After leasing the car, I started wondering about our credit. It turns out it’s pretty good, and I wanted to know why! Marco and I both made mistakes with our credit in the past, and we have been trying to get out from under that dark cloud. Here are some things that worked for us, if any of you are in need of a credit boost:
1. Always pay on time, even if you’re just making the minimum payment. Late payments lead to increased balances and astronomical percentage rates. I have one that went to 30% in my early 20s, and it never went back down.
2. Close your small store credit cards. We had cards for Express, Victoria’s Secret, Home Depot, and Best Buy. We bank at a Credit Union, and they worked out a deal with us to pay off a number of cards. We ended up closing all of these cards, and we pay the bank each month to pay off the loan. The nice thing is that the loan doesn’t seem to affect our credit score.
3. If you need to borrow money to make a big purchase, use things like Bill Me Later. It didn’t show up on our credit report, and it has 0% interest for the first 6 months.
4. Look for alternative credit offers in the mail. We receive notices two or three times a week, and they often offer 12 to 18 months of 0% interest. I transferred a balance from the 30% card to one of these, and it has taken a great weight off my shoulders.
5. Remember that loans for education are what people call “good debt.” Although you still need to make the payments, they are usually at a low interest rate (2-3%) and the lenders will work with you if the payments are too high. When you get frustrated with the payments, remember that they have allowed you to earn something that will always be useful in life, whether personally or professionally.
6. If you get over-extended with credit, reign it back in. Stop using the cards for everyday purchases. Remember that every time you use your credit cards, the business is being charged 2-3% of the cost. This causes them to lose money, and the widespread use of cards has forced them to raise the prices of goods, thus contributing to inflation. If you stick to cash, you save them money, and you will be more aware of what you are spending. Marco and I went to Italy for a week last year, and we only took $1000 cash. By the flight home on the last day, we had just enough cash to eat. It was perfect, because we watched our spending, and didn’t buy a bunch of useless souvenirs.
7. Take a look at your credit occasionally, on sites like FreeCreditReport.com and TransUnion. Remember that these sites will start charging you if you don’t cancel their services, though, and they might charge you to download the report.
8. Pay off a loan to increase your score. This shows that you are a low risk to lenders.
People have different ideas of what good credit looks like, so here are a few scales of the different score brackets.