We make stupid decisions as teenagers and young adults… let’s be serious, did I really need thousands of dollars of car stereo equipment that I couldn’t afford? NOPE but with credit cards the world is your oyster… or so I thought! One of the biggest problems with credit is that it can be hard to get back on track and start increasing unless you know what you are doing. As we covered in a previous post, your credit score is made up of several factors, however the easiest way to increase your credit score is pretty simple… decrease your credit utilization as much as possible and pay early! In this post we are going to cover how to increase your credit score and what cards are recommended for people with fair(below 670) to good credit scores(670-739).
How to increase your credit score
Increasing your credit score can save you hundreds of thousands of dollars of your lifetime and should be something everyone strives for. Higher credit scores result in lower interest rates on everything from your mortgage to cars and in the case of a mortgage we are talking some serious money! Assuming an average mortgage of 244K over 30 years, someone with a 670 credit score will pay between 20,000-30,000 more in interest than someone with a credit score above 760.
The first step in increasing your credit score is understanding where you are and why you are there. By law, you are entitled a free credit report annually and there is only one official place that you can request these, Annual Credit Report. I highly recommend not paying for credit karma or any other “free credit report” site, as they often don’t provide you any more information than you can get from the credit cards you currently have. You will want to check the report for errors and ensure that if there are any, they are immediately cleared up.
After ensuring you don’t have errors on your report, you need to understand your credit utilization… the closer to 0% the better! Credit utilization is calculated as follows, total credit utilized / total credit available. Anything over 29% utilization automatically bumps you down a tier in the “Credit Score Matrix”, so make a plan to pay off cards with the highest interest first. People often say, “Pay off your highest utilized cards first”, however that doesn’t really matter as it is calculated on total credit not how many cards are at 100% utilization. Paying off cards with the highest interest however, will save you money over time and help your utilization buy not adding to your debt.
Along with paying down your debt to decrease utilization, you also want to make payments to your cards every few days. If you are using the strategy we discussed in an early post regarding ditching your debit card and only using your credit card, making payments every few days is key! As you are working to lower your utilization you certainly don’t want to be adding to it, thus paying your cards every few days allows for you to keep that in check. Ideally you want to pay them down daily, however every few days is fine.
Best credit cards for people with good credit
The most common question I get from friends in the “fair to good” credit range is, “What credit card should I get?”… that answer depends on your exact score. For most people that fall in this range, you are going to get either a secured card or one with a high interest rate, however that won’t matter because you wont be carrying a balance!
If you aren’t in trouble with any of the normal credit card issuers, I would look to Capital One as my first choice. Capital One is generally the most forgiving and also provides great benefits that most other issuers wont offer for people below 750 credit score. Below are the cards I recommend:
- Capital One QuickSilver – This card will allow you to earn 1.5% cash back on all purchases and has three different “flavors” based on your credit score.
- Capital One Savor – For the “foodie” in all of us! The Savor line earns unlimited 3% cash back on dining, entertainment, popular streaming services and at grocery stores, plus 1% on all other purchases. This card also comes in three versions to cover most people along their credit journey.
- Capital One Secured Mastercard – For the individual who is in the low to mid 600’s and looking to rebuild. The card allows for credit line increases every six months and is a great option to kickstart your journey!
What stupid things did you purchase when you were young? Do you wish you could take it back? Leave a comment below and let’s have a blast from the past as we strive for the future!