit card and look for not only bonuses but annual fees. All of my credit cards do not require an annual fee and come with some sort of bonus point system (at least 1%). Some even have ways to get to 20% bonus points. Credit cards with this incentive will also have ways to earn more bonus points for paying for things such as my phone bill or an Uber ride. The best thing about the point system is that you use points in the credit card’s store (which includes flight deals) or you can use it towards your credit card bill.
Once you get a credit card with a certain limit, you will want to make sure that you keep your credit card spending down to at least 29% of the card. This means that if my limit is $1,000 then when I pay the bill I need to make sure that there is no more that $290 to be paid off after I make the minimum payments. Keeping track of your credit card spending and how much you owe is made easy with apps on your phone. Credit card utilization is the fastest way to build your credit.
Not falling into credit card debt
I admit, when I first got my card I was nervous about getting into debt or overspending. I would only pay bills with my credit card and then pay the card right back. I did this for a good six months to increase my credit score and then I applied for another credit card. This card came with a much larger limit and I also had a more reliable job so I started using my credit card to purchase things other than bills. To this day, if I make a large purchase with my credit card, I pay off half of the purchase right back. My credit limit has increased but I still keep my card to the minimum of 29% of my initial limits. If you keep up with the payments and do not overextend yourself on your credit spending, then you should not be going in to debt. Make sure you pay your card on time and if you know you do not have a reliable source of income every month then you should limit your spending to bills and necessities. Life does happen to where you might have to use your credit card for more of a cushion than expected but you should always try to make above the minimum payment on your card every month.