Last month I somehow made the mistake of having one of my business credit cards report a balance at 50% of the credit limit. This was not my fault but it was the interest that took it over 50%. This is the credit card that I used to replace the roof on our Oakman property that is FINALLY coming to a conclusion. I take it back that it wasn’t my fault though. It was my fault because I should have had the balance at a point where even with an interest charge that the balance wouldn’t surpass 50% of the credit limit (#accountability).
What I learned from this experience and what I have been continuing to learn is that credit is a check list not a credit score. This means that your score is not something that is subjective. It is 100% objective. I have 9 credit cards, 6 of them have a zero balance. One personal card has a small balance and two business cards were used for the Oakman property. The ONE card that went over 50% caused my score to fall 30 points to a number below 700.
This month I handled what needed to be handled and boom 700+, magic.
No, not magic. What I learned from this is that the credit bureaus aren’t as subjective as we would like to think. There are certain things on your credit that will cause your score to fall, no matter how small and there are certain things that will cause your credit to jump, no matter how small. Here is a list of all the things you MUST have in order to have a 700 credit score.
No collections, charge offs or delinquent items: These things will automatically drag y our score into the sub 600 level. No matter how great your credit is on top of the collections and charge offs.
No current late pays. Late pays that are active and ongoing will drag your score into the 600s if not the sub 600s. Make sure that you at least pay the minimum payment even if you aren’t paying down the balance. This is important because your late pays stay on your credit for about five years while your balance can change. If you are going through a hard time at least pay the $25 min payment and then as things improve you can chunk out your balance. Don’t neglect your accounts just because your balances are high.
No balances over 50%. This is an obvious rule that most people know but I included it because as I learned this month this is a requirement not a suggestion. If your balance reports at 50% or higher you can kiss that 700+ credit score goodbye even if all your other cards are at a zero balance and nowhere near 50%. A lot of people like the rule of 30% and this is a good strategy as well but worst case scenario, NEVER let your balance get above 50%. If you have a bad credit score and maxed out cards well now you know why.
Credit card companies and lenders want to see that you HAVE credit but you aren’t dependent on credit. if you are maxed out this is an indication that you will max out what they give you. The problem with being maxed out is then your interest and fees will push you over the limit where they then charge you more interest and fees. Trust me. Just keep that balance below 30-50% at all time. No exceptions.
A card with a $5000 limit. This is important because it shows that you have the ability to manage large amounts of credit. That little small $200 or $500 card doesn’t impress the big wigs. What they want to see is that you can manage a large amount of credit responsibly.
One great thing is that just because you have a small card that doesn’t mean it has to stay a small card. You must continue to ask for line increases as often as necessary as you improve your credit by getting the bad items off. I had a card that started out as a $200 secured card years ago and it is now a $4000 unsecured card (with a zero balance).
A lot of credit is just making sure that you aren’t doing the wrong things. This means that you aren’t missing payments, you don’t have delinquent accounts and you aren’t carrying high balances. Everything else will take care of itself. Your credit score is a measure of how well you pay your debt. Jay Morrison says it is your ability to make payments over time. If you pay your bills and keep balances low you will win. If you neglect your debts they will make sure you can’t take out new debts to then neglect them. Your credit score is a form of discrimination.
A lot of people don’t have bad credit they have bad priorities. They want what they want now and they are going to squeeze every cent out of their paycheck to get it. I saw people with bad credit because they owed utility companies a few hundred bucks or a collection company a few hundred bucks. Meanwhile they had a brand new Jeep that they are probably paying 20% interest on. They are lugging around bad credit, with full time jobs in a low cost of living state (Michigan) for something that would cost a few hundred bucks and a payment plan to resolve. Do yourself a favor. Pay off the bad before you level up your life. Grind for six months resolving things while you level up your life. Don’t live for the moment, live for legacy.
I don’t believe in credit repair. Credit repair is when people dispute legitimate items in order to get them removed for some technicality. I think this is a short cut and won’t likely end well. I believe in hunkering down and paying your bills. Saving money and settling up your debts. This will take you further than a quick fix to ultimately land smack dab in collections because you didn’t know how to manage and pay down your credit only to use an end around for a temporary fix. I challenge you to want more and to rise to the occasion not to look for short cuts.
I wrote this blog because I think that a lot of us think that credit is subjective and up to the determination of some credit fairy when this isnt’ true. Your credit score is determined by the boxes you check off. Box 1) No collections, Box 2) No current or recent late pays (30/60/90), Box 3) ALL balances under 50% with no exceptions no matter what your total usage is (all cards divided by all limits), Box 4) A fat card with a $5k limit. Don’t play the credit guessing game, start checking off the boxes.
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