Oh boy. . . Here goes more of my open book philosophy.
Here’s a little story about a girl who wasn’t really taught about money (even though her mom’s an accountant, go figure!) so she fell into the debt trap when the credit card companies handed out Mastercards like candy in the Student Union and she took out a student loan to finish her bonus half year of college. (I went for four and a half years, I say it was to get a BS rather than a BA, but really, I was chosen to be my sorority’s Social Chair which ran Spring to Fall and they gave me thousands of dollars to plan formals – so yeah, I stayed another semester and took out a loan to cover it!)
So I graduated college about $10,000 in the hole, moved back home for a year which you think would have had me paying off that debt, but NO! I just spent the money and deferred the loan – I had no concept of what debt was, how interest accrued, and I didn’t even bother with my company’s 401K.
Fast forward TEN FREAKING YEARS (that makes me feel old, and even more old for saying it makes me feel old) and I’m FINALLY getting my poop in a group with my finances. I paid off that first credit card a while ago – then swore off all credit cards so as not to fall into the debt trap again – MISTAKE NUMBER ONE! Our credit economy DEMANDS that you use credit – if you want to buy a house you have to prove you’re a viable candidate who can use multiple lines of credit responsibly. So you MUST have several forms of debt – or at least credit. Right now I have a student loan, car loan, and one $300 limit credit card (I JUST got it, in order to appease the credit gods). As you’ll see in my screen shots from CreditKarma.com further down, this is not enough for the credit gods.
Another big mistake – although using your credit card is important – OVER-UTILIZING it is a no-no. You’ll see in the screen shots that in December I left a balance of $202 on my $300 limit card, and even though I paid that off right away, it still hurt my credit score. So now, I put stuff on my credit card, and then I go home and pay it off almost immediately. Take that, credit gods!
The other factor on your credit score that was news to me is the inquiries. I had been trying to get a credit card, to you know, establish credit. But the damn credit gods and their catch 22, I didn’t have enough credit established to merit a credit card!!!!! What in the what??? Thus, I have a little baby $300 limit credit card that, if I’m lucky and the credit gods shine down upon me (or really, I pay on time for the first 5 months) the limit will increase to $500. Whoa, that’s huge. (sarcasm) Inquiries are things like if you apply for a new apartment and they run a credit check, or a car loan, etc. Or if you’re applying for credit cards left and right – each one pings your credit score!
Those are the few big things I’ve learned so far. Now for some real-life examples – AKA my actual finances as shown through CreditKarma.com. This site is great, I love how easy it is to use, they send me updates, it’s COMPLETELY FREE (I assume because they have deals with credit card companies because they’ll show you cards that you could apply for and likely get – if you NEED to build credit, this is great, if you’re getting out of debt – DO NOT FALL FOR THIS TRICK!!!!), and they update my score weekly so I can keep a super close eye on my credit.
Now, my friends, here is my taboo truths of my credit score and all that comes with it. (I think this means we’re pretty much best friends now – sharing secrets and stuff)
December 9th I checked my credit score and it was woefully low. Below you’ll see why!
So this is my overall score according to TransUnion and Equifax – they differ slightly because they get their information a little differently. When you look at the image below of what impacted my score, you’ll see that Equifax got word of what my Credit Card Utilization was and was not having any of it – so they marked me down 71 points from my last report date.
This shows all of the factors that impact my score and how heavily they’re weighted in that impact. Like I said, apparently have 4-5 lines of credit does not appease the credit gods. But I’m weary of getting another credit card because then that inquiry will hit and lower that score – fortunately, both of these things are considered “low impact.” The age of my credit is also hurting my overall score, so if you’re considering whether or not to take the leap and get a credit card (RESPONSIBLY!!!), do it sooner rather than later!
Here’s the big Debbie Downer on my score, my Credit Card Utilization. On my card with a limit of $300, when this was run I had a balance of $202 which CreditKarma kindly maths for me to tell me is 67% utilization. This is BAD. You should be utilizing only 0-9% to keep your score really awesome. Fine, whatever, I’ll pay off every time I use it!
January 20th I checked back in!
Look, ma! I’m fair! Not the best score, hell, it’s not even in the green, but it’s better than poor!
Now, so far as I can tell, the age of my history is hurting me the most. I can’t do anything to change this, other than wait and continue using credit. I’ve been thinking about getting yet another credit card (I won’t be getting another car or buying a house any time soon so it’s down to credit cards as the viable option) but I’ll be waiting until I get to the $500 card limit, just so I don’t mess with the inquiries number too much. Sometimes about seeing that blood red on this report makes my heart sad.
And look! I mastered the Credit Card Utilization!
Lengthy post, I know, but I hope it was helpful for anyone who’s got their head in the sand about this whole credit score thing. I promise it’s not that scary once you actually look it in the face and figure out where yours might need some work.
One of my favorite motivational quotes is about how you eat an elephant. ONE BITE AT A TIME!