188 - My Credit Journey
On this episode of the podcast I share how I increased my credit score by 100 points in 6-8 months. I think it's important that we as business owners get more comfortable sharing more about our personal finances. Everything from profit to saving for taxes to how much we pay ourselves and how this all relates to our personal finances like our credit scores, our savings, our emergency fund, our retirement savings, our loan repayments, our credit cards, etc. They're very taboo topics so I've found the best way to discuss them is to start sharing. To give you my background with credit, my journey started my freshman year of college when someone offered me a credit card. I signed up thinking there were no consequences. Luckily I only used it to buy my books, so about $1,000. But I didn't have $1,000 to pay it back so my credit score immediately tanked and stayed there for about five years. When I got to law school I had a car loan my mom was co-signed on and I think I made that payment on-time about 60-70% of the time. On-time payments are the biggest factor for credit score. According to Credit Karma, 99% on-time is considered fair and 97% is not so great and anything under that is considered poor. Even now, I'm at about a 94% on-time with my payments. My big tip is to pay on time because late payments stay on your report for seven years. I wasn't always checking my credit score when it was at its lowest, but the lowest I ever checked it at was 520. About a year ago I made a conscious effort to start raising my score and it was sitting between 520 and 540. Right now I'm sitting at about a 650. Not great, but it's gone from poor to fair and will reach good in the next few months. To raise my score, there are a few things I've done. My first big jump to over 600 was when I opened a secure credit card which is where you pre-pay your credit card limit. I put a streaming service on auto-pay on the card to keep it active at a low amount because I did not trust myself with credit. Once I hit 600 I was able to start getting non-secured credit cards and I applied for the Capital One Quick Silver card which comes with rewards. My score went up a little bit more. I also paid off an AT&T bill in collections from years ago. This led to my score peaking in March of this year at 644. Two months later my score went down to 595. This spring was rough for my business so I was putting more on my card which caused my score to drop even though I was making payments on time and didn't have anything in collections. No mistakes were being made but my utilization percentage (how much of your credit card limit is being used) was at about 70%, much higher than the 20% I'd been keeping it at. Last month it went back up to 640 and I'm expecting it to go up even more because since then I've paid off all the credit card debt thanks to my 10k in 10 days challenge. My goal is to keep my credit limit below 20% and not more than I can afford to pay back. In my student calls we talk about credit, what order we should pay things off, is it worth opening a new credit card, do you even want to have a credit card (the Dave Ramsey method would tell you no). I think credit cards can be a useful tool if used responsibly. I would love for you to share your credit goal in the Braden's Besties Facebook group. Right now my goal is to increase my credit score to 720+ before October to buy a new car. I plan to cover credit and financial goals in my upcoming course where we'll review bookkeeping on Finance Fridays and how to get you closer to your goals of a full-time income from your business.