When I talk to people about credit cards, I usually find that they have one of two reactions. One group is terrified of credit cards because they are petrified of going into debt. Others often don’t understand the risks involved with deferring debt payments, ending up with a mountain of credit card debt.
Credit cards do play an important role in our lives. They help us build up credit, which is basically a good reputation for paying bills on time. Credit is necessary for anything from renting an apartment to buying a house to sometimes even buying a cell phone or a car.
So why do we literally NEVER learn about this?
I don’t know the answer to THAT question, but I do know some ways you can check up on and improve your credit.
So first, go to Credit Karma. Input all your info and check out your credit score. They have a handy dandy barometer that shows how good (or, let’s be real, how bad) your credit score is. If you have no student loans taken out in your name, and if you have no credit cards, your credit will literally be zero. (this happened to me!)
If you have late credit card or student payments, your score may be lower than you want it to be. If you just have one credit card or loan, it will also likely be low. Additionally, if you have a low credit card limit and use more than 1/3 of the limit each month, your score will be low.
So how can you boost your score? If you have no credit, the first thing you can do is apply for a credit card. I recommend using NerdWallet to find cards that typically are issued to people with the same credit score that you have. With zero credit, these can be harder to find, so you may need to apply for a secured credit card, which means you actually pay the credit card company a bit of money up front, and in return, you get the chance to build credit.
If you already have a credit card or student loans, check out what Credit Karma says is driving down your score. For example, if it’s that you’re using more than ⅓ of your credit limit per month (but paying off your balance in full monthly), consider calling your credit card company to ask if they will raise your limit. Chances are they will.
If you’ve gotten dinged for paying bills late or just paying the minimum balance, you have to have a serious chat with yourself about finding ways to no longer rely on your credit card. Sometimes it’s hard, especially if you’re living paycheck to paycheck, or if you have a mountain of debt to pay off.
Small things, like automating monthly payments with your credit card company, can pay off. I also suggest that you talk to your credit card issuer about the debt - they sometimes have wiggle room on when you pay it off. For example, I recently rented out an apartment in New York that required a security deposit, one month’s rent and large broker’s fee up front. It was due in the middle of the month, rather than the end, which is when I was used to paying my monthly rent bill. I had enough money to do it, but I had to wait until my next paycheck to pay off my credit card bill, which would have made my bill payment a few days late. I messaged my credit card company about this problem, and let them know clearly when I would pay the bill. As a result, they waived the late fee.
If you already have decent credit, you can likely apply for a second credit card. This one can be an incentive card, which can offer cash back or travel points. Poke around on NerdWallet to compare deals, but having a solid rewards card that you pay in full every month is a nice way to get deals on items you’re already buying.
- Alicia McElhaney / She Spends Issue #7