Building Credit

Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence, determination. building credit, building credit can be difficult if don't know how and what to do. Those having bad credit can rebuild credit in the process of paying off credit card debt. Before I get started in this episode, I like to thank those who've been listening for a while. This is episode one of year four. So I've done three years of episodes on a weekly basis. It's 150 episodes, I'm primary focus is helping those get their debt under control, whether it's paying off credit cards, student loans, whatever your debt you're trying to pay off. That's the primary focus of this podcast. I do touch on other subjects from time to time, such as this episode is how to build credit. I also would talk about insurance and investing on an occasional basis. But the primary focus of this podcast is to help those struggling to pay down and pay off debt. Now, how do you build credit? Off the top of my head, I would say you pay all your bills on time. But that's just the starting point. So if you don't pay your bills on time, that's the first thing you need to start doing. Because if you're not, you're paying extra penalties and fees, and that's why you're probably struggling with your debt, because you owe more to people because you're not making timely payments. So that's square one. Let's start making timely payments on everything, whether it's your rent, your car, loan, your utilities, everything that you pay on a regular basis, pay up on time. And the easiest way to do that is to set up an automatic payment, whether you do it through your bank, online bank account, or however you want to do it, set it up and make it automatic. That's the easiest way. The only thing you need to be concerned about once you have that is, Do I have enough money in my checking account to pay my bills as come come due? And the next pay period? That's what you should be focused on. Okay. So other than that, how are you going to build credit. So I have two articles in my show notes. The first one is bankrate.com, personal finance credit, how to build credit. And the second one is from the nerdwallet.com Raise Credit Score Fast. And just a note, there's no such thing as raising your credit score fast. Maybe you can do it and then we'll go and look at this article and see what they suggest. But I'm starting out with how to build credit. Your credit score is a huge impact on your financial life. If you have good or excellent credit, you'll benefit from reduced interest rates, better credit card rewards, and more opportunity to use credit to build a strong financial foundation. If you have poor credit, he might have trouble taking out a credit card, renting an apartment or even finding a job. If you accepted for a line of credit, you will pay much higher interest rates on your debt. This is why understanding how to build credit is so important without credit. Lenders can't gauge how reliable you are paying bills. It's which is why having no credit history can just be as bad as having bad credit. Everyone should learn how to build credit, whether you want to apply for some of the best credit cards on the market when you want simply want to live without the baggage of a bad credit history. Another note your insurance for your automobile bill, your insurance for your home is also based on your credit history. So the better credit history have, the less you're going to be paying for those items. The good news is building credit isn't hard. There are many ways to build credit. So let's take a take We'll look at some of the best tips, tricks and strategies to help you improve your credit history and increase your credit score. How to build credit with a credit card, banks like to see that you can manage your money, here's a step by step guide to help you start developing a positive credit history. Now, this is assuming you have no credit cards. For those of you who have credit cards, and you carry a regular balance, sticking to my plan, my debt reduction plan also will help you build better credit because you gotta be making timely payments. That's step number one is making timely payments. When you're ready to start building credit with a credit card, make sure you apply for the right type of card. If you're trying to build credit as a college student, consider one of the top rated cards for students. If you have a car fuel expenses are already part of your spending, and a gas credit cards help you use those purchases as a foundation for building credit. He could even Bill your credit with store credit cards. Retail credit cards often come with high interest rate, but they're available to people with less than perfect credit that makes store cards a good starting for point for people who want to improve their credit history. As store credit cards got high rates, gas credit cards got higher rates, stick to a Visa or MasterCard. And you can do some research, if you never had a credit card. Do some research based on your circumstances. If you are, if you're working full time, and you're not going to college, maybe you're going to trade school, find out there's a credit card that will work better for you. Look for what you spend the most money on, and then you use the credit card to pay for some of that he got the treat that credit cards like it's cash. If you don't have the money and your checking account, don't use the credit card because you don't have the cash to pay for it. So if you use a credit card on Wednesday, you should be able to pay for it on Friday. If your credit card score is very low, your credit history is limited, you might want to consider applying for a secured credit card. Secured credit cards require deposit the team to obtain a line of credit. For example, a $500 credit limit typically requires a $500 deposit. having to pay for a line of credit might seem like a hassle, but it's an easy way to tank credit in your own name. Once you build up a history of Responsible Use, most secured cars will return your deposit. And the best secured cars are also increase your credit limit given your credit score another boost. Okay, so if you don't have credit, or if you got really bad credit, and you've had cards canceled, you're probably gonna have to resort resort to a secured credit card, where you give them the money up front, you have a $500 limit, you give them a $500 deposit, then you charge $100 that month, and you pay the $100. And you do that over a period of time showing a history of timely payments and full payments. Once you've done that for as seven, you know, six months or a year, maybe longer, depending how bad your credit rating is, then they may give your deposit back and increase your limit. But you still have to treat it like cash. Drawback on this is maybe you don't have them $500 To put up to get that. So it will be a struggle from the very beginning. So that may not be an option for everyone. As an authorized user, you'll be able to piggyback on someone else's credit, which can be both a benefit and a challenge. If the person who authorized you on their account use credit responsible, their good credit can help boost your credit history and score. However, if they have negative credit history or begin treating their credit cards account, Ill responsible you might be able to remove yourself as an authorized user as a poor credit habits can affect your record too. If you're going to ask somebody that you can be an authorized user on their car, make sure they have a good credit history. If they have a bad credit history is not going to help us could hurt you. Set up automatic credit card payments when the best way to ensure you always pay your credit card bills on time is to sign up for automatic credit card payments, you can set up automatic minimum payment automatically pay the full statement balance, or choose a fixed amount to put towards your credit cards every month. If you need to make sure there's enough money in your bank account to cover your online payments, of course. But if you can get an auto pay set up on your credit card bills, you be able to reap the benefits of a positive credit payment history without having to manually schedule payments each month. Kay should do that with all your monthly bills, all your utilities, everything that you can do that on, because it's important to pay everything on time. Once you've done this for a while, nine months to a year, he can then maybe open a second credit card. Once you build up a positive credit history on your first credit card, it's time to apply for a second credit card. Having multiple credit cards on your name increased the amount of credit available to you. And you can avoid running up high balances on your credit cards, which could lower your credit utilization ratio, which rep represents your current debt as a percent of your available credit, and improve your credit score. Your credit utilization ratio is an important credit factoring scoring factor. And experts suggest keeping your balance under 30% of your credit limits to help your scores. So what they're saying is, the more credit you have available, the lower balance you have on your cards, the better rating or score you're gonna have for your credit report. Let's say you have a credit card with $1,000 limit. If you only use $300, and then pay it off or less, you're gonna have a higher credit score. The people who have the highest credit score, generally use less than 7%. Which is ridiculous. So if you have$1,000, limit, the keep it on 10%. That's $100 you charge $50. On Tuesday, you charge $25. On Thursday, you pay it on Friday, keep that balance low, and the lower you can keep the balance, the higher credit score, you're gonna have requests a credit limit increase. Again, that's like getting a second card, you're gonna have more available credit. So you're gonna have he used less of it, you have a better ratio, you'll have a better rating, it's the same thing. Okay, how to build credit without a credit card, make your rent and utility payments count. Build your credit without credit cards, it's time to leverage the power of your monthly bills, you can go to this place and they will then consider your rent and your utilities towards your credit report. Take out a personal loan course that's slow. That's if you borrow money, a personal loans like a payday loan or something, it's gonna take a while for that to raise your credit score. But you don't have to and don't do it. I'm not too poor on personal loans, not too fond of that, try to avoid that. Because they charge you a higher rate of interest. Stick with credit cards and try to build a great history, timely payments, early payments, pay every week, treat the credit card like it's cash. If you don't have the money to pay for something, don't use credit to buy it. Just don't buy it. If you have $100 that you can spend, and you can charge$100 on your credit card, that's fine. As long as you pay that$100 off. It's important. If you treat in like cash, and you get paid weekly, I would recommend that you pay your credit card balance off every payday. Just pay it right off. Because then it's going to be more like cash. If you had a hand at $300. Let's say you have a credit card was a 500 hour limit. You have $5 $500 in your wallet. You can only spend $500. And then you got to replace the $500. It's the same thing with a credit card except they're giving you kind of like a cash advance allows you to use their money and if you pay it off timely. You won't have any penalties or interest they gave you like a interest free Whoa, now you got to be careful some credit cards will start charging interest from the date of purchase some credit cards will give you a 20 day grace period. Some give you you know, from billing period to billing. And it all depends. So read the fine print, it's important. So how what goes into your credit score, payment history is 35% of your credit score. That's why it's so important credit utilization 30% of your credit score. And that is basically how much of the credit are you using. If you have $1,000 worth of credit, and you only use in temporary temper sign of it month in and month out, that's a fairly low rate, you would then have a higher credit score 30% of your score. So we're up to 65% length of credit history 15% of your credit score is based on the length of credit history, which includes the age of your oldest credit account, the age of your newest account and the average age of all your accounts. This is why it's a good idea to keep all credit cards open, even when they're no longer using them regularly. So if you're struggling to pay off debt, and you follow my debt reduction plan, what I tell you pay off a credit card, do not close it. Because that gives you more available credit, the more available credit you have, based on what you owe on credit, the better your credit score. So pay off them credit cards, pay them down to zero, but don't close them. Now, if you've been struggling for a period of time to pay off credit cards, and maybe you have kind of a bad history, where if you get a credit card paid off, they may close it automatically. Or when you pay it down, they may lower your credit limit down as you're paying that down. But that is not your choice, the issuer of that credit card is doing that. And because they deem you as a bad risk, so they want to limit that risk. So they're gonna lower that limit and pay off that card, they're gonna cancel the card, I'm just saying. So beware, credit mix 10% of your credit score is based on type of credit counts under your name. Having both revolving credit such as credit cards, and installment accounts, such as car loans can give your credit score a bump, but you can still build maintain a good credit score. Even if you only have credit cards, you got to start somewhere. And a credit card is a good place one for at least a year, keep it under control, get the second one, increase the amount of credit you have available, that's gonna help your score, keep it under control. Just because you have two credit cards don't mean you can charge one arm up to the max, don't ever do that your be in trouble ain't gonna help you. And then we have recent credit inquiries is 10% of your score comes from new credit. That's includes the number of credit inquiries on your account. Each hard credit poll lowers your credit score slightly. So tried to avoid applying for a lot of new credit over a short period of time. So let's say you're trying to find that second credit card, apply for one only wait to they accept you or disapprove. So be do your homework before you apply. Because if you apply for five of them, that's gonna hurt your score. And then you may not get any credit. So only apply for one new account. If it's been approved, then go ahead you're in pretty good shape as it was denied, find out why. Maybe they say that you don't have a long enough credit history. Now you know a reason. So you wait longer before you apply for the second one. Knowing what to do in every circumstances is important. So find out why they have to tell you why they rejected you. And then maybe it was well your credit history is too short of a time period. Or maybe you have you maintained too high of a balance. Or maybe you made three late payments on your credit card. Whatever it is, you gotta figure out what you've done wrong. Solve the problem. Wait a period of time, six months, a year. I know I can take a while. So you want to build credit fast practice good credit habits, pay bills on time, monitor your credit report, and make sure if anything shows up on your credit report. That's not true dispute it, keep your usage under 30% of your available credit. So if you have three credit cards, and your total available credit is$3,000. Make sure that what you owe on all three credit cards, though not exceed $300 and 30% of three B $900. Total, but keep it as low as possible. I know it's stupid, you can't live live without credit. But if you have too much credit that can hurt you. If you don't have any credit that can hurt you. It's a balance you have to do over time, with making timely payments, I would pay every bill at least two days early to make sure you have timely payments. Even if it's the minimal amount, that's better than no payment. And if you follow my debt reduction plan, you know what you're doing, you're saving up you're building up your emergency fund. And then when you have the amount away and above your emergency fund, you're applying it to one of your current debt. And you're doing that over and over. In the meantime, all the other debt you're making timely minimum payments. avoid unnecessary credit inquiries. If you're considering new credit cards, try not to waste credit inquiries on application that aren't likely to be accepted. Instead, look for credit options designed for people with your credit, history and background. So before applying for credit, know what your credit score is, if you know you got a credit score 300 That is not too good. 850 is the highest 300 is not too good 500, you're doing average, six 700 in pretty good shape. 800, you're doing excellent. Even 775, you're doing excellent. They won't tell you that. So knowing all that information, before you apply is important. And the same thing goes for applying for car payments. Once you decide on the type of car, don't apply for any car payments, until you know what kind of car you don't want, how much it is, can you afford it? Can you think that the credit will be approved, you have a big enough down payment, then apply for the credit. Because if you get rejected, it's gonna be much harder to the next time you go. And the next time might be next week. Now you got multiple inquiries, and that's going to hurt. You see how this goes, you got to plan ahead, you got to know what you're doing in order to get ahead now from the nerdwallet.com, how to increase your credit rating fast, trying to pay credit cards to keep them under 30% of your limit. So if you have one card, it's over the 30% of the limit based on the available credit, pay that one first, pay them on time. So you want to get the ones over the 30% mark of available credit paid down first. This is only for your credit rating. It's not necessarily for your debt reduction plan, increase ask for higher credit limits, the higher limit II got then maybe get a higher limit now that balance is a lower percentage. Become an authorized user. Be careful. Don't know the person that you're doing it pay bills on time dispute credit report errors, deal with collection accounts, you know hiding under the rock per se, when you got creditors calling by not answering the phone by avoiding it that's not going to help you face it head on find out which account is behind. Make a plan make a payment plan. Now even if we do like I do, okay, I find I pay debt okay well right. Then I go and I pay the person how directly and I don't do it through the credit agency and then the credit edge agency has to collect their money from that other company. So I kind of screw with them. Use a secured credit card means you put a deposit on it first, get credit for rent and utility payments. Add your add to your credit mix different types of credit a car loan or mortgage credit card Are first on loan. So it's all basically the same thing. I'll be back in one moment with my final thoughts. If you're interested in learning about an online software that helped myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt, and even tells you how much and when to transfer money into your savings account, and how much and when to transfer money to your debt, and which debts to pay off and order. First. It's not cheap. It's a one time payment. But it will definitely be an investment, something and yourself and an investment in your personal financial life. If you're interested, send me an email at reduced debt increased wealth@gmail.com. And I'll send you the information about this online software that works great for me. So why is building your credit score so important? And why am I talking about it? This podcast is a focus on debt reduction. But as you go through your debt reduction process, you probably have a low credit score, because you have a high credit balance on your credit cards. Whatever you is that you're struggling to pay off, the better the credit score you have, the better the credit cards you can get in the future, the better rate on insurance for your automobile for your home for your apartment, you can get probably even health insurance, everything nowadays is based on your credit score, because they are looking at you as a risk. Will this person pay this fee, whatever it is, on time when it needs to be paid. It doesn't matter if it's a monthly rent mortgage, a monthly rent, monthly utilities, or car payment, or a quarterly insurance payment, whatever it is, they're looking at you as a risk. And they're using your credit score to determine how much risk they are taking, the higher the risk, the more they're going to charge you, the lower the risk, the better rate you can get. That's why it's so important. If you're struggling to pay off credit card debt, you probably have a high utilization rate. Meaning if you have a$10,000 credit balance limit, you probably owe close to 10,000. And you they're stuck, they're month in and month out. So you're got 99% of your credit used for that credit card. And if you got multiple cards like that, that they're looking at you as a risk, he may be someday may not be able to pay this is are you getting in over your head? Do you owe too many people too much money. That's what the lenders are thinking. So if you have a lot of credit, and a very low balance, they're gonna look at this and you make timely payments, they're gonna look at you as this person is responsible. They understand what's going on, they may they're a good risk, so we will give them a better rate. Now that rate may only be 20 to $30 less a month, but it all adds up. The less interest you pay on the loans, the faster the principal is going to be paid down, the quicker it's going to be paid off. Credit cards have a high interest rate 17 to 20 something percent. I'm not sure what it is today. But that's a general range 17 to 25. Some of them are as high as 30% because they're taking a lot of risk. And the higher rate that card has, the more people they have they think are risky, or the more defaults they have on their credit card. So they have to take the money up by charging more interest to people that are better risk. So that's why once you get a better credit history, and credit report credit who rating, then you can look for other credit cards with lower rates, the better match what you're trying to do. It's important timely payments. If you make a late payment, you got late payment fees and they're gonna tack on more interest. And it makes it very difficult to pay off and pay down that line of credit, or that loan, or whatever it is. You're trying to pay off. Good credit management is 100% important. And knowing all the things that go into your credit rating is very important, so that you can keep everything under control, and you'll be glad you did so