My mom and I decided that, at the tender age of 15, I could have a credit card to start building credit. She meant well, really. We both thought the only factor to your credit score that you can’t really control is time, and the sooner you start the better. I wasn’t old enough to work yet, so she agreed she would pay the bill for scheduled and agreed upon purchases. The card had a tiny limit, so it should have been manageable. It sounded like a good idea in theory. In practice, we both forgot about the bill for the single purchase I made on the card. That $32 purchase came back to haunt me in college when I applied for a credit card.
Even though I was working (part-time), and had now established some credit, technically (thank you, federal student loans), I didn’t understand why I was having a hard time getting a card. I finally got a no-fee card with a low limit from my bank at the age of 19. I also requested my free credit report to see what the problem had been. And there was that credit card account that we had linked to my name at age 15. It was a “negative factor” on my otherwise virtually empty credit report. What was a girl to do? Here is how I turned my flawed credit score into a great one, before my 30th birthday:
1. Research. The first thing I did was read everything I could online about how credit works. It’s really hard to understand how to improve your credit, when you don’t know how various life events and factors will affect your score. I learned that some items will “fall off” of your report after a set amount of time (e.g., bankruptcy stays for seven years). I also learned that paying things off early can help your financial wellbeing by lowering your debt but can hurt your score if you haven’t had an established (read: long-term) credit history. I continually read credit score articles as the rules have changed over time. There are also really handy calculators available that will show you how actions (payoffs, only paying the minimum, missing a payment) will affect your score.
2. Learning from my mistakes. I’ve made plenty of financial mistakes. For example, that shoe purchase when I was 15 was not my only time forgetting a one-off charge. I got an Angel card from Victoria Secret that I used frequently at first, and then my use tapered to maybe once or twice a year. Once my use decreased, my mindfulness of said use decreased as well. I simply forgot which card I pulled out to make a purchase. Another factor with the Angel card was that, at that time, unlike some credit card companies, there was no pre-payment or pending transaction payment option. It would take some time for the balance to populate, and it had to show as processed in their system, before I could make a payment. I tried to make payments promptly, especially since I’m forgetful, and having to wait pushed the payment down on the priority list. Long story short, I had a small value charge I forgot to pay off.
I realized I had missed the payment date when I received an e-mail saying that my payment was 60 days overdue. (I don’t recall getting an e-mail saying my payment was due, or even 30 days overdue, but I digress.) I made the payment, and then I took some advice I had gotten shortly before that. I called the Angel card customer service, and asked them not to report the mistake on my credit report, since I had a good payment history with the company, and did not usually miss payments. It was an honest mistake and had since been rectified. They agreed not to report it.
3. Establishing good habits. Outside of opening communication to remove negative factors from my credit report, I also started taking measures to ensure I manage my finances and my credit score. I created a budget, started saving more, and setup auto-pay with my bank. I tracked my expenses. I learned that I could build my credit score responsibly with one easy method: repetition. For bills that were the same every month, such as a streaming subscription, I’d use my credit card to make the payment but have the auto-payment already setup to cover the charge. This shows that I can use my cards, but also control how I use them. Eventually, I got to a point where I paid my credit card off every month. This made me mindful of my spending again, and it saved me tons of money in interest.
My advice, personally, is to only charge what you can afford to pay off at the end of the month. Save for emergencies so you don’t have to use a credit card. Minimize any unnecessary expenses on your credit card. Save cash for splurge items like electronics or accessories, before you swipe for them. I don’t carry more than two credit cards with me at given time. I would suggest keeping the number of credit card accounts you have to a minimum, in general. I have four cards (which I’m not necessarily endorsing) but I mainly use one, my Amex. If a vendor doesn’t take Amex, then I’ll use one of the others and pay it off immediately. This will keep me from forgetting about the charge since I rarely use the other cards.
4. Buying a house. Obviously, this isn’t a solution for everyone, but it helped me. I closed on my townhouse three days after my 23rd birthday. I know my situation was not the norm, and I was extremely lucky. I wasn’t making six figures yet (I was making about $51K). I didn’t have a co-signer. I didn’t get any cash gifts. It was a foreclosure (read: fixer-upper) purchased for $129K with a 30-year FHA loan with a 4.125% that only required 3.5% down. I also purchased when the government was still offering the $8,000 first-time homebuyers’ tax credit, so I used that money to make the minimum repairs to make my place livable. Then, I rented rooms. My mortgage was less than $1,000/month (cheaper than the studio I was renting prior to purchase), and I earned about $700-800/month off of the renters. Real estate is a form of “good credit” on your report. It shows I was considered financially responsible enough to qualify, especially with no co-signer.
5. Paying off my loans. Thanks to extra income and a windfall, I was also able to finish paying off my student loans. That was one of my proudest moments since it is one of the hardest debts to get rid of. Student loan debt can’t even be discharged in bankruptcy. My method here was to pay off loans as quickly as possible, score be damned. Carrying debt can be stressful. The snowball method has worked for quick payoffs. For larger debt amounts, I try to pay off the balance with the highest interest rate first, to save on interest, while making slightly more than the minimum on others.
6. Being consistent. Throughout this time of purchases and payoffs (10 years), I’ve regularly checked my credit scores and reports (though checking too often isn’t good). I happened to see an option through my Amex account where I could see my FICO credit score for free. I clicked it and saw my score was 824. I thought it was a glitch. I had just turned 29 three weeks before this. I thought (because of something I had previously read) that I wouldn’t accomplish an 800+ credit score for years to come. This showed how diligence, little changes, and big blessings could work out for amazing feats.
I was able to find ways to substantially increase my income in a short span of time and use that to my advantage. I made some sacrifices, and paid off loans. I’m not where I want to be financially but I’ve achieved a great deal. I have positive net worth, I own a property, and I have an “excellent” credit score. I still have outstanding debt that I’m unfailingly working to eliminate, but little by little, I was able to turn my credit around.
Flanice is a DC-based “idea machine,” traveler, blogger, budding coder, and helper of people.
Image via Pexels