A lot of people shun new credit if someone’s in their early to mid 20s. Consider it weird…awkward….odd. As many may know, credit is a big thing in the United States of America. Not so much in the United Kingdom. So when someone wet behind the ears turns 18 – the first thing they (usually) get in the mail are a bunch of credit card offers – that’s how it was when I hit that age.
I remember when I got back to the states a few years ago, and decided to finally get into the loop of credit – but like I said – a LOT had changed then. On the one hand it was great – because it protected the less financially educated people who associated credit with consumerism – on the other hand, for the finance savvy counterparts such as myself, it made things far more difficult.
All sorts of questions were asked and statements made,
“How many lines of credit do you currently have?”
“Have you ever taken out any loans?”
“There’s no credit history of you anywhere.”
“If you don’t have any credit history we’re going to have to secure double (sometimes triple) the amount.”
“Why haven’t you gotten a credit card before?”
Question after question piled in, and after finally believing that I had no desire to really have credit cards, advice and suggestions followed.
“The fastest way to build your credit is to take out a loan…don’t pay it off early – pay it according to the payment plan until the very last installment.”
“Apply for a secure credit card – put your own money on it and borrow from yourself.”
The last one really made me laugh…firstly, because I’m not much of a consumer at all (especially not at those stores), and secondly, buying just to buy makes no sense to me. While the media pushes consumerism and teaches society to accumulate – I’ve always been one to take opposite advice – besides, I don’t like clutter.
The funny thing is, though minimal – I actually had credit history – just not in the USA, but instead abroad. So for me it was a little like starting from scratch all over again, except with far more jumps and hoops.
I finally got one decent credit card, from Capital One. Starting out, I mostly used it for gas and the occasional meal, and would pay off the balance weekly. This made my credit history with Capital One soar – not to mention one insanely awkward time where they “blocked” and held one of my payments – on account of me paying the balance down too rapidly – to which they heard the far less calmer, quiet version of Rego.
After that small hiccup, shortly after they offered me a credit line increase.
I kept at this, switching my payment methods to monthly, never with a minimum payment and always in full, until after a while combined with calling up and asking when the statement dates were, I had nearly two months available to pay the balance – interest free. On top of that I was getting free cash from them as well with cash back rewards.
Within 6 months, this doubled my credit score. While this was all fine and dandy, I wanted to accelerate the process even more – and then it hit me. I was gaining leverage of time, with money that was practically mine to use without worry of giving anything back in return – just on time payments. Forget consumerism. If I was getting time, to pay something almost two months later, interest-free, and making a percentage of my cash back – why not take it a step further and pay my monthly bills with it?
Mind you, things such as accommodation and utilities, I still paid off my own separate accounts…but things like telephone, internet, insurance, even business expenses, I could easily pay off of the charge cards – and did.
There were numerous reasons why this worked out to be in my best interest:
- Leverage of time
- Money I could use practically interest free without touching my own, for almost two months (which pretty much is the same thing as leverage of time)
- Cash earned on interest free credit I was using
- Better, more secure methods of paying bills – using a credit company if need arose to dispute a charge was far easier and resolved more quickly than with a debit card
- Ability to build a track record of using lines of credit and keeping them in good standing
Present day, I stick with three solid cards, and try to keep my balances below 33% – which is extraordinarily easy. So really, if people are taught to think of credit less as a consumer opportunity, and more of a business one – there are many ways to win – allowing a person to go after bigger fish, by building credit faster.
I’ll give you guys a good example of an excellent way to build your credit, keep the balances low, and leverage your time on payments made for your monthly bills. If you take 3 cards, and split them into categories – business, mandatory living expenses, and recurring leisure expenses – you can get your mind geared towards clearer, more strategic thinking – and take your way of seeing money to a new level.
So let’s say you used one card for business expenses – i.e. if you have a recurring monthly bill from Blue Host or Host Gator for a website you have – you can put that on the business card. Business trips where you’re buying gas? Business card.
How about mandatory living expenses? I say mandatory, because with the way the world operates today, this could easily apply to internet, telephone, and auto insurance – staple things like that. So you’ve got a recurring charge that comes out every month for auto insurance – then you put it on the living expenses card.
Pretty good at managing money but still can’t let go of that Pandora One or PlayStation Plus subscription? Go weak in the knees for Netflix? Alright – that’s fine, I’ve got a weakness for Pandora One too – so put it on the leisure expense card.
It’s all very simple. If you can start looking at credit lines and charge cards this way – you can have a great time all around – and literally be laughing all the way to the bank. Because paying a credit card bill won’t seem like a task anymore – but an advantage.
Just remember these 4 key things:
- Always pay ON TIME
- Always pay IN FULL
- Always keep spending CATEGORIZED and SEPARATE
- Always keep the balance UNDER 33%
I know the last one may be hard starting out, especially if you’re given a very low line of credit, but keep at it and you’ll see that quickly change.
Stay savvy ;)
- 3 Tips to Great Credit (bestcreditrepaircompanys.com)
- New students need to use credit cards with caution (q13fox.com)
- What Really Influences Your Credit Score? (metrobrokers.com)