What’s going on y’all. We’re closing in on the end of National Credit Month and I didn’t want this month to go by without sharing the hacks that I’ve learned over the years that have helped me maintain a pretty good credit score. Your credit score should always be on your mind. At some point you’ll want to borrow money—buy a house or invest in your business, etc.— and you should have a squeaky clean credit report to match your energy when you decide to apply for that loan. Without further ado, here’s today’s edition of…The Dime.
Become an authorized user on another person’s credit card account.
We all have that one relative or close friend who has pristine credit and wants to help out. You can work together to build your credit. How? Become an authorized user on his or her account. Being an authorized user gives you the ability to actually have a card that gives you access to the line of credit history. Credit reporting agencies will see this new card with a large available balance on your report and see it as yours. If your relative or friend is worried that you would spend the money, ease his or her worries by letting handing the card over. This hack is something that many parents do for their children especially in the early stages of their credit building career. I’ve seen parents do this for kids as early as 18 years old. This is important because of my next point.
Start creating a steady credit history asap.
Credit history is important because it tells the credit bureaus how long you’ve been borrowing money and paying it off. The older your credit history, the higher faith credit bureaus have in you. This is why it’s important to establish credit as soon as you can. For example, if you’re a person who picked up their first credit card at 18 and kept it, by 30 you’ll have 12 years of established credit. This is why I urge you to keep your accounts open for as long as possible. You want your credit card accounts to follow you for the rest of your life. Opening and closing accounts, chasing new cards for deals and defaulting on longstanding accounts negatively impact your score. Select your core credit cards with the same dutifulness as lifelong friendships. Pick a few you like and ride with it. Credit bureaus are like Drake, they have heavy “No New Friends” energy.
Do not sign up for new cards unless they do “soft credit inquiries”
Credit reporting agencies are really sensitive. One thing they don’t like is a person who’s going around trying to court multiple new credit relationships. It makes you look thirsty. When you apply for a credit card there are two types of inquiries the company you applied with can do, 1. A hard inquiry, or 2. A soft inquiry.
A hard inquiry is when you apply for credit and they decide to contact the credit reporting agencies (Equifax, Transunion, and Experian) to find out information about your credit score and history. Essentially, the entity you applied for credit from is doing a background check on you. Usually in order to perform a hard inquiry, the lender has to ask for your permission. Department stores, or stores you frequent regularly, do this a lot. A salesperson will ask if you’d like to get a store credit card. If you say yes, they will dig into your credit background by contacting the credit reporting agencies and this will qualify as a “hard inquiry” due to the fact that the agencies are providing this information.
A soft inquiry is the equivalent of checking your own credit score. When you add an app like CreditKarma, it counts as you just checking your own score instead of having someone do a background credit check on you. These credit checks aren’t scrutinized as much since the credit reporting agencies aren’t required to provide any information. So next time someone asks, “would you want a store card?” you should ask them if they’re going to do a “soft inquiry” or a “hard inquiry” before saying yes.
Establish trade lines of credit
I addressed the importance of opening trade lines of credit for your business in a prior edition of The Dime. But I didn’t go into detail about how it actually increases your personal credit score. A trade line of credit works in a similar way as expanding your own available credit. For example, you always want to utilize only 30% of your credit line. The more trade lines of credit you have, the more available credit you will have. Furthermore, these companies report your activity straight to the credit reporting agencies which helps your credit score because they see you as a responsible business person.
Lastly, make sure you make you pay on time
I know this is obvious, but it bears repeating. Credit reporting agencies are looking at your spending and payment habits. You want to make sure you don’t miss not one payment—not one— because, unless you’re moving big money, it takes forever to bring your score back up. If you see that you’re likely to miss a payment on the next cycle, call your creditors and ask to enroll any programs or deferred payment options they have that will protect your credit score.
According to Nav.com 27% of Americans have a credit score between 750 and 799 but only 13% of American’s over an 800 credit score. This tells me that it is very feasible for you to practice enough discipline to get to 799. Good habits and access to different types of income will but you in the top 10% of borrowers. Guard your credit, use it strategically and please my friends do not get caught in the debt trap.
Carl H. Joseph-Black, J.D. is the founder of The Dime and runs The Blacklist Social Club. You can contact him anywhere on social media @CJoeBlack