This post isn’t how to make money but how to save it, which is sometimes just as good. We use credit our entire lives so it makes sense to maximize it to make the best of your financial situation.
And one way to save 10s of thousands of dollars over the course of your life is by building a good credit score!
Luckily, it’s surprisingly easy to build a good credit score over time. Keep reading so you can copy exactly what I did to get an 800+ credit score at the age of 23.
If you don’t know your credit score sign up on Credit Karma to check and monitor your score for free
How Does Good Credit Save You $1000s?
Credit is what banks and lenders look at to see if you are responsible with money. Whether we like it or not, a bad credit score will cost you 10s of thousands of dollars over the course of your life.
A bad credit score means you will pay higher interest if you get a loan. This will cost you A LOT if you get a house (mortgage) one day. It also costs you more for financing a car, getting insurance, some utility bills and so on. If you have really poor credit, you won’t even be approved to get loans.
This can all be avoided and you’ll save a ton of money if you know how to use credit properly. Your future self will be thanking you.
How I Got an 800+ Credit Score at Age 23
Luckily it’s simple to build a good credit score. You just have to do the following things and your score will get higher and higher over the years.
1. Find out what your credit score is – Step one is to know what your score is in the first place so you can track your progress. You can sign up on Credit Karma to check and monitor your credit score for free, for life. Checking your score does not impact it.
2. Use credit cards like a debit card – It must be said, don’t buy anything if you don’t have the money to pay it off right away. Being in debt is obviously going backwards and hurting your score.
3. Pay for everything with a credit card (unless it doesn’t make sense to) – This will build your score over time. You also accumulate points which is like more money. If you make purchases with debit or cash, stop because it has zero benefits!
It doesn’t matter how small your credit card transactions are either. Every transaction shows lenders you are responsible as long as you are paying it off.
4. Start building credit right away – The longer your credit history the higher your score will be. For example, banks prefer someone with a 5 year track record over someone with a 5 month track record. So get a credit card as soon as you can to start building that history.
Also, NEVER cancel a credit card because it will delete some of that track record and lower your score. If a credit card has no annual fee, always keep it open. It doesn’t matter if you use it or not.
5. Get multiple credit cards – More cards builds your credit history but is also helps with something else. You want to use as little of your credit limit as possible. This is known as your Utilization Ratio and it effects 35% of your credit score.
Even though you are approved for a certain credit limit it hurts you if you use 100% of it!
For example, if your credit limit is $1000 and you spend $900 that will actually lower your score because you are spending 90% of your limit. But if you spend $900 on a $10,000 limit you are using only 9% of your credit which will improve your score.
So it’s a good idea to increase your credit limit so you have a low utilization ratio. Aim for under 10% ratio.
6. Try to always keep your balance at $0 – The more you have your balance at $0 the more credit companies like that. Yes you can pay off your balance in full on the last day and you’ll have a good score. But this is also about the utilization ratio above. It is better if you pay off your purchases earlier or ideally right after you buy something so your balance is always at $0.
7. Keep learning about credit – I was able to get a 800+ score with just these tips but learning more will always get you further. Keep educating yourself about credit. One way to do that is download my app: Credit Score Advice or just find info on Google.
The Bottom Line
A good credit score can open many opportunities for you. On the contrary, a bad credit score can cost you a LOT of money because you’ll be getting high-interest rates and unfavorable credit terms.
The good news is that improving your credit score doesn’t take any work after a little setup. You don’t need an 800 score either to see the benefits. Anything above a 700 score is great!
I don’t have a mortgage, or a crazy spending limit. I’ve just been using credit cards for 5 years, building history, being responsible and using the advice above to build an 800+ score which means you can do it too.
Once again, if you don’t know your credit score sign up on Credit Karma to check and monitor your score for free!