Building and Rebuilding Your Credit
The majority of my clients range between the ages of 25 and 45 and one of the biggest areas of focus in our work together is their credit. For many of them, they are early on in their credit building lives and we work on the importance of building a healthy credit profile. For other clients, they have had some missteps along the way as they tried to build credit and we are working on repairing the problems of the past.
No matter what their background, though, I want them to understand the importance of having a healthy credit profile. I have blogged about this in the past, but a poor credit score could literally cost you tens of thousands of dollars over the years in higher interest rates paid to lenders.
I think there is a lot of misinformation out there surrounding building and rebuilding credit, so I was happy that Nick Clements co-founder of Magnify Money decided to join me to clarify some areas of misinformation and provide a great outline for achieving a healthy credit profile no matter where you are starting.
What Are We Drinking?
Nick Clements – Starbucks Soy Latte
Shannon – Coffee from home
- Nick answers what a credit score is and why it was created and according to Nick it’s “an automated way to put into a single number the odds of you making your payments in the future”
- Nick shares why the FICO score is so important
- 90% of all lending decisions use FICO in some way
- Your credit range is more important than your actual number
- Two types of information reported to credit bureaus
- Positive information
- Credit cards, mortgages, auto loan companies
- Negative information
- Medical bills; mobile phone carriers; landlords; utilities
- Your score is only based on your behavior on accounts that are reporting to credit agencies
- Nick suggests that the easiest hack for building your credit if you have a fear of credit is to sign up for a credit card, put your mobile phone bill on that and just pay it every month from your bank account
- It’s easier to create a credit profile versus repair problems you’ve created
- Nick thinks a secured card is a great tool to build and rebuild credit
- Nicks shares how he helped his wife build her credit when she first moved to the US
- Nick explains why the transition from a secured card to an unsecured card is not an automatic process and how you need to advocate for yourself
- Nick shares best practices for rebuilding your credit after you’ve had some missteps
- Feed the credit reporting agencies positive information to show that you are behaving well
- Don’t spend more than 10% of your limit on your secured card every month and pay your bill every month
- Don’t worry about dealing with collection agencies first over active and new accounts – once a collection item hits your report, the damage is done. The only thing that will heal the collection item damage is time.
- Nick discusses the best way to handle and negotiate with collection agencies that hold your debt
- Nick talks about how a personal loan can help your credit score as well as lower the overall interest you are paying on debt
- Nick shares why credit inquiries shouldn’t scare people
- Positive information
Random Three Questions Nick Answered:
- What is your biggest financial regret?
- If you could visit any city in the world, where would it be and why?
- What’s a movie you could watch over and over and not get tired of?
Do you know what your credit score is? Have you had to rebuild your credit? What are your thoughts on secured credit cards?