Beginner's beginners guide #3- Credit Score

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Okay this is THE most important and slightly lengthy topic that confuses and baffles most, but fear not! For I shall attempt to simplify this topic as much as I can for those starting out to help in building a better personal financial future.

Credit score! This dirty word can be the green light to your success or the road block between your dreams. There was a day way back when where cash was king and references were gold.

Landlords now only accept tenants with near perfect scores despite terrible rental histories, banks check credit scores to determine if you are worthy enough to give them your money, car insurances calibrate their rates against your score despite a superb driving record, hell employers now check to see how you are with the paychecks they give you! There's no doubt that today your life is dictated by a number no matter what type of  individual you are, l know, I've been there! Having never established credit and cash paid everything the world has progressed over me and I was left scrambling to catch up.

Here are some strategies that I have learn along the way for those with No, Low or Bad credit.

1. Know your score! 

You can't begin the race without knowing where the starting line is. There are several ways of finding your score. Contact the credit bureau which will cost around 25$ to get. Sign up with free credit score sites like credit karma. (I also have a free program through the bank which, with credit karma, gives me access to all three scores.) but the best way I found was to contact a home lender. They will do it for free and not only will you know your score, they will inform you of any collections or negative marks and how best to resolve it. (I discovered that my ex left a pretty good amount in collects under my name which I never knew until I received my score. They gave me the numbers to call and the strategies to resolve it.)

2. Pay off any collections!

If, like me, you find some surprises don't give up! Take a day to be upset if need be but get back up and begin to resolve the issue! Call the collection agents, you'll find that a lot of them are really nice and are even willing to negotiate a payment plan or reduce the amount owed entirely. Budget your income as to best pay off these negative remarks and once paid you can now begin the momentum movement upwards. ( if you owe a staggering amount it may be best to talk to a credit specialist first.)

3. Establishing and building credit! 

Okay by now you may have discovered you don't have one score...you have three! Experian, Transunion and Equifax. They all flip and flop to their own beat, and once established you'll understand them better. So to better help your situation I'll just explain what I've done. 

First- I opened an account with a Credit union bank. They report your info to the credit bureau, so be sure that account is pristine. I also opened a savings assist loan which was designed for those starting out in the credit world. They credit your account with funds and you make automatic monthly payments on until it's free and clear. Also have at least two bank accounts. Multiple accounts look good on your credit as well as the age of the accounts. I use one for savings and the other for bills. If possible apply for a credit card here.

Second- I leased a lamp. Yes...that happened. I discovered that Aaron's reports your payment info to the credit bureau, so I went in and leased one lamp. They may get pissed off and say you can't do that, but fear not...you can. They are sales trolls and would rather you lease a monster screen tv in hopes you default on it. Just explain you don't NEED any more stuff and that you're just building credit. I paid 10$ a month for a lamp that sits in my closet. Also be sure that is automatically paid each month aswell. Automation is key.

Third- I applied for a credit card...was denied and as a result my score dropped, more on that at the end. So I found that my bank offered a secure card. My balance would be whatever I paid into it. For example I put 1000$ on it and so that's the balance I can borrow against each month as well as that 1k is automatically placed in a two year CD earning interest. Win-win.

3. Tips and tricks. 

Okay now that you've established multiple ways of building credit be sure ALL of which are within your means of doing so. Be sure ALL payments are automated, be sure your accounts have the funds to be withdrawn for payment and after a while the score will build itself.  

Be sure the credit cards are used each month as inactivity looks bad. 

TIP: use cards only on the inevitable. I use one card per bill. Electric, water, fuel etc. Stuff you have to pay no matter what, channel it through credit building. Don't buy crap you don't need!

Be cautious however! Anytime you apply for a card, landlord checks your credit, online service checks to see if your "qualified" all are considered Hard Inquiries, which is jargon for when ppl check your score. Which in turn will lower your score, so avoid this as much as possible. (You can check your score for free without any loss each year on your birthday.)

Also DO NOT use more than 30% of the balance on your credit card. To do so makes the bureau think you are dependent on credit and so too will lower your score. (take your limit and multiply by 30%  Ex. 1000$ x .30 =300$ A month)

Remember!! Automation is key!!! If you attempt to make all these payments personally you may forget one and the castle crumbles!

I started out this year with a 499 score!!! After applying these tactics as of today Dec 1, my score is 720ish!

Confused? So am I , this topic is absurdedly complicated, as a result I may have forgotten several key topics for which if remembered I'll apply or the BP community will correct it for all.