Last Updated on August 5, 2017 by Dave Farquhar
I have a friend who makes more money than me, has no debt except for a small mortgage, and his credit score is 150 points lower than mine. By becoming more like me, you can increase your credit score.
The key difference between us is that he puts a couple thousand into a checking account at the first of every month and pays for everything with a debit card. I do the same thing, but use a credit card, and pay the credit card off at the end of the month.
Yes, this goes against the envelopes and cash system that many financial people recommend, and I use that too, for things like groceries. But for recurring expenses like gas, diapers, my phone bill, and things like that, using a card works as well as any other system, and if you have the discipline not to overuse the card, I find no difference between using it and using cash. Your mileage may vary, but it’s worth trying. I’ve been doing this since I was 21, and the result is a credit score in the high 700s.
Use a rewards card, and it can even be profitable. Thanks to a rewards program, I generally get cheaper gas in the summer time, discounts on home improvement in the spring, and similar things like that. With some planning, it saves me money.
Then I read this: Use multiple cards, keep your balance on each below 30% of the credit limit, and you’ll get a higher score. That’s the one mistake I make: When I’m traveling a lot for work, my card is almost always at 40%. I pay it off every month, but when a bank pulls my credit, they see that 40% mark. Using a combination of cards is most likely the biggest thing standing between me and a credit score of around 800.
The difference is minor, but it does demonstrate to the banks that you can keep track of multiple bills and pay them responsibly. Create a reminder on whatever calendar system you use, in order to stay in the habit of paying the bill, pay it online, and that’s not a problem. This small bit of effort gets you a better credit score, so you get a better interest rate on those rare occasions when you do have to borrow money.
Yes, it’s playing a game. Many people won’t like the game, because it sounds superficial. But to play the game well, we have to know the rules.
David Farquhar is a computer security professional, entrepreneur, and author. He started his career as a part-time computer technician in 1994, worked his way up to system administrator by 1997, and has specialized in vulnerability management since 2013. He invests in real estate on the side and his hobbies include O gauge trains, baseball cards, and retro computers and video games. A University of Missouri graduate, he holds CISSP and Security+ certifications. He lives in St. Louis with his family.
As a bit of info in regards to monitoring your credit report, you have the right under Federal law to get a free copy of your credit report once a year. You can request a free copy of your credit reports from the big three reporting bureaus at http://www.annualcreditreport.com.