Taking your credit serious and what you should do
When was the last time you checked your credit? Do you have a credit card? What about 3 credit cards?
Contrary to popular belief, your credit is vitally important.
Just about everything in our daily lives involve credit either directly or indirectly.
We need credit to rent an apartment, buy a car and in some cases, qualify for a job.
It is beyond me why people would listen to Dave Ramsey or anybody else who would tell you that credit isn’t important and that you should always use cash.
But what I want to do is show you why credit is important and open you to a few thoughts that you might not have known about credit.
YOU NEED CREDIT CARDS
Ill start by simply saying that you need credit cards. Theres information out there that will tell you otherwise. The fact of the matter is you need to have open lines of credit in order to track your credit history and build upon your initial available balance.
Now some people will say “credit card companies wont issue me a credit card because of my bad credit”. Well there are two simple ways to fix that. Fix your credit through a credit repair company, or go to the bank and get whats called a “secured credit card”.
Now what exactly is a secured credit card? A secured credit card is a credit card backed by a payment that is used as collateral.
For example, if I walked into a bank and asked for a secured credit card, I would hand them $200 or whatever the minimum collateral deposit is and they would issue me a secured credit card. I would then have a $200 credit line.
This secured credit card reports to the same 3 bureaus as an unsecured.
Later on you can transition into an unsecured credit card.
By the way, you want between 3 and 5 credit cards on file to build a solid credit score.
INACCURATE REPORTED INFORMATION
About 90% of credit profiles have some sort of inaccurate information on them.
With that said, the Federal Credit Reporting Act requires that ALL DATA reported on a consumers credit report be 100% ACCURATE.
This includes EVERYTHING. The spelling of your name, account name, account number, credit limit and so on.
If there is a discrepancy, you can dispute the inaccuracy and have the item removed.
This is important to you because depending on the item and how much that certain item is hurting your credit, by having it removed, it can boost your credit score significantly by having it removed.
There is no incentive for credit bureaus to keep accurate information of your credit profile.
But why? Because you become an asset to lenders the lower your credit score.
How? Simple. They get to charge you more interest. So they bank on you having misinformation on your credit report to make more money off of you.
Make sure your credit profile has accurate information.
MAXING OUT YOUR CREDIT CARD
It is important to say that you should not max out your credit card. Not because the risk of not being able to pay off the card in full, but because credit card companies do not incentivize you for maxing out your credit card.
In fact, it actually hurts you. A trick in building credit is showing that you do not max out your credit cards. You are seen as a risky borrower when you max out your card every month.
A rule of thumb is that you should not spend more than about 15% of your cards limit per month. This is give or take.
To put it into perspective, if your credit card limit is $500, you should not spend more than $75 give or take.
Your debt to credit line ratio is a huge part of your credit score. If you max out your cards every month, this causes an unbalance towards your score which negatively effects you.
To keep it simple, do not max out your credit cards when you are building a good credit profile.
The time to start building credit is now. I still remember when I received my first credit card in the mail the day before I left off for college.
My mom took it and cut it up because she figured i’d ruin my credit by running the credit card up. In which she probably was right.
The missing piece was education though. If I was educated on credit and how it works, I probably would’ve had an established credit profile by the time I left college.
But I had to learn the hard way. Going into debt, maxing out a credit card and digging myself out.
Just because you have bad credit now doesn’t mean it’s not the time to fix it. The time to fix it is now.