How to build your credit score correctly for the long term
This strategy has allowed me to earn an excellent credit score pretty early on in life and maintain it and strengthen to the point where it’s pretty rock solid.
But it would have been a lot harder if I didn’t get these foundations right.
If you’d prefer to watch the video here’s the link
So what I’m going to cover in this video are the first credit cards you should open and a few tactics you can do to make your experience with credit a whole lot better.
The first thing to do actually happens before you even open a credit card and that is to become an authorized user to someone in your life who has established and good credit.
Basically what this is going to allow you to do is inherit the credit history of that person. So assuming they have good credit let’s just act like your starting a race and the goal is to run a 100 meters. If you do this before you open any credit cards it’s basically as if you’re starting the race or your credit journey at the 40 or the 50. It’s a huge boost to get started.
The next step after that if this is your first card or within your first few cards is to apply and open a card you know you will get approved for that doesn’t have an annual fee.
It’s important this card doesn’t have an annual fee because it’s going to serve as an anchor to your credit score. One factor in terms of your credit score is your credit history and you want this as long as possible so you’re not going to want to have a card that you’re stuck paying an annual fee with year after year to serve as the card you have to anchor your credit score.
However, there are ways to get out of annual fees here’s a video on how I consistently get out of annual fees in the description but for your first card you don’t want to have to be dealing with avoiding that particular fee.
My parents have been great and one piece of advice my dad gave me was to just have a goal of opening up a credit card once a year when I was able to that was it.
Those first three cards I opened when I was 18–19 and 20 all didn’t have annual fees. Now I’m 26 and those credit cards are anchoring my credit history so even when I open a new card my average credit history isn’t affected that much because those cards are there.
Here’s why. Your credit history is the average age of all your credit cards.
So say you have a card that is 5 years old then you open up a new credit card now your average credit history is 2.5 years open up a new card and it will drop even lower.
Now while this isn’t the most important factor by any means it is a metric you need to get down if you ever want to get to the 800+ level.
But you can see why when I opened those cards in my late teens early 20’s those are benefitting me so much. Because those cards are 6,7, and 8 years old so now every time I open a new card those are propping up my credit history.
If you’re maybe not sure if you’re going to get approved for a card with no annual fee right off the back what you can do is open a secured credit card.
What a secured credit card is a card where you actually put the initial capital down for your credit limit. Your credit is secured against that money you put down.
So what I mean by this is to open a secured credit card with a $500 limit you’ll have to give the bank you’re opening up a card with $500 then you’ll have a limit of $500. After a few months that bank will most likely offer to turn that into a real credit card for you. You’ll get your $500 back and they’ll give you a new unsecured limit.
The next most important step to locking in a rock-solid credit score in the future is to never miss a payment.
Seriously, this is one of the most important -it’s so much harder to fix something when it’s broken to just maintain something that’s working. So what I’m going to recommend to you is that you turn on auto-pay on every single one of your credit cards.
Look I hate speaking in blanket statements but this is one I can guarantee. I’m going to guarantee you’ve forgotten about something in your life before and it probably sucked. Maybe you forgot the drinks you were supposed to bring when you went to a party, or sunscreen to the beach, or your homework at home, or the lunch you packed.
Yes, those things suck and I’m sorry to hear that. But missing a payment is going to suck so much more than pretty much anything you could forget about. It literally could cost you thousands of dollars in interest over the lifetime of things you buy. From just “forgetting” one thing. So set auto-pay on to cards you don’t even currently use so if a charge happens on them for whatever reason you aren’t going to forget to pay it.
The next most important step to building credit is to continuously open up new cards. A lot of people are going to be mad when I say this but it’s true. If you open up more cards over time your credit is going to get stronger and you won’t have a “thin file” in credit terms.
You’ll have a nice strong credit history and proof you’ve worked with multiple lenders.
And this doesn’t mean anything crazy, just make it a habit to open up a new card every 8 months to a year. The only thing that will happen is your credit score will get rock solid over time -assuming that you are making payments and doing all the things right — but you’ll actually have the opportunity to tens of thousands of dollars in free rewards.
I’ll share a video on how I leverage credit to literally book all my travel for free every single year and save thousands in cashback. But basically a high-level overview of this is that the best way to earn rewards is at the signup bonus for credit cards.
So if you’re opening up a card at least once a year that’s an extra $500 or whatever the signup bonus happens to be.
The next step to follow is to keep all your credit cards open. Especially the first ones you’ve opened that serve as anchors for your credit history we talked about. Also, there is a way to get out of fees without hurting your credit score at all which is a key part to this. I’ll link that video as well as how to get out of annual fees without hurting your credit score.
One thing to remember is that credit cards will be closed on your automatically if you don’t use them for a certain period of time. So for me, I have a calendar reminder that goes off once every 6 months reminding me to use my credit cards. There is no minimum for this so what I’ll do is I’ll donate $10 to different charities on each one of my cards. And it’s funny because that $10 amount is really starting to add up since I have over 15 credit cards at this point in time haha.
The last step is to care about your credit because it matters.
So what that means is download credit karma which is the free credit monitoring app. Keep an eye on the age of your cards, make sure there are no errors on your report. And when I say this I don’t want you to think -yeah Italo I want a strong credit score but I don’t want to be a credit nerd like you. Trust me it’s not like that at all -all I do and you should do is download the app and maybe in there a few times a week instead of those times you would check Instagram and just make sure things are looking okay.
Thanks so much for watching -I know that was a lot so for a quick recap of everything we talked about to get your credit right for the long term.
- Become an authorized user
- Have your first cards have no annual fee
- Open a secured card if you have to or another credit card with a low barrier to entry
- Never miss a payment by setting your cards on autopay
- Actively open new credit cards every year or so
- Keep your credit cards open
Best of luck building your credit score if you have any questions feel free to reach out.
