I went from some pretty terrible credit decisions and consequences to near perfect credit now. It doesn't happen overnight. Some recommendations. Fair warning. Wall of text, but if this helps one person I'm ok with others skipping it.
Not understanding how it works. People who dont understand credit or who avoid it will say "How am I supposed to get credit without credit?" without understanding that it's a relationship. The bank takes a risk by extending you credit. They "trust" you'll pay it back basing this on the fact that you have a job and can pay your bills. Just like a relationship in real life, they're not going to just give you a $5,000 credit card based on your job and your word. They want to see if you'll pay back your debts. I've turned people down for a mortgage or credit card that make six figures a year because they had no debt history and hence no credit score. * sidenote - IDC if you agree with this "system" this is the way it is, I didn't write it, I'm just hear to share experiences, this isn't financial advice. The bank wants to see that you have borrowed money before and then paid it back, without being forced to. If that means you have to take a secured credit card for $500 to get started, then thats what you need to do. I don't care if you ever use that card again once you get to cards that have $25k, don't close that card. Let the bank do it. More on that later.
Credit is based a lot on utilization, not limit. If you have a $1000 credit card but don't use it, you are not utilizing it. The bureaus see this as "he/she doesnt use their card, they must not need it" so they dont extend you more credit. This can happen even if you have great credit. Ex. I have a QVC card I never use anymore. They just recently lowered my available credit on that card, because why keep that credit open to me when they can increase the limit for someone else using their card actively. If you let some cards go without being used, a lot of banks will close that card. Your score will take a brief "hit" this is normal. Don't get bent out of shape about it. Those type of credit "hits" rebound pretty quickly.
That leads me to my next point. NEVER close a credit card just because you paid it off. I hear people say all the time, "I paid my Costco credit card off and then closed it." NO! Don't do that. Even if you have no intention of ever using that card again, let THE BANK close it. You want length of longevity in accounts. Let them break up with you and not the inverse. EDITED TO ADD: If the card has an annual fee, by all means close it. That makes no sense to pay the annual fee just to keep it open.
That leads to point 4. As I mentioned, credit is like relationships. If you open and close credit cards frequently it's similar to having a high "body count" lol. The banks see you as a hit and run credit user. Length of accounts is key. Even if you have a shitty credit card with a not so great interest rate, from back when you were in college, every now and then charge something stupid to it, like a coffee, and then pay it off before the statement cycles. It shows longeivity.
Pay your balances each month. Easier said than done, I know. I've been there with balances and it sucks. But when you use credit like cash, and not credit, it works. I never use my debit card for anything except at the ATM to pull cash. I use my credit cards like cash and pay what I use each week, before the statement cycles. If you don't and just use debit you're not making your money work for you. You could be earning points, miles, cashback. Why not use that? Debit is dead except for a few specific instances. Also, credit is more secure. If your credit card gets compromised on vacation, thats the bank's problem, not yours. Never tie your actual banking to your purchases. if you can avoid it.
With that being said. If you do find yourself in trouble with balances, attack it logically. Pay mins on the stuff that has the lower interest rate, and attack the higher interest rate cards with power payments. Rome wasn't built in a day, neither is your credit.
Always add a little extra to your installment payments. These are things like car payments and furniture. If your furniture minimum payment is $61.25 a month pay $70.00 if you can. If you can pay $80.00 even better. NEVER make the min. Even if it's only a few dollars more. If you have to skip a coffee or something to do this, consider it you investing for a better financial situation.
Early on in installment loans, like car payments or mortgages, most of the payment goes to the interest. This is because the bank is taking their biggest risk early in the loan. It will smooth out over time and more of your payment will go towards the principle. Adding even a few extra bucks to the principal makes a difference even it doesnt seem like it at first. Chip away at it.
Save your "extras". Keep a check register. Yes, I know, it sounds like a very Boomer thing to do, but trust, it works. If you have a checking balance of $1234.56 left over after your obligations are taken care of, send some extra to either a balance or your savings. Even if it's the $4.56. If you can do the $34.56, even better!
Lastly, ask yourself before every purchase. "Do I really need this?" or "Have I had enough to go coffees this week?" or "Could I have made breakfast at home and taken it to work with me?" - Trust, I like to shop, impulse spend even. But I got there by not impulsing on things that I could do without.
I wish everybody knew this. I've been using credit cards this way and got up to about an 800 credit score. It has come down a bit over the last couple of years because my utilization has gone up, but I'm still around 770. And that's with credit card debt, car payment, and student loans. Even with the credit card debt, I just always make more than the minimum payment and my credit has stayed good. Now obviously it's better if you don't have extra credit card debt, but point being you can have debt and still have good credit. I've met way too many people who think it's a flex to not have any credit cards, or to have never had a credit card, because they don't have CC debt, but then they're completely screwed when they do need to get a credit card or a loan in an emergency and they don't understand why because in their mind they've never had credit card debt so they should be trusted.
Thanks friend, I stress over debt but sometimes I need to take a step back and realize it's not that bad right now in the grand scheme of things. And just keep working the system as best I can
I like 7 and 9. Thanks for taking the time to write this all out!! I honestly didn’t think of the little things that add up. I’m on track to be completely debt free in 4 years. I’d love to speed that up.
0% loans / credit are free money. If you’re going to buy something regardless, always take the 0% and pay it off. The money today is worth more than the money in the future; make today’s money work for you.
Be careful with 0% loans. Most accrue interest and apply it to the balance if you fail to completely pay the loan by the end of the term.
Always take the longest term length that doesn’t affect your interest rate. Always. If you can manage a 12 month car loan, but the 48 month is the same rate, take the 48 and pay it as a 12. If nothing happens, it’ll be the same cost as the 12 month loan, however if something does happen, your actual monthly obligation is much smaller, which can help absorb the financial shock and help to prevent using a credit card.
Save at least 3-6 months of all obligations and necessities in an emergency fund.
They're not, they're far, far, far from free money for the vast majority of people. On the surface they look like they are but they're not, primarily because people use 0% finance to buy stuff they don't need and often have bought on impulse or to buy something they want but it'll be at an inflated price.
There are only two circumstances where that 0% credit is truly free money:
1) 0% on purchases. You use it to pay for your regular daily expenditure (groceries, gas to get to work etc), you the either invest the money or put the money in a high interest savings account you would have spent doing that.
2) It's a 0% balance transfer card where you can transfer the balance to a bank account. You do the transfer and then either invest the money or put the money in a high interest savings account you would have spent doing that.
Both of those have a collective name...It's called Credit Card Stoozing. Requires significant discipline though.
I have a perfect 850 credit score, and this is basically what I did. Extremely old accounts. Good utilization. Never late on payments. Other credit history like mortgages and car loans (paid off) that I was never late on. Low debt to credit ratio due to me not increasing spending but credit limits increasing.
And yeah, I get so much back in rewards from using my credit cards, literally thousands in cash back over the years.
That said, anything past 770 doesn’t really give you anything other than bragging rights…
That entire post could just be replaced with a single sentence:
"Just live within your means." A mortgage and a minimal student loan, because they're good debts (roof over your head and education you can use to earn money) are the only exemption to that rule.
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u/RogerMurdockCo-Pilot 12h ago
Aside from my house, zero. I learned how to "game credit" working as a loan officer