I’m currently reading a book titled “Broke Millennial” by Erin Lowry and chapter 6 of the book is completely dedicated to the in’s and out’s of building credit. Before I give you my tips I want to recommend this book to you. I haven’t finished reading the book (I only started reading 2 days ago) so I can’t spoil it for you but I will say that book is dedicated to helping you manage your finances. It’s awesome! Especially if you are working on your financial goals, now is the perfect time to read it.
Okay, so… Another thing before we kick off, tip of the day. Let me tell you something a lot of people may not understand and I want you to hear me out before you exit the blog and say “ahh, she’s a crock of bloop.” Listen, THE BANKS DO NOT CARE ABOUT YOUR CREDIT SCORE! I REPEAT THE BANKS DO NOT CARE ABOUT YOUR CREDIT SCORE! Why do I say that? It’s simple, they don’t. What the banks do care about is the REPORT! Banks are more focused on what is reporting to your credit report, at UrChoice Credit we call that the meat of the report.
I tell you this because I want you to build credit, but in the process I don’t want you to believe the most important thing is getting that 650+ credit score number and then life is great. Once a person reaches a 650+ some believe they can go to the bank, apply for a mortgage and get approved. No buddy! You are wrong there, walk into a bank with a credit score of 650 that you built in 6 months they will deny you in a heart beat! Why? Because you have a thin file. You can have a great credit score with a thin file and it still not be enough! I’ll explain more in depth what a thin file means in the next post.
Now that I’ve referred a book and gave you the ‘tip of the day’, let’s get back on track. The first thing you want to do when building your credit is apply for a secured credit card. I mention secured credit cards in almost all of my post, why? Because it’s literally the BEST thing to have when you first start off building or repairing your credit. A secured card is a type of credit card for people with limited or damaged credit that requires you to place a refundable security deposit. Usually the deposit ranges from $200-$300 but you are welcome to put down more, what you are doing here is basically giving yourself a credit limit. Now, just because you put your money down to begin using your secured card does not mean this isn’t a credit card, this secured card will still be monitored like an actual credit card. Since payments are included in your credit report, paying on time and managing your balance will help improve your credit score. After building a some positive credit history, you will be able to qualify for a regular credit card. Normally the banks will refund you your deposit and change your secured card to a regular credit card.
If you’re still unsure if you are ready to apply for a secured card (maybe you don’t have the funds to put down. I know I sure didn’t the very first time I applied for the card.. I got approved but didn’t have any money to officially begin) become an authorized user on a family member’s credit line. Now when becoming an authorized user to someone’s card you want to make sure this person is responsible when it comes to making payments. If the person is constantly late making payments, those late payments will reflect on your report. So be very careful on who’s credit card you become an authorized user for.
Apply for a retail credit card. My best recommendation when applying for a retail card with little or no credit is apply during the holidays! I’ll be honest, not always are you approved for a retail credit card if you have no credit. So I recommend applying for the retail card 6 months after having your secured card or being an authorized user, your score would have definitely increased by then with consistent on-time payments.
Now the rest is done with patience and a lot of discipline, once you are approved for you first credit card you want to make sure to always pay your credit card on time and in full. A late payment can affect your credit more than a collection. Why? Because your payment history is considered 35% of your credit score. Your score can simply drop by 80-100 because of late payments overnight. Use 30% or less of your credit limit, this is key! I stress the utilization rate for a reason, it’s the second most important factor of your credit score. Your credit utilization is considered 30% of your credit score. Pay more than minimum balance! If you speak to any credit expert they will definitely tell you to PAY MORE THAN THE MINIMUM BALANCE! Paying more than the minimum balance will help you pay off your debt sooner and less chances of paying for that interest. This is where my favorite quote comes in of course… “If you can’t buy twice, do not swipe!” aka if you know you cannot pay it back next week, do not purchase it!
So remember when building or repairing your credit:
*Apply for a secured credit card
*Become an authorized user to a responsible credit card user
*Make all payments on time and in full
*Use only 30% or less of credit limit
*Apply for a retail card during the holidays
*The banks do not care for your score, they care for the meat of the report
*Reality is what holds more weight is the meat of your report, not the score
I can go on for hours but these are the main keys to building your credit! Remember nothing happens overnight, to get that A1 score it will take some time but with patience and discipline you will have an A1 credit score!
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