It’s 2022 – Do you know where your credit score it?

A strong credit score is important, not just when buying or refinancing a home. A great credit score goes a long way in saving money when financing a car, credit cards and personal loans. Often when applying for insurance or a job – credit score is a factor. A great credit score is definitely key to short and long term financial health.

Most people know that a stellar payment history is a major factor for a credit score. Payment history is not the only factor that matters, though. There are numerous other factors that make up your overall credit score. Your credit score is a living, breathing thing and will change year-to-year and month-to-month.

Credit score not in the top tier? There are steps small and big, you can take to achieve your goal over time.

1. When did you get your first account and why did you close it?

I opened my first credit account when I was a college freshman. The promise of a new tee shirt and 20 oz plastic beer mug did the trick for me. Little did I know at the time I was taking my first step in my credit journey. The “Mega Mug” is no longer in use and that credit account is no longer open.

Although I now have many accounts that have been open for 20+ years, I which I knew at the time not to close that initial account. Looking back on it, there were numerous accounts that I opened and closed in my earlier twenties. Each opened account gained me miles, points or 0% interest for 12 months. My accounts were paid the on time but each had a negative impact on my score when closed.

In my twenties and thought that if I payoff and close the account – it would be viewed as a positive for my credit score. I did not realize that each time my oldest account closed it decreased the timeframe for active accounts – and drops your credit score.

Paying an account down to $0 is fantastic – just keep those accounts open. No reason to close out an account.

2. One concept I wish I knew earlier about credit history: THE AUTHORIZED USER

Did you know that you can be added to a family members account as an authorized user? An authorized user allows you to have access to an already established account. When added to a credit account as an authorized user your credit report gains that accounts history.

A benefit of being added to an account is that it can help establish account history right away. If you are added to an account with a 10 year history – that history becomes yours. The built in history will help accelarate your scores.

A few things to keep in mind when being added to an account. It is crucial to only get added to an account with a stellar payment history. If there are any late payments within the past 36 since months – avoid being added to that account.

Glossary

Late payment – any payment that is paid 30 days or more beyond the due date. Thirty day lates are bad. Sixty day lates are worse. Avoid late payments at all cost. On a credit card as long as you make the minimum payment within 30 days of the due date you can advert a credit negative.

Getting added to a strong credit account as an authorized user in your late teens or early twenties – can be a huge first step in getting on the right track of your credit journey. Being an authorized user – can help you get better terms on the accounts that you apply for on your own. In many cases it will help if you are going to rent for a few years before purchasing a home. Most landlords will check credit as part of the tenant application process.

3. Mix it Up!

Getting your first couple accounts, either on your own or as an authorized user, is a crucial first step in building credit. After you have two credit accounts open – your next thought should be to establish a diverse mix of credit. Revolvings accounts should typically make up the majority of your credit (at least in the early years). It is critical to have a mix of credit types. You will want to add in at least one installment account. Examples of installment account are auto leases or loans, personal loans, student loans.

4. Take It To The Limit? Not with your revolving accounts.

Take It To The Limit – might be a great song by rock legends The Eagles. It might also be a great motto in life. But it is a terrible motto when it comes to boosting your credit score. Yes, payment history is the biggest factor in your score, but the next biggest factor is your total revolving credit balance compared to your total revolving credit limit.

When it comes to revolving credit limit, unlike school, this is one test that you do not want to get a 100%! Think golf – the lower the score the better. Many people do not realize that if revolving accounts are maxed out each month – even with making you minimum payments on time each month – there will not be much improvement in credit scores.

The ultimate tier for revolving credit limit is 10% (see this ain’t – I mean isn’t school)! When you make all monthly payments on time and keep your revolving limit below 10% you will see your scores soar. Make this your goal for the long term – and you will be on your way to a lifetime of great credit.

Help! My revolving accounts are maxed out, I can handle the monthly payments but what should I do to boost my scores?

There are numerous ways to tackle the problem of maxed out revolving account. There is no one solution that works for everyone in every scenario. If you are in this situation and can handle the monthly payments without falling behind my suggestion would be to start with small goals.

You will see a boost to your score if you can get your revolving limit down to the 50% mark and then another boost at the 30% mark. If you are starting out at 100% maxed out – make your first goal to get down to 80%. I would make the minimum payment on all but the revolving account with the lowest current balance. On that account, I would pay as much above the minimum as possible until it is paid off. Once your lowest account is paid off work on the next lowest account. This type of payment system is known as the ‘snowball’.

After you get your total accounts down to 80% you will start to feel as though real progress is being made. Set the next mark at 60% and continue with the snowball. It may take you 3-6 months or more to get there…. but keep pushing.

Once you get down to 60% by continuting with the snowball payments things will really progress from there. The next goals are the big tiers of 50% and 30%. At 50% you will start to see a boost in your credit score and another boost at 30%.

Depending on your starting point, it may take one or two years of more to get to the 10% range. The great news though – is that during that time you

• Have made all your payments on time
• Built up the lenght of time credit accounts have been open

At this point you are well on your way

Another route at that start

If you are just getting started in your credit journey and don’t have an option to get added on an account as an authorized user a great first step in to start with a secured card.

What is a secured card?

A secured card is an account that you open with your own funds. Payments made on your secured card will reflect on your credit report. Often, a secured card can be opened with as little as $500. The recommendation in to charge a small amount each month $100 – $250 and pay it down immediately. A secured card is a great first step toward building credit.

The next step

After opening a secured card or being added as an authorized user, the next step is to open 2-3 new credit accounts. A store card or gas card is a great place to start. A credit card with a small limit works as well. The goal with each of these accounts is to charge a small amount on each every month. Then pay the balance down to zero immediately. Avoid borrowing more than 10% of your total limit if possible.

5. Push the limits

You have opened some accounts – Great!

You are making timely payments every month – Fantastic!

You are keeping your balance below 10% of your limit – Amazing!

Once you hit these check points – it’s time to contact your creditors to see if they can increase the limit on your accounts. With a history of making payments on time ask if your limit can be increased without a credit check -if so, accept any increase they will provide.

If the creditor requires a credit pull before increasing your limit – you will want to make sure your current score is in the 680+ range. If not, you will want to hold off on a limit increase until your score moves closer to the 700 range.

Follow these above steps – wash, rinse and repeat – and you are on your way!