Category Archives: Credit Score

How to get and keep a good credit score

Even though I still owe about $1500 on my credit cards, when I checked Equifax in May I had a 737 score. That has inevitably dropped a bit because I applied for another credit card (to be explained tomorrow, it’s only for a balance transfer, don’t stone me), but that should give you an idea of what my credit looks like.

Considering I had a high debt-to-credit ratio when my information was reported, and that I won’t have 2 full years of credit history until September, that is pretty damn good.

Many in the personal finance world are adamant that you shouldn’t worry about your credit score. Since no one wants to be in debt, there’s no reason to care right?

I understand their points, but I disagree to an extent. I agree that no one should maintain a good score just to be able to rack up consumer debt easily, like car loans and credit cards; after having to cut down on so much just to pay my debts and STILL not being done, I never want this experience again. However, good credit helps in numerous areas of life.

For example, people with good credit scores get better mortgage rates. In the greater Toronto area, the housing market is solid for now. The average home in my neighborhood costs $400 000, and I’m half an hour east of the city. You’d need a down-payment of $80 000 to even get considered for a mortgage in my area; very few people can cough up that kind of money, let alone a higher down payment. A good credit score can save a buyer thousands in interest over the years. Good credit can also drop the amount needed as deposits for services, allow you to rent an apartment (my credit is probably the number one factor in why M and I were accepted for our place), and even be the tipping point on a decision to hire you. If you are interviewing for a job in the financial industry and it’s a choice between you and someone with identical credentials and a better credit score, the other person is likely to be hired.

I haven’t done much right with my finances, but keeping my credit score high is something I’m proud of. Here’s how I did it.

I pay my credit card bills twice a month and pay more than the minimum.

I get paid biweekly, and I have just never mastered doing a monthly budget; it gets complicated. I prefer to work my finances on a two week basis. What I do with every bill over $30 is split it in half, and pay out to them twice. I pay my bills as soon as possible after I receive funds. Since they are paid every two weeks, I never incur late fees and I never get red flags on my report. Even with my phone bill, where I don’t know the exact amount of what I’ll owe until the middle of the month, I estimate. Also, with my credit cards, I have never paid minimums. Even when I was maxed out, I’d always put at least $300 from each pay towards my debt. It was partially because I was lying to myself (“see, I’m paying it off!”), and partially because I knew I just wouldn’t remember the due date. However, it has really helped with keeping my score high. There aren’t ever any lates on my report.

I limit my inquiries.

I have a friend who applies for lots of credit cards just to get the rewards they offer, and then never uses them beyond the initial gum purchase needed to activate it. I can’t do that. That’s not only for the obvious reason (recovering credit addict, no way), but because numerous inquiries wreak havoc on your report. When you apply for a lot of credit in one sitting, loan and credit companies assume you’re scrambling for money and need credit to dig yourself out. Hey, it happens, and they’re right to be cautious of that. I don’t ask for credit very often, but in the past month I have two inquiries; one from a bank about a credit card to transfer my balance and save some interest, and one from the realty company I’ll soon be renting from. That’s the most I’ve ever had on my report in one month. I actually have only applied for new credit every 9 months or so. Apparently that looks good.

I pull my credit report and look through it as much as possible.

I’m anal about my credit. It’s my baby. Seriously, ask my mom. I brag so much about my score that she knows my credit history by heart. So when  I get a  chance to check my history, I do it. At least every six months I send away for my report. I stare lovingly at all the R1s for a few minutes, and then start picking meticulously through every single word and number to make sure there’s nothing that I didn’t initiate. My mom was a victim of identity theft before I was born when someone got a hold of her SIN number; that’s all it took. Plus, once your identity is stolen, apparently it’s a special kind of hell trying to get people to believe that you didn’t mortgage a house in Nigeria using goats as collateral. Because of that, I check EVERYTHING with a metaphorical fine tooth comb. I haven’t had any issues as of yet, thank god. However, always look; if you catch erroneous entries early you can isolate the damage.

CONSTANT VIGILANCE!

The above is obviously just how I handle myself, but it has worked really well for me so far.

Does anyone else do things differently, or have some extra tips?

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My Starting Point

My boyfriend Jay, bless his heart, has had a rough go at it so far. He hasn’t been able to find a job, so he lives with his mom. Besides GST checks, he has no income at this point. He also has no debt.

Jay’s net worth is $0.

He’s doing better than me, that’s for sure.

My debt level is INSANE to me- I never had it above $1000 before 2011. This is the breakdown:

TOTAL   DEBT
Card 1 450.34
Card 2 2965.63
 DEBT: 3415.97

That might not seem so bad to any seasoned PF bloggers (Claire from Blogging Away Debt is starting with over $98000), but for just over a year and a half of credit and having almost no other expenses, it’s terrible. I’m still mentally kicking myself.

My net worth looks almost as bad:

NET   WORTH
Chequing 115.22
Savings 439.75
Debt 3415.97
Total NW -2861

I could continue going on and on about how I shouldn’t have let it get this bad, but I’ll spare you. On the bright side, I’m at least catching it before it becomes a deep-seated habit.

My plan thus far is simple: Stop accumulating debt, and pay it down as aggressively as possible. I’ve been paying my credit card companies $300 biweekly to try and keep up with my spending, so I’ll continue doing that WITHOUT using the cards. There are some monthly expenses on the cards, which are my Netflix (can’t live without) on card #2 and my donations to World Vision on card #1. Together they come to just over $40 a month, and I’m going to keep them automated on the accounts. My problem was never online or automated spending anyways- it’s physically having the cards in my possession that caused me to get this far in debt. Everything just seemed either insignificant or an emergency. My goal at the end of my debt is to use credit RESPONSIBLY- hopefully by never having a physical card in my hand again if I can help it.

My card with the lowest balance happens to be the one with the higher interest rate, so I will be starting to pay down that one first at $225 a paycheck. It’ll be gone completely within a month. My minimum payment on the biggest balance is only $30 though, so I’ll pay $75 every paycheck onto that. With interest included, I’ll have my debt paid off completely in 6 months, knock on wood.

Before when I’d try to pay down my cards, I’d look at the numbers and feel overwhelmed and hopeless. This time, I’m ecstatic. I feel like this will work for me this time. Honestly, I can’t wait to get paid again so I can begin!

For anyone that has paid off (or is currently paying off) their consumer debt, how did you feel when you started?