Financial Feminist - 7. How to Increase Your Credit Score

Episode Date: June 7, 2021

Ready to put your credit score on a rocket ship to 850? This is the episode for you. On this week’s Money Monday episode of Financial Feminist, I’m doing my best to demystify the credit score and give you practical ways to increase yours for a better financial future. Order “Financial Feminist: Overcome the Patriarchy’s Bullsh*t to Master Your Money and Build a Life You Love”: https://bit.ly/3PpHvlC Not sure where to start with your finances? Take the free Money Personality Quiz to get tailored resources for your financial journey: https://treasury.app/herfirst100k/money-journey-quiz Get my Credit Card Recommendations: https://www.herfirst100k.com/tools Official Financial Feminist Merch: herfirst100k.com/hfk-merch INSTAGRAM: www.instagram.com/herfirst100k/ TIKTOK: www.tiktok.com/@herfirst100k FACEBOOK GROUP: www.facebook.com/groups/362601367623070/ Learn more about your ad choices. Visit podcastchoices.com/adchoices

okay story time so i love the movie about time is this movie so good so for those of you who haven't seen it I think it's on Netflix please go check it out it's this beautiful movie that you think is a romantic comedy and it kind of is but really it's about the relationship between a father and son except the father and son happen to time travel. It is such a beautiful movie. I watched it in college and just bawled my eyes out and then called my parents at like two in the morning and was like, hi, I appreciate you so much. It's a great movie. There's this scene in the movie where he meets Rachel McAdams, who plays his love interest at a restaurant where you can't see. It is a dinner in the dark. It is completely dark. You literally can't see your hand in front of your face. The idea is,

is that maybe you don't know the people around you, right? You don't know what they look like. You don't know who they are. So you're paired with people you've never met. And then in addition, you can't see your food, right? So you're relying on all of these other senses, your sense of taste, your sense of touch to figure out what you're eating and how to continue through dinner. And this is the roundabout way of saying that your fucking credit score feels like that. It feels like you're trying to eat a dinner that you've eaten a million times, but you're in the dark and you have no idea what the fuck you're doing. I think credit scores are one of those things we're told, just like many things in personal finance that are super important. It's

super important to your financial life. However, no one tells you what to do, but everyone tells you you're supposed to just magically know. So I like to say your credit score is like your adulting GPA. It is like the best representation of how responsible financially you are as an adult. And the shitty thing about credit scores is that we're one of the only countries that have them. And this is a conversation for another time, but they unfortunately are very guilty of disenfranchising people of color. On the bright side, if you can boost your credit score, if you can increase your score over time, it is one of the best tools you have in terms of bettering your financial life. So let's talk about how to increase your credit score, how to build your credit score,

and I'm going to uncomplicate this shit for you. It's literally three things that make up your credit score and three ways to boost your credit score. So again, what is your credit score? Your adulting GPA. It's basically a company's way of checking you to see how reliable you are, typically when you go to buy something or to take out a loan. So if you go to a car dealership, there will almost always be a credit check. And it's the company's way of ensuring that you will pay your loan back. It is them trying to protect themselves. So if you have better credit, they're more likely to give you a better interest rate on that loan because they trust you more. Your credit score is showing them that you're more likely to pay this loan back. If you

have a less than great credit score, right, that might demonstrate that you haven't been responsible with money or that you maybe are a higher risk to them. So they might increase your interest rate to compensate for that. So how do we boost our credit score? What is our credit score made of? It is made of three things. One, your credit history, simply how long you've had credit for. So I opened my first credit card when I was 18. I am 26 now. So my credit history is eight years old. So if you're listening to this and trying to figure out how to boost your credit, but you don't have credit yet, that's the first step is to get credit,

typically with a credit card. And your credit history is one of those things that is probably the least in your control because you either opened a credit card at a certain age or you didn't, or you either started building credit at a certain age or you didn't. So that's why it's important that if you haven't started building credit yet, start building it now because your credit history is part of how they determine a credit score. So the length of my

credit is eight years, which sounds like a long time. It's actually not a super long time in comparison to a lifetime. So that's one of those things that you unfortunately can't really control except just starting to build credit. So that's the first one is your credit history. The second is, do you pay your bills on time and in full? One of the biggest myths I see is that keeping a balance on your credit card boosts your credit score. Now, if you've been kind of toning me out, haven't really been listening, I need you to come back. This is so important. That is a complete and total myth. Do not, unless you absolutely have to, keep a balance on your credit card. It does not increase your score. It does not help you. It puts you in debt. Please pay your bills on time and in full every single month if you can.

Do not carry a balance. If you put $100 on a credit card and they say you can only pay $25, pay the full thing. Pay the full $100 and make sure you're not missing any payments. This is one of the biggest pieces of building a solid, good credit score is making sure that you're paying your bills on time and in full. The third and final aspect of your credit score, and one that you probably have a good amount of control over, is what is called your credit utilization. So let's say you have a credit card with a credit line of $10,000. Your credit utilization rate is simply what percentage of that $10,000 are you using? So if you put $5,000 on that credit

card, you're using 50% of your credit, right? You're using half of your credit. The best way to boost your score is to keep your credit utilization as low as you possibly can. Experts recommend under 30%, but we really want to be under 10% if you can swing it. My typical credit utilization is about 5%. That means I use 5% of my credit that's available to me. If you're maxing out your credit cards, right, that potentially shows credit card companies or borrowers that you're going balls to the wall, right? You are spending a ton of money, you're balling out.

So one of the best ways to increase your credit score is to lower your credit utilization rate by increasing your credit line and then not using it. So in that hypothetical example, if we have a $10,000 credit line and we increase our credit line to $12,000 or $15,000, but we continue to spend $5,000, suddenly or $15,000, but we continue to spend $5,000, suddenly our credit utilization rate is so much better. And credit card companies will often easily give you a credit line increase because for most people, it means that they'll spend more money. Credit cards are happy to make more money off of you. So one of your pieces of homework today is to go to your credit card companies and ask for a credit line increase increase and then don't use it.

I recommend doing this about every six months. If you have multiple credit cards, go ham. Ask all of your credit card companies for credit line increases. Now, what defines a good credit score? Now, depending on who you talk to, it's a little bit different. I would say probably anything over 750 is considered a good credit score. Now, a perfect credit score is right around 850. I have to tell you, though, exactly 850 is pretty much impossible.

My mom has the most perfect credit score I've ever seen. She has immaculate credit. And her credit score is 842. Like, it's still not 850. So strive for 842. Like it's still not 850. So strive for 850, but know it is practically unobtainable. And if you're wondering, I'm sitting at a solid 802 right now. And I feel real good about that. One of the other questions I get about credit scores a lot is I just paid off my student loans and my credit dropped. Or I just paid off one of my credit

cards and my score decreased 10 points. Why? Unfortunately, credit scores, like I said, are trying to eat in the dark. Even the credit score companies, even the credit bureaus don't exactly give you the parameters for increasing your credit score. They don't actually tell you, hey, do this and it'll increase your score 10 points. It's more guidelines. It's like, hey, do this. And then like, we'll think about increasing your credit score. One of the things that might happen

is a temporary decrease in your credit score after you pay off debt. Know that this is totally normal. And usually your credit score goes right back up in a month, in a couple months. Because one of the things about being in debt is that as you pay debt off, it's kind of your way of proving to these loan providers that you can take debt on and pay it off. So your credit score might increase during that process and then temporarily decrease

when there's no debt to pay off anymore. However, please, please note that this does not mean you seek debt out in order to boost your credit score. That is not what that means at all. But it does mean you might see a temporary decrease in your score after you do something badass like pay off a piece of debt. One of the other myths I hear about credit scores all the time, checking your credit score decreases your score. Also very not true. Checking your credit score is one of the best ways to stay on top of your personal finances. It's one of the best ways to make sure that you are on track to meet your goals. It's one of the best barometers of your financial health.

And especially if you're getting ready for a big moment in your life, maybe that's buying a house, buying a car, your credit score is going to be so important to making that a positive experience. So if you're prepping for one of these big life events, one of the most advantageous things you can do is start to increase your credit score because most likely it'll give you a lower interest rate on this huge purchase or on this

loan that you're about to take out. So if you're about to buy a house, about to buy a car, do all the things I mentioned. Pay your bills on time and in full. Ask for a credit line increase to decrease your credit utilization rate. Establish credit as early as you can in order to build that trust and credibility with lenders. Ultimately, just like everything personal finance, your credit score does not define you. Your credit score is not a measure of your success. It's not a measure of your financial literacy, but it is a really good checkpoint. And unfortunately, whether we like it or not, it is something that is important if we want to expand our life, if we want to have different options and different

opportunities. So establish credit, pay your bills on time and in full, and ask for a credit line increase and decrease your credit utilization. So as cumbersome and frustrating as credit scores can often be, they are one of the best tools you have for building the life that you want. If you have a solid credit score, that means you can buy a house. That means you can buy a car. That means that you can even rent an apartment that you want. It is like I say all the time about personal finance. It gives you options, right? So even though the credit score is not a perfect system, it's not our ideal, it's the best we got right now in terms of being able to better your financial life, right? It's kind of the key to new opportunities.

So bettering your credit score, increasing your score is one of the best ways to better your financial life. It's one of the best ways to increase your financial mobility, not just for you, but potentially for generations to come. And if that doesn't motivate you, frankly, I don't know what will. So although credit scores can often be boring, what credit scores can give you, the life that they can give you, the opportunities, the choices they can give you,

those are definitely not. Those are definitely not boring. So establish credit as soon as you can. Pay your bills on time and in full, and last but not least, decrease your credit utilization rate by potentially increasing your credit lines. Go get them. Thank you for listening to Financial Feminist. Financial Feminist is produced and hosted by me, Tori Dunlap. Theme song and audio production by Jonah Cohen Sound. Administration and marketing by Olivia Colcana, Sophia Cohen, and Kristen Fields.

Research by Arielle Johnson. Promotional graphics by Mary Stratton and photography by Sarah Wolf. A huge thanks to the entire Her First 100K team and community for supporting the show. For more information about Financial Feminist, Her First 100K, our guests, and our sponsors, go to financialfeministpodcast.com.