When I was in high school I studied my butt off to get top grades. Not because the course I was interested in required it, but because I wanted the option to choose from as many schools and courses as possible.
I’ve negotiated higher salaries and better packages at all my jobs so I have more financial freedom. I love having the option to go on vacation or out to a fancy dinner if I feel like it.
So naturally, when I moved to the U.S. and caught wind of this crazy thing called a credit rating and realized how much it could affect my future, I knew I had to hack the system. Fast.
It turns out that if I wanted to get a lease, I needed some credit.
If I want to buy an apartment and not pay through the roof in interest, I needed good credit.
If I wanted to get a loan for a business, guess what I needed? Yep, credit!
Heck, they even check your credit when you’re going for some jobs.
Not one to shy away from a challenge, I dove head first into the credit rating world and within 12 months had gone from not having a credit score to an excellent 780 – BOOM! I can proudly say I’ve maintained an excellent credit rating for years now, and you can too.
If you like to keep your options open and think saving a few thousand bucks down the road is a good idea, here’s what you need to know:
Make Payments On Time, Every Time
Yeah, yeah, you’ve heard it all before, but that’s for a good reason. Your payment history is what we call a high impact factor on your credit report. And that’s awesome news, because it’s the easiest one to stay on top of!
Set up automatic monthly payments so you never, ever miss a beat. If you want to be a little nuts about it like me, put alerts in your phone, calendar, on the fridge… wherever, just make sure it’s in a few places so you won’t forget.
Manage How Much of Your Credit You Are Using
Utilization baby! This is another high impact factor, which means it’s kind of a big deal and worth mastering. Credit utilization is referring to how much of your credit limit you are using.
According to Credit Karma, a utility of 0-9% will put you in the realm of excellence!
Now, bear in mind that if you’re just starting out with this whole credit building game, managing your utilization can be tough, especially when your credit limits aren’t high.
Here’s what I mean: say you’re limit is $1000, and you constantly have about $200 on the card, that’s a utilization of 20% …not so good. $200 may not seem like that much to have on the card, but percentage wise, it is pretty significant.
Now, if you’re credit limit is $2500 and you’re still keeping just $200 on the card, that will leave you an excellent utilization factor rating of 8%
So, as far as maximizing your utilization factor rating (which has a high impact on your overall score), a key strategy to consider implementing is…
Increase Your Credit Limit
There are a few ways you can increase your limit, I’ll cover two; asking for an increase on an existing card and applying for an additional card. What a lot of people don’t realize is that there’s a hard pull on your credit report (that can affect your score) each time you request an increase in your limit or a new card, so it’s important to be strategic about when you ask.
Before requesting an increase on your card limit I would suggest waiting 6-12 months after opening your first account, and make sure you’ve been making payments on time, every time. Also, if you’ve had a bump in salary don’t forget to tell your bank – it can be a great way to encourage them to increase your credit too.
If you’re not interested in asking for an increase on your current card, you can shop around to add another card to your collection. The great thing with this option is that you don’t actually have to use the card; just having it will increase your overall limit which in turn will help manage your high impact factor, utilization.
The point of increasing your credit limit is not to encourage you to go nuts and spend outside your means (anything but!). It’s simply a fast and effective tactic to improve your utilization score, which can have a bit overall impact.
So there you have it; how to get an excellent credit rating from nothing and save yourself thousands of dollars with lower interest rates. For me, that means I can prioritize my other ‘investments’ (yes Mom, my shoe collection IS an investment).