How to Easily Raise Your Credit Score
A millennial explains how – and why – to achieve a stellar credit score.
Actually, I didn’t start paying attention to my credit score until I turned 25. What changed?
What if, one day, I decide I really want to buy a Tesla Model S, but the money could be better put to use in a business venture? I’d rather finance the car at five percent than use my cash and capital on it. I can make more than five percent if it’s invested elsewhere.
THE BIGGEST REASON WHY I DECIDED TO PAY ATTENTION TO MY CREDIT SCORE WAS BECAUSE OF OPPORTUNITY COST.
Opportunity cost basically looks at what your money (or your time) should be doing to reach its full potential.
When I am ready to buy a house, I’m going to need a mortgage. Financially speaking, it’s wise to get a mortgage instead of paying with cash because of the opportunity cost.
Your money is better put to work in the stock market than in a home, where your ROI is only about one percent – if even that.
That’s because there’s maintenance, repairs, inflation, and taxes, which all eat at a would-be return of about five percent a year. And true, you can get a mortgage with no credit score, but it’s a major hassle and can result in higher interest rates.
When I checked my credit score in March, it was a 708. Okay, but not great.
I’m a bit of a minimalist. I use that term liberally. I don’t like making things more complicated than necessary. So my plan was to open one unsecured credit card and pay it off in full each month. Easy. After less than six months of doing that, my score jumped by 40 points.
Many people do some crazy stuff to raise their score. They beg their parents to add them as authorized users on their cards. They take out a loan just for the sake of it positively affecting their score. Some of my peers “strategically” open new lines of credit. Although it can work, that’s not what I’m recommending you do.
I understand why everyone looks for credit shortcuts. Everyone wants to hack life. It’s why sites like Lifehacker are so popular. Everyone wants to achieve results with minimal effort.
In school, life hacking is apparent – many students are tempted to cheat. But this doesn’t end at graduation. Most people want a simpler way of achieving superior results.
When dealing with credit, there is no shortcut to improving your score.
If anyone tells you otherwise, ask them which brand of snake oil they’re selling. Cheating the system is pointless.
It’s just a matter of responsibly paying off your balances month after month.
Sometimes we need to look at situations from someone else’s perspective. Like your banker, for example. When the loan officer pulls up your credit report, what would they like to see? Someone who is bouncing around getting random loans, opening lines of credit, not paying loans off quickly and carrying balances? Or would they like to see someone who pays off their small debts consistently?
I would go with Ms. Consistency any day of the week. She sounds like someone who would pay me back.