Let’s check in on these financial decisions that we are making and how to make some strong moves in our lives. This week’s post is going to be dedicated to Credit. How you move toward a credit score that will allow you to make the changes you want in your life.
Contrary to popular belief this world does not move on cold hard cash it moves based on your credit. So, what is Credit? The borrowers' ability to repay a borrowed amount over time and on time. Notice, I did not say pay off that amount, but your established history of paying it back is what is measured. For example, you borrow 100 dollars from me and paid me back in a week 100 dollars, While I am happy you paid me back, it’s over with. You just said I can pay you back no sweat, but you have no rapport set with me. This is how banks look at you and your credit score. By making on-time reoccurring payments, the bank sees you as a loyal customer and wants to continue your relationship. When you get judged by a creditor for a loan or credit card it is based on your Middle Score or Fico score. The middle score of your three credit scores. For example, if your Trans Union score was 720, Experian score was 690, and Equifax score was 670, your Fico or Middle Score is 690.
No matter where you are starting from I'm going to give you tips to get your credit in order and fix your credit.
First, get your score. There are a million ways of pulling your score, I would say to go online to one of the three bureaus and pull your scores. You can do this for free once a year, next download an app from the credit bureaus to monitor your scores this method will not affect your credit score.
Next, if you find discrepancies on your credit you can dispute them. Each credit bureaus provides official letters you can print and send to creditors to address these issues and take certain things off your report. Most people who are working on repairing, or building credit turn to credit cards. I agree with this method however, there is a way that you do this and shoot your credit score through the roof.
Remember your credit score is your ability to maintain on-time payments over time as we said earlier so here is the goal.
First, take your total credit limit on your credit card and divide it by three (if you have a $900 limit that gives you $300) that new number is your credit card limit. This is one-third of your total, and this is your new happy place DO NOT GO PAST YOUR LIMIT.
Next, find your statement date and pay your total credit limit down to between 30% - 10% before that date. This is not to say it has to be all in one payment but set the goal to that overall range. Of that $300, your statement date is on the 5th, make sure you pay all but at a max of $30 of the total amount. In plain English leave $15-$30 as a running balance by the 4th. This shows that you are currently using your credit but when they report your statement on the 5th you have a debt to credit ratio of 15/900. Remember we are establishing strong credit and payments so while you can pay it all off the bank cares more about you maintaining your paying relationship with them.
Another way of approaching building and establishing credit, if you do not already have a credit card or loans you can do the secured method. It sounds a little crazy but if you get a secured credit card or secured loan, it can make a difference. If you get a secured card, handle it the same as I explained above. What happens with a secured loan is you take your money up from say $500.00 to a bank that provides secured loans. They take your $500 and write you a check from the same amount, and you have a year to repay it to the bank. While you are repaying this loan, the bank in some cases will place the money in an interest-bearing CD (certified deposit) and when you’ve paid off the loan you get the money you secured your loan with plus interest. Your focus should be to report the on-time or early payments or credit/payment history.
Remember Credit is all about your ability to pay a borrowed amount back over time and on time, so invest your time and skill in building yours.
If I left anything out, please make sure to comment and share this post and let me know your comments below.
As Always
MnD
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