Did you know that credit card debt is the largest debt held within millennials? I was too shocked when I found out it was student debt. And whether you owe $1K or $10K, I want to share some tips that have helped raise and keep my credit to an almost perfect score. (Even with crazy amounts of student debt.)
We suggest in looking at two factors when it comes to your credit score – how much you owe and how you are spending your money.
How much you owe – Credit score is calculated by payment history (35%), amount owed (30%), length of credit history (15%), new credit (10%), type of credit used (10%). Before trying to add the majority of your “mad money” into a savings or toward a goal, we suggest cutting down on anything you may owe. Key numbers are to bring all your loans down to less than 8-10% interest rate, for those who may have multiple loans out.
How You are Spending your Money – First you must learn how to budget. Simply because you have the means to spend (including the “allowance” given from a Credit Card company), does not mean you should spend it. We understand that life gets in the way and that “allowance” is necessary to get by, but if you find a way around it – do it. For obvious reasons, budgeting gives you framework of how much you can realistically spend without going into the red zone. If you have mastered the art of budgeting, you should take those numbers and “spend” using only your credit card(s) – making sure that you pay it off every month before interest kicks in. Some people even pay it off weekly to assure that a payment never hits the “interest” date. By only using credit cards for all purchases and paying it off, you are notifying the company that your account is active and healthy and are creating a system of “revolving” or “reoccurring” credit. This will boost your credit and your chances for better credit and credit cards in the future.
- Pay more than the minimum if you can. This should go for all debt you may have. It will also lower the outstanding total accrued by the interest rate.
- Make more than one payment a month. I make small payments on a weekly basis and some make them bi-weekly.
- Avoid late payments (& those complimentary late fees)
- Keep your card active. I pay all my bills with my credit card and pay them off the next week.