I want to share how to properly use credit cards and tell you how I got a credit score of over 800. Which is not 850, but is above the average and almost in the “excellent” range.
And if I did not make the mistakes that I am going to talk about in just a moment, I would have had an even better score.
So I didn’t know much about credit cards. There wasn’t anyone who could explain how to use one, what is a credit score and why it is so important. So I made this video for other people like me.
Before I thought I will be so rich, I won’t need credit cards and loans. I thought they are for people who didn’t have money. Because in Mother Russia you if you rich buy everything in cash.
Then, I started meeting very wealthy people who could afford to buy almost anything in cash, but they wouldn’t. They will still take a mortgage for 30 years.
I thought it was insane until I learned about good debt, which I will talk about later.
Don’t like to read? Watch the video!
If you want to get a lease or finance a car, get a loan for your business, invest in real estate, or leverage your money and become wealthy, you will need a good credit score!
Funny thing, I used to think that rewards and cashback were made to lure people into signing up for credit cards, and now I make over 1000 bucks in rewards yearly without spending more money.
For some, it might not be a lot, especially in a year, but it pretty good to me.
To get a good credit score, you need to understand what it is and how it works.
It’s a score that ranges from 300-850, and it shows banks and lenders how well you manage your loans.
And if your score is high, banks and lenders will give you the best rates, and you get the best cards with the best rewards.
A low credit score shows that you are not responsible with the money that you borrow. So banks and lenders would either refuse to lend you money or would charge you higher interest rates.
Though I had money in my bank account, there was a time when I wasn’t able to buy airplane tickets.
It could not increase the limit on my credit card, and neither could I get a new card. So I had to ask my friends or family to use theirs, and I just paid them cash.
About four years ago, I wanted to lease or finance a car for the first time. But the dealership rejected me because my credit score wasn’t good enough.
So a good credit score consists of a few important things!
It has a significant impact on your score. You want to make sure that you pay off everything on time.
Always! Never miss a payment. Ever.
There was a time when I had an outstanding balance for months, but I still paid the minimum amount. When I checked my credit score for the first time, I was so scared.
I thought it’s going to be terrible. But because I at least paid the minimum amount, it wasn’t that bad. So try to pay off everything asap, but if you can’t, at least make the minimum payment!
Credit history shows the lenders how long you have been managing debt. And the longer your history is, the better score you will have. If you make your payments, of course.
If you are young and don’t have a credit card – get one asap. So you can start the credit history now. I was lucky I got mine at around 18, now I am almost 26, and my credit history is eight years old.
If you don’t use credit cards a lot, just put small amounts on it, around 50 to 100 dollars a month, and pay it off right away.
Utilization is how much credit you use out of the total amount available to you. So the less credit you spend out of your total, the better it is for your score.
The rule of thumb is that you do not want to exceed 30% of your total available credit. Though, many experts recommend not to exceed 10% to keep a good score. Here is why I try to use about 6-9% of the credit available to me.
Before I started getting into credit cards, I only had one card with a $1000 limit. I used about $400 every month, which was 40% of my total limit.
I decided to get another card for $3000, so my total limit became $4000, and the 400 bucks became only 10% instead of 40%.
Typically banks and lenders like to see different types of credit, like a car lease or a mortgage. It shows them that you are responsible for paying up your loans.
I am not sure how it impacts the actual score, but it affects the loan decision.
Though my credit score was in the 750 range, I did not have any loans or leases before, except for credit cards. When my wife and I were getting a car lease, the dealership wanted a guarantor. In other words, someone who will be responsible for making a payment if I miss it.
They did not trust me. And why would they?
It has a lower impact on your score. So every time you apply for a loan, the lender inquires about your credit score. They want to know how responsible you are. And every time they do it, they leave a mark on your credit report.
Lenders and banks don’t like to see too many inquiries in a short amount of time, because that shows that you are going around looking for money. This just looks too risky for them.
The good thing is that inquiries don’t stay on your report for a long time. And a good rule of thumb is to not open too many accounts in a short period.
If you don’t have a credit card, go to your bank and get one ASAP.
And when you get your first credit card, you might feel like you have more money. Remember it’s not your money! So don’t spend it on what you wouldn’t normally spend! Use it responsibly!
The main idea is to show the bank that you are responsible for your debt.
Just put small purchases like Netflix, food, or a phone bill. But remember to pay it off.
If you do that for some time, this will build your credit score, and you will be on your way to being a financially responsible adult.
So now I want to debunk some of the credit score myths that I heard.
It is false. I check my credit score every few months. There aren’t any inquiries, and it doesn’t affect my score. I also have a Costco MasterCard credit card that shows my score in the app.
It depends. There is bad debt and good debt. If you spend it on a new computer, bike or a vacation. Then yes, of course, it’s bad. You have to pay off small amounts for the next few months or even years.
Good debt is when your money is working for you, making you more money, and for that, you are paying a small percentage. We, for example, use credit to pay for our ads. Though we have money on our business account, we like to leverage the free cash available to us.
Again this is false. You don’t need to carry a balance. Just pay it off every month.
It is false as well. Income isn’t even on your credit reports, so it can’t impact your score.
Agh. False again. Thу score only measures how responsible you are with your credit.
False. Any loan affects your credit score. You need to pay it all on time!
False, false, and false! Do not close your credit cards. If you close your old account, your credit history will shorten because your credit history is as old as your oldest active account.
Also, your credit utilization will decrease. So don’t do it! Even if you don’t use it, keep it anyways! If there is a monthly or annual fee, call the bank and ask to downgrade your account to a free credit card.
False! Credit and debit are two different things. Debit card purchases do not go on your credit report!
I thought so before too. But it is about how you use it. You can leverage your credit to make you more money, you can use the card to get rewards, or on the other hand, some use it because they can’t get by with their income.
It is false. If you don’t open many accounts in a short period, this will only improve your score.
Because of the credit utilization, I used to spend about 50% of my total spending. When I opened a need credit card, the same $500 bucks I spend became only 12.5% of my total credit. It’s a huge difference.
Just remember: Don’t use more than you can pay!
So the biggest takeaways are:
Do this for a few years, open new credit cards from time to time, diversify your credit with other loans like leasing and mortgages.
It is that simple, but it takes time! It will build your credit score, and you will have almost any loan available to you. Lenders are going to love giving money to you.
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