I didn’t always care much about my credit score. I used to be of the mind that debt is dumb.
Actually, I didn’t start paying attention to my credit score until I turned 25. What changed?
It wasn’t because I felt trapped. Nor did I feel like I had to get a credit card. After all, my life was going well. I had a great job and I lived in a great house — everything was dandy.
I decided to pay attention because a high credit score would help me secure better opportunities in the future.
What if I began doing freelance work for a company that was particular about its freelancers’ credit scores?
What if, one day, I decide I really want to buy a Tesla, but the money could be better put to use in a business venture? I’d rather finance the car at 5 percent than use my cash and capital. I can make more than 5 percent if it’s invested elsewhere.
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The biggest reason for deciding to pay attention to my credit score was opportunity cost. Opportunity cost basically looks at how your money or time could be achieving 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 1 percent — if that. Maintenance, repairs, inflation, and taxes all eat into a would-be return of about 5 percent a year.
You can get a mortgage with no credit score, but it’s a major hassle and can result in higher interest rates.
I’m a bit of a minimalist. 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. After less than six months, my score jumped by 40 points.
Many people do crazy stuff to raise their score. They beg their parents to add them as authorized users on their cards. They take out a loan hoping it will boost their score. Some of my peers “strategically” open new lines of credit. Although it can work, I don’t recommend it.
I understand why everyone looks for credit shortcuts. Everyone wants to hack life. Everyone wants 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 for improving your score. Anyone who tells you otherwise what 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 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.