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Aren’t Credit Cards wonderful—even though the bills sometimes come in the middle of a difficult financial month?
Will you gamble five months of hard work to set up a steady future income to avoid future credit card debt in the future?
Now is a time to talk about how to use your money, especially after so many charges during the Covid pandemic. Look at your income, or, too often, your expected income from your new job. Then look at what you need to spend to survive: rent, utilities, auto expenses and travel to work, cell phone, internet, food, and the list continues. This is step one.
Using credit cards is like stuffing your pockets with your favorite desert—say, chocolate chip cookies or brownies—and not eating any veggies or protein. Yes, you overcome your hunger, but are you setting yourself up for health issues?
Don’t think of attaining an excellent credit score as a goal, but rather more as a lifestyle. Good financial habits generate positive momentum the longer they continue uninterrupted. The payoffs far exceed that of just owning the best credit cards, for you’ll benefit from excellent credit all the days of your life.
You have excellent credit when your FICO score is in the 800-850 range. You’ll need at least six months of credit card usage to establish your credit score. Continuing to use your credit card will help your credit score by increasing the age of your credit history. Naturally, a good score also depends on paying your bills on time and controlling your debt levels.
There are three major factors that affect the FICO score:
1) Payment history, do you pay your bills on time? This accounts for 35% of the score.
2) How much you owe on all your cards? How much of your credit card limits have you used for 30% of the FICO score?
To determine your utilization rate for a particular card, simply divide your card balance by your total credit limit for that card.
If your reports show that your credit cards are being heavily utilized, meaning your balances are too close to your credit limits, you may be awarded fewer points in this category. The result would be lower credit scores. Try to maintain a ratio below 20%.
3) Length of Credit History accounts for 20%. From a scoring perspective, the longer your accounts have been open, the better. A long credit history length is helpful, so do not cancel credit cards that you no longer use. Instead, use them at least once a year so that each credit bureau doesn’t treat them as dormant. This factor comprises 15% of your credit score.
If you’ve achieved a good credit score, you’ve already done most of the heavy lifting necessary to earn an excellent credit score of 800 or higher.
When you research the best balance transfer credit card for good credit, consider the length of the introductory 0% annual percentage rate (APR) promotion for balance transfers. Also, understand the regular APR once the introductory offer expires. Finally, pay attention to the balance transfer fees.
Refrain from opening new credit accounts while trying to improve your credit, since it can hurt your credit score.
Nancy J. Hite is a South Florida-based certified financial planner and author. For more information, visit www.thestrategicwealthadvisor.com
