Building your credit score is a top subject, debated all over the world. Today, our guest post focuses on how to build this in the US.
The advantages of having a good credit score in the US are as follows:
- Low interest rates when you want to borrow money
- Increased chance of approval for the borrowing you choose to do.
- Easier approval for life changing finance such as mortgages and rental houses or apartments.
- Better rates on car insurance (US)
- Get a cell on contract with no security deposit
- Avoid security deposits on utilities.
Today, I’m excited to introduce you to our guest, Stacey from over at kissyourmoney.com
Stacey is an established full time content writer and editor at Oak View Law Group whose articles have featured in various blogs and websites. She works to eliminate the stigma of debt and show readers the best options for handling their own debt.
Over at her blog, you will find great advice on personal finance, debt reduction, ways of dealing with credit, budgeting ideas and industry updates. I found her article about how to manage finances with your partner particularly useful and contained fresh ideas for Mr Budget and I to try.
In her free time, there is nothing Stacy likes better than to cook dinner, get to the gym, or go travelling.
So over to Stacey…
Debt – the Key Facts
No matter how much we hate debt, we can’t ignore it. In fact, truth be told, we are hugely dependent on it; not only for meeting the brutal demands of our lifestyle but also for improving our credit score.
It’s a myth that debt is detrimental for your financial life. If the debt is managed prudently, then it can be minimal and help to increase your credit score.
Yes. Deep down in your mind, you know I have told the truth. And, if you still don’t believe it, then here’s how you can use debt to improve credit smartly.
#1 – Have a small amount of debt on credit cards
Having a small amount of debt on credit cards is a smart way to improve credit.
Whenever you receive the credit card statement from the bank, check these 2 sections meticulously. The first one is the ‘new balance’ and the second one is the‘minimum payment due’.
If your new balance is $90 and your minimum payment due is $40, then you can pay the minimum amount with ease.
I would always recommend paying off the full amount every month, since you will not have a huge amount on these credit builder cards anyway.
When you pay the minimum amount on time, your credit report will show that you have paid the bill on time, and that won’t hurt your credit score. It will give a signal to the credit scoring model that you’re a responsible consumer.
Try to keep only a small amount of debt on credit cards. If you owe a huge amount, you could potentially have to pay a huge chunk for the interest to the credit card company. See this article for transfering card balances in the US
So it’s better to carry a small balance on credit cards.
There is yet another reason to have a small amount of debt on credit cards. If you have a credit card with 0% intro APR, then you can carry a balance on it. A card with a 0% intro APR helps you to break your balance into bite-sized monthly payments. You don’t have to pay a penny on the balance for the interest.
A good guide would be to only use, at the most, 30% of your credit limit.
#2 – Pay bills on time
Payment history constitutes 35% of your credit score. If you want to improve credit, then you have to use debt in a way that would help to develop positive payment history. And, the best way to do that is to pay your bills on time.
Set a reminder on your smartphone for bill payments so that you don’t cross the due date. You can also opt for auto pay to avoid missing out the deadline. Remember, late payments stay on your credit report for 7 years and hurt your credit score.
#3 – Take a rental apartment
For many years, a sincerely paid mortgage helped to improve credit. The process is simple. All you did was to take out a home loan, buy a house, make monthly mortgage payments (until the debt was paid off), and build credit gradually.
But renters didn’t get any privileges like this. Unless renters missed payments, landlords didn’t report to credit bureaus.
Fortunately, those days are over. Now, you can improve credit by paying your rent every month. Services such as Rent Track helps you build credit when you pay your monthly rent on time. So take advantage of these services. You’re going to pay rent anyway. It’s better you enjoy the benefits of those timely payments.
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#4 – Reduce your overall debt
The best way to improve credit is to manage credit card debt properly. When you owe a huge amount on credit cards, it increases your credit utilization ratio and drops your FICO score. For the credit scoring model, it means that you don’t have money to pay credit card bills yet you keep on using plastics to meet your desires. This could end in the potential disaster of borrowing to pay off other debt.
Again I suggest trying to maintain a credit utilization ratio of 30%. The FICO scoring model considers it as the ideal ratio.
For ideas on how reduce spending, get out of debt and budget like a pro, read these posts below:
#5 – Manage your student loans:
Student loan debt, in my opinion, is a good debt. It helps you a complete education, choose the career of your choice, and kickstart your financial life. Once you complete your education and get a job, start making monthly payments on the loans. And, if you can’t, then there are lots of repayment plans for the government authorized loans.
You can take advantage of those repayment plans.
- the Income-Based Repayment Plan
- Public Service Loan Forgiveness Program
- Pay As You Earn
- Revised Pay As You Earn
Student loan debt has become a trauma for many borrowers in the country. But it doesn’t have to be so. There are plenty of repayment options. All you have to do is choose the option that it right for you and clean your credit report. Remember to do your research and seek advice on this so you are well informed before making your choice.
Credit and debt have a symbiotic relationship with each other. Both of them matter in your life and can be managed effectively to produce positive effects on your life.
Pay your phone bills and other utility bills on time. If you have a credit card, try to stay in the sweet spot of using only up to 30% of your credit limit to build your credit score like a true pro.
Over time all these positive little actions should build up to produce the result you are looking for – a credit score that will open lots of doors and that you can be proud of!
Thanks Stacey! If you have any comments or other great ideas for building your credit score in the US, please add them in the comments.
Guys, I really recommend you take a look at my budget planner – it will be sure to set you on your way as you plan your path to improving your FICO credit score.
This is the budget planner I created in response to my budgeting needs and to help you guys develop a budget too. Head over to my gumroad site to purchase the Budget Binder through my special link.
For a limited time, if you tap in the code: 5lz025z, you can get 35% off the purchase price of the Budget Binder
What’s included in the 2019 Budget Binder at a glance
3 pages of budget planner
(key areas of spending in your budget)
Savings goals planner page
• Cash Envelope Sets:
Cute animal series
Inspiring quotes series