How to Check & Build Your Credit
Updated: Aug 3
The first step to financial freedom is making wise choices and managing what you own.
Even if you don't own much, you can still take steps toward becoming a good financial manager.
Everyone has a credit score. Start there. You can check your credit on all three credit bureau sites using these links (Transunion, Experian, Equifax).
You can also check all three credit bureaus for free, once a year, by going to AnnualCreditReport.com and creating an account.
Make it a habit to check your credit score monthly.
You can use sites like Credit Karma. This is a free website that can be used to check your credit score and see what is on your credit statement.
It isn't completely accurate but it is close enough to be able to get a view of what needs to be changed on your credit profile.
It is considered a soft hit to use this website so it shouldn't impact your score.
Utilizing sites like this can help you overcome financial faux pas that may have impacted your credit in a negative way.
This site can also help you figure out what you need to do to get out of debt and improve your credit score.
The best part is it's free.
It can also be used as a tool for things like estimating extra monthly payments toward your debt and getting credit advice from related articles.
It's very handy to be able to see how much your credit is affected each month by credit card balances or how you've used your credit in positive or negative ways.
Be A Good Credit Manager
Credit management is crucial in making the most of your income.
Lowering your monthly debts and eliminating bad habits that create debt helps your financial future look brighter.
You can increase your income by simply paying off debt. It's like giving yourself a raise.
I have a cash-only policy (COP) because it helps with savings & not overspending.
C.O.P. can make a huge impact on your peace of mind because the financial giants will not come looking for you if you miss a payment. It's hard to miss a payment where there are no payments!
It may not increase your asset portfolio quickly, but it can mean the difference between living a debt-free lifestyle or living in debt for the rest of your life.
Adopting this policy will help you not only be a better manager of your finances & credit, but it will also keep your life simple.
Paying interest isn't wise if it can be avoided.
Credit Score
Over the years I've manipulated my credit in various ways to see how it impacts my credit score.
I keep up with it like a hawk and try to remember to check my credit and score at least once a month.
The main reason I do this is to see how credit bureaus react to changes in my credit profile.
I've found that 'expert' advice that you read online isn't always helpful or accurate so I came up with the helpful tips below...
Tips:
Credit cards can impact your credit positively when used for one small purchase per month which you then pay off within 30 days. This keeps credit built without actually using it. It also helps to build rapport with the credit card companies to show payment history and responsible use.
Barely using your credit creates a stable credit profile. Keeping your balances as low as possible has a positive impact on your credit score. Creditors look for responsible use of credit, not necessarily used credit.
One open account isn't usually good enough to show responsible credit usage. Creditors want to see at least two or more open accounts, with low balances, of various kinds to show positive credit usage.
A home mortgage is the best line of credit overall.
Keep hard inquiries low. In other words, don't apply for credit unless absolutely necessary.
One's goal should be to have a credit score of as close to 850 (720 is considered excellent credit) as possible if one wants to get the best rates possible. Only about 20% of Americans have a score of 850, but it is attainable.
Paying your bills on time is one of the best things you can do for your credit.
A credit score will fluctuate a good bit if you're using it. This is normal and shouldn't have long-term effects if you're using credit responsibly.
For business purposes, I try to keep my credit score around 800 or higher if possible. However, many things can impact a credit score and cause it to drop suddenly.
It's best to realize score changes are possible so that you don't panic when it happens.
Also, it takes a while for some changes to take place on your credit profile.
I'll give you an example-
For educational purposes let's say I applied for credit through a furniture store in an attempt to purchase $5,000 worth of furniture.
Once I found out their interest rates were too high I then decided to put the charge on my credit card, which has a $25,000 credit limit. I then pay off the credit card within 90 days.
The impact of this purchase would initially affect my credit negatively in the following ways:
First- A hard inquiry usually drops a credit score by an average of 5-10 points within about 30 days. It usually takes several months for a credit score to recover from a hard inquiry.
Second- Credit utilization affects credit scores. Experts recommend keeping your credit utilization below 30% but I've found that using even as little as 5% can impact a credit score negatively, at least in the short term.
Any- increase in balance on a credit card can have a negative impact on the credit score because increased balances mean that you're using the available credit. Minimal usage is what credit bureaus are looking for.
I can tell you from experience that NEW charges & increased balances usually negatively impact your score. I've had less than a $200 charge on a $25,000 credit card bring my score down many times. Using available credit isn't a good thing when it comes to your score.
And finally- The debt-to-income ratio is affected. This doesn't affect your credit score but it does impact your purchasing power and creditworthiness.
It can take a while for a credit score to even back out even after a charge is paid off. The more you use credit, even if just for convenience, the more your score is affected.
Let C.O.P. rule your spending.
No Cash-No Purchase!
Financial management & saving money begins with learning what credit should be used for. It shouldn't be used for unnecessary spending such as for entertainment, vacations, or unnecessary shopping.
For easier management of credit, don't use credit cards for purchasing things that you don't already have the cash money to cover.
Live by this rule especially if you're trying to get out of debt.
👉🏻You can't GET OUT OF DEBT if you are CREATING DEBT.
Establish a cash-only mentality and use credit only for the purpose of keeping your credit score high.
Ways to pay credit down:
-Choose to drive an older vehicle rather than a new one that carries a lot of debt or high payments.
-Buy an older house you can pay off in 15 years rather than a newer one that will take 30 years to pay for.
-Live below your means and purchase only what you need. Stick to your grocery list and don't "shop around."
-Don't take vacations on credit. Instead, skip a vacation and save the money for the next one. If you can't save it, and you're already in debt; how do you expect to be able to get out of debt and pay that vacation off too? If you usually pay your vacation off using your tax refund, as a lot of people do, why not wait until you get your tax refund and then go on vacation? Wouldn't that be better than paying interest for an entire year?
-Paying your payments on time, without fail, will help you to increase your score and helps creditors to trust you with more credit.
-No matter how much credit you can get, don't do it. It's better to limit the amount of available credit you have, even if you're not using it.
-A strategic plan for paying off borrowed money and boosting savings while building credit is to stop looking for ways to boost your buying power and look for ways to boost your saving power.
Your credit is attached to your name.
Ruin your credit, you've ruined your good name. The Bible says in Proverbs 22:1 (NIV) "A good name is more desirable than great riches; to be esteemed is better than silver or gold."
The most important thing is to create a stable financial profile. Hopefully, all of these things will help to get you started on the right foot.
If you're new to managing your finances and credit, it's ok to make a mistake as long as you're paying attention and learning ways to avoid those mistakes in the future.
A great manager doesn't learn strategic methods overnight. It sometimes comes through trial and error.
Be patient with yourself and strive to create stability. That's the most important thing.
