How I Shifted My Credit Score to EXCELLENT In Seven Steps

7 Awesome Tricks to Master Your Credit: How I Decreased my Credit Card Debt, Increased my Credit Score, and Decreased my Annual Percentage Rate from 17% to 9%!

At the core of your financial world is a number that determines your financial trustworthiness. So just when you think you’re done with studying, exams, and work, guess what? You now have another, much more important number to study for the rest of your life: your credit score.

It is literally the backbone of everything that happens moving forward. But what does your credit score have to do with financial planning?

Well, every decision you make with your credit today can impact your ability to obtain credit tomorrow. That means you should make sure you are responsible and make timely payments. It means you should pay your rent on time, ensure your cable bill and power bill are handled by their due dates, and not overspend and stretch your credit to the limits.

Build your credit early, maintain responsible practices with your spending and payments, and PLAN to obtain a high credit score to ensure you are ready when you need it. Because there will be a day very soon where you will need it. Deciding to buy a house? Good credit will get you qualified. How about a car? Unless you have the money in hand, you will have to apply for a loan. What about opening a credit card? You’ll get the best interest if you have good credit. With great credit there are endless opportunities. Without it, You’ll find yourself looking like a video dancer from Project Pat’s ‘Don’t Save Her’ video. You’ll be crying to ‘get saved’ and stuck in a limited world where you cannot obtain the credit needed to build your life.

Many of us gain a basic understanding of credit (a term used for borrowing) as young adults. We learn through our parents, loved ones, and even the media. There are many things included in what it means to have credit including a three-digit number that follows you. Here are the essentials that determine your three-digit credit card score:

• Payment history. Remember that timely payments are more important than paying in full. Even if you pay the minimum every month, schedule reminders in your phone or on your computer to do so early.

• Amounts owed. If you add up every penny you owe, what is your overall debt? Try to strike a middle point here, having enough credit/debt to show a course of payments and positive conduct, but not so much that a credit card company would not be willing to give you the opportunity to create even more. Lenders generally like to see that you aren't using too much of your available credit. The more credit you use, the harder it may be to pay back.

• Length of credit history. How long have you been borrowing money? The longer your history, the better. Even if you open one credit card and only charge groceries on it, demonstrating timely and consistent payments could help you increase your credit score and your ability to obtain even more credit when needed.

• New credit. Have you applied for any new credit recently? Credit card companies are weary of folks who apply for credit on a regular basis, especially if the reason is because you keep getting turned down. Types of credit used. Lenders like to see a variety of credit types: bank cards, car loans, student loans, etc…

With that said, let’s take a quick look at how your credit score is broken down. Credit scores can range from the low end of 300, all the way to the perfect score of 850. On average, the median score for today’s adult is 700.

Excellent 750-850 <-- This is where I want to take you

Good 700-749

Fair 640-699

Poor 580-639

Very Poor 300-579

Not all credit is good credit. You may have heard that opening a store credit card (Target, Macy’s, etc.) is a good way to build credit. It’s not! Many of these companies offer interest of 22% or more for initial accounts. That’s not normal and many youth are scammed into believing those rates are.

When you apply for a credit card, a lender checks your history. This is referred to as a “hard inquiry.” This will appear on your credit report and the result is a decrease in your credit score. In contrast, “soft inquiries” are other inquiries in which your credit score is checked, but not by a potential lender, instead it might be something like a credit check for a rental application. These happen often and have little, if any, bearing on your overall credit score. Now, a “hard inquiry” does not have much of a lasting impact on your number, but it can create short-term concern. Everyone should make it a priority to know their credit score and if it is low attempt to increase it.

Not sure how? Here’s how I knocked down my credit card debt, increased my credit score, and decreased my annual interest percentage rate from 17% to 9%.

1) Determine your credit score in relation to your EXCELLENT credit goals.

I did this by creating a CreditKarma.com account. Not only do you get your credit report, but you also get to see your credit score, which is something that is not offered by all sites. I needed a site where I could monitor changes as time goes on. Regardless of your website of choice, pick one and schedule a bi-monthly reminder to double check that credit score to ensure you are moving up, and not down.

2) Open a 0% APR Credit Card (solely for the first 15 months of use).

This account became a vehicle through which I debt smashed. I opened an account with Chase Freedom (use this link to take you directly to the application). Filling out the online form was quick and I had my card within a few days. I choose the Chase Freedom card there was an additional $150 cash back offer after $500 worth of purchases and transfers at the time.

3) Transfer a lump sum of your existing balance to the new interest free card.

My other active credit card held a 17% interest rate that took away from my ability to make a significant dent in my balance. By transferring a large sum onto my new card, I created an opportunity to knock down my balance interest free.

4) Learn your Annual Percentage Rate (APR), Negotiate Your APR

I left about $100 in my first credit card account. I called up my bank and shared that I would need a lower interest rate to continue banking with them. My bank had two options—my rate would decrease or I would flat out cancel my card. I did not want to leave the conversation with a canceled card (this too can damage your credit). So, I argued. Argued some more. 17% dropped to 12%. I paid off the remaining $100 balance and watched my APR decrease to 9% within a matter of months.

Want to call your credit card company to lower your interest rate but are unsure of what to say? Here’s a script:

"Hi, my name is _____. I've been a good customer of (current credit card company) for (number of years), and I make my payments on time, but my APR is too high. I have offers of (0%) from (Chase Bank), and (y%) from (competing credit card company B). I've had a good experience with you, but I'm considering switching. I would like to have my APR lowered."

If they offer you just a point lower, but don't get you to your target rate, say, "Can you do any better?" If it's the best that they can do, move on to the next step. Talk to a supervisor.

If you're in good standing with your creditor, consider asking for a credit limit increase on one of your cards. This could help you keep your utilization rate low.

5) Debt Smash

Using my Chase account, I set out a plan to knock out the $2200 I transferred through simple, measurable, attainable, realistic and timely goals (SMART goals). $2200 over the course of 15 months is roughly ~$146 monthly. (I was in deeper than $2200 but I don't feel like putting myself on blast--the figure we're playing with is an underestimate but the strategy is still the same.)

Remember: My card provided 15 months of no interest. I took advantage of this by dividing my balance evenly over my 0% APR period. By paying my balance off at 0% APR rather than 17% I was able to save myself $207 in interest charges.

6) Check Your Credit Score, Regularly

My credit score dropped (as I shared it would with the opening of a new account) when I opened my Chase account. This was reflected in my Credit Karma account for about a month. After that my score bounced back. Within the next 6 months, I watched my score increase by a steady 30 points. I moved past GOOD credit into my targeted EXCELLENT goal.

7) Monitor Your Credit. Protect It.

Pull your reports annually (outside of Credit Karma from the major credit bureaus). Do this to ensure what you are seeing on Credit Karma is consistent with Equifax TransUnion, and Experian.

Protect your score. There is LifeLock, for example, which offers different levels of service. I subscribe and pay $19 a month (plans start at $9). I am notified each time anyone looks at my credit report or attempts to open up an account with my social security number or personal data. I am reimbursed up to $100,000 for stolen funds. It is worth the peace of mind for me.

So is that end of the story about credit card debt? Increase your spending limit, lower your APR, pay off your debts and spend again? Not quite. I wrote this post so that you can take steps to FREE yourself from credit card debt. I used this strategy to eliminate my debt. There are a few circumstances in which the using your credit card can make sense (i.e. you do not have an emergency savings account). Taking steps to ensure you are only using your liquid cash and not borrowed cash will be the subject of my upcoming posts. For now however, I want you to remember debt always adds uncertainty to any situation, and most often it makes you poorer in the future. So if our mission is to increase our stability and build wealth then in almost all circumstances debt should just be avoided.

EndFragment

#seventrickstomasteryourcredit