Ahh the dreaded word, Credit. It can open a world of doors or close all of them before you even looked at them. It’s that ambiguous term that rules the civilized world. It’s one of those things that if you don’t have it it’s extremely hard to get and once you have it it’s incredibly easy to destroy. And so let’s take a crash course together in credit because I’ve found that if you’re smart with it it can be incredibly beneficial. But if you’re not responsible with it things can get rough.
- Get Responsible: the first and most important thing we can talk about right now is your discipline and how responsible you are. Responsibility is the key to creating a wonderful credit score. And keeping up with how much is on your credit cards and how much money you have in the bank. Being responsible with this is key if you want to pay your statement balance every month. Also, I recommend looking at your transaction history at least once a week to see how and where you’re spending your money.
- Have An Emergency Fund: I can’t stress this enough. Having an emergency fund saved us from financial ruin this past June. I wrote about this here if you want more of the story. Most people recommend having at least $1,000 in an emergency fund that is separate from your normal bank account, yet completely accessible at a moments notice. I recommend having it in a separate account because it’s much easier to ‘set it and forget it’ when you’re not looking at it every day. I don’t think I can stress how important it is to have this money set aside for a rainy day because they will happen.
- Get Started Early: the earlier the better honestly. Because a big factor in your credit score is how long you’ve had credit. So my recommendation is to talk to your parents as soon as possible about getting a secured credit card through your bank. A secured credit card will help you start to build credit in a safe and not so scary way. Also, it was the only way I found to start building credit, everything else you need a good credit score to get (ex: normal credit card, loans, mortgages.) And even if you start building credit your FICO credit score won’t even show up for 6 months.
- Set up Autopay: Pay your statement balance in full every month. No minimum payments around here. This is one of the best ways to increase your credit score because it shows credit bureaus that you are a responsible adult who will pay back their loans in a timely fashion. Also, you won’t need to worry about the APR or the interest rate, because you’re paying off your cards every cycle.
- Don’t Use Your Entire Credit Limit: Another thing that will help to boost your credit score is not using all of your available credit. Just because you have $4,000 in credit doesn’t mean you should use all $4,000. For the best credit score, you should really try to keep it around 30% of your credit limit which in this case would be $1,200.
- Get a Card that Rewards with Cash: Cash is king. Cash can do so much more for you than ‘miles’ can. If you don’t fly very often now, no credit card with miles rewards is going to make you fly more. It’s just going to make you spend money on unnecessary travel. So if you’re not much of a traveler I really recommend getting yourself a credit card that either has a cash back system or a points system. Here’s a more detailed explanation here.
- Increase Your Credit Limit: This one goes hand in hand with #5. Really for the best credit score, you should only use about 30% of your available credit. So what happens when you increase your credit card limit? Your 30% of your credit goes up as well.
- Use Credit Cards for Big Purchases: Karl recently had a surgery that cost about $4,000. This has been a surgery that Karl has needed for quite some time, but we have never been able to afford it. Recently though my grandpa passed away, thankfully he was a Christian, and by the wisdom of my grandma had quite a bit of money stocked away in his accounts. And so my mom and my aunt graciously gifted us the money necessary to pay for Karl’s surgery. Throughout this whole thing, it has been amazing to see how God provides in ways that we can’t even imagine. So since we already had the funds and the credit limit we were able to pay for Karl’s surgery with our 2 credit cards. The reason we did it this way was so that we would get the cash back from this $4,000 purchase, which equaled out to about $100. So essentially by using our credit cards to responsibly pay for his surgery, we saved $100. Now, of course, we paid both credit cards off completely so that there wouldn’t be any interest charged. I can’t stress this enough about how important it is to have the funds for your big purchases before you purchase them with your credit card, because if you don’t it will only cause you financial trouble.
- Don’t Apply for Too Many Credit Cards: It’s possible to have a lot of credit cards and have an amazing credit score. I know someone who has an over 825 credit score and has at least 9 credit cards, now she doesn’t use all of them and a lot are store cards, but still, that’s a lot of lines of credit. But if you’re just starting out I recommend only having 1 or 2. Also when you apply for credit cards or loans they will look at your FICO credit score, called a “hard inquiry.” This inquiry actually hurts your credit score if you have to many too close together. So I recommend doing research on credit cards and find 1 that would fit you well and then apply for that 1 card.
- Getting Rewards Is Not a Reason to Spend: Just because you have the money does not mean you should spend the money. I can easily fall into this trap because of REWARDS!! I love rewards or coupons or promo codes. Give me any of those I will for sure spend more money than I need to. But one of the best ways we can all win at credit is not just not spend. If you don’t need something don’t use your credit card rewards as an excuse.
I hope these 10 reminders help. I know it’s been incredibly helpful to use credit wisely in our life and I hope it will be helpful to you as well!
Resources:
The Balance
Nerd Wallet
LendEDU
Redeemed by the King
My Redeemed Life 