If you’ve been following my blog for a long time, you know that my family became 100% last January. And you also know that we cut up and closed all of our credit cards in 2013 (more on life without credit cards here). Meaning, we haven’t had a single credit card in our house for 6 years. That also means since we have no debt, our credit scores fell – which was expected.
But back in August of 2019, right after my credit score started to fall, I received an email from a reader concerned about her credit score.
Here is the email:
So my family and I have been following Dave Ramsey’s plan and we love all the progress we’ve made. We completed Baby Step 2 last year and are currently saving up for Baby Steps 3 and 3b. We currently rent and it’s been great for us so far. My husband has the opportunity for an incredible job promotion at work but it comes with relocation. We both agree that the relocation is perfect for our family as we’ll be closer to family. The issue we’re having is that we need to find a place to rent but our credit scores have fallen as a result of no longer having any debt. We’ve offered to pay up front the first 2 months of rent as a good faith deposit. Unfortuantely we can’t find a landlord willing to work with us. And if they do want to take our offer they want to charge us more money for rent! How do we increase our credit scores quickly without falling back into debt?
As I started responding to her email, I realized that I wasn’t sure if any of the advice I was sharing would work. I mean, I have never had a low credit score…until now. So, I decided to put the advice that I was going to give to the test.
I applied for a credit card for the first time in 6 years…
Yes, the “Queen of Debt-free” took out a line of credit. 😱I wanted to make sure that the advice I was giving this reader was actually helpful. So, I’m going to share with you everything I did to get my credit score back up to the “good” range. It’s important to note, that no, I do not care what my credit score is.
Here’s why – we are 100% debt-free which means, we OWN everything we have. We have no car loans. We have no mortgage. No debts at all – we own it all. The freedom from that burden of debt means we actually get to keep our income instead of paying it out to a bunch of folks.
A credit score is a metric lenders use to see if you’re worthy of going into debt. I have zero interest in being chained to debt again. That’s why I do not care what my credit score is as it’s not a reflection of my actual Net Worth.
The starting point…
The above screenshot is from my Credit Karma account which we use to monitor our credit. Even though we are debt-free, it’s still important that we pay attention to what is happening with our credit. As someone that has had their identity stolen, trust me, that’s not a road you want to have to go down. So if you don’t already monitor your credit (it’s free BTW), head to Credit Karma here and set up a free account.
At the start of this experiment, my credit scores were 641 and 655 which is considered “fair”. Before this, I had a credit score of 798. That’s how big of an impact not having debt is to your credit score. This was the lowest my credit score had ever been (even lower than what it was back when I had no money!).
And just to show you how stupid the whole credit score thing is, this is immediately following me OPENING – not using, but opening up a credit card. My credit score went up by 16 points! My point being, your credit score really does not prove how good you are at managing money. It just shows how good you are at taking on debt.
What I did
So here’s what I did. I first had to issue a “thaw” on my credit as my information was stolen as part of the whole Equifax data breach back in 2017. I froze my credit immediately following that breach. That means I can’t even open up a new utility account without unfreezing my credit. It’s definitely a pain in the butt, but I actually recommend that everyone freeze their credit.
Here’s the thing, the credit bureaus make money by selling off your credit score information – that’s why you get those “pre-approved” offers in the mail. Call me crazy, but I’m not a fan of someone making money off me and me not seeing a dime in return. Once you freeze your credit they can no longer sell it off and you’ll stop receiving all those pre-approved offers!
Okay, sorry for that side rant. What I had to do was thaw my credit with Transunion (the easiest bureau to do this with – seriously, Equifax and Experian get it together!). Once I did that, I applied for an Amazon Prime credit card account. To be honest with you, I wasn’t trying to find “the best” credit card to get. I was simply trying to find one that I could get quick approval and use immediately (I had a budgeted Amazon purchase that I needed to make anyway).
As you can see, within one month by credit score had already gone back up into the “good” range with Transunion. Also, you can see by this picture just how much of a discrepancy there is amongst the bureaus. So don’t stress if one bureau shows you have a much lower score – check the other two to see what they have before you panic.
This increase in my score is a result of a $30 purchase on that credit card. Seriously – $30!!! And that $30 looming over my head drove me crazy. Below I’m going to break down exactly what you need to do if you’re trying to increase your credit score. But before I do, I have to sell you my pitch.
Debt is a dangerous slope. I only did this because 1) I am 100% debt-free and in a MUCH BETTER place financially than I was 7 years ago. 2) I wanted to make sure that the advice I share is advice that works. I’m all about living a real life on a budget and I can only do that if I can look you in the eye and stand by what I preach.
All that said, I stand by the below information but I will still preach the debt-free gospel. I am no longer using this credit card. I don’t like debt and the temptation to fall back into debt was way too high for me.
How to Quickly Increase Your Credit Score
First, if you don’t already know your credit score and what is on your credit report, you need to head to annualcreditreport.com and pull your free credit REPORT – not score from all three Bureaus. You need to go through each report with a fine-tooth comb and highlight any errors on your report. If there are discrepancies, you need to contact the Bureau and report them immediately.
This is actually how I discovered that my identity had been stolen. A mortgage, boat loan, and car loan all in collections but those items were taken out when I was in the 6th grade! Nobody cares about your money more than you.
Steps to Take:
- Get a free account with Credit Karma (or similar) so you can properly track your credit score.
- If you have any accounts in collections your priority is to get those accounts paid off and current.
- If you’re like me and have no debt you’re going to need to apply for a credit card. I recommend applying for a card that reports quickly. This is why I chose the Amazon Prime account as it reports within days versus monthly.
- If you have credit card debt you’re going to need to pay off those debts as that is hurting your overall score. Use the debt snowball method to pay off your credit card debts quickly.
- Set up a monthly spending allowance on your credit card (it needs to be less than 10% of your credit limit on that card). This amount needs to be an amount you can pay off in a single month. Meaning if you can realistically pay $40 every month then make that your spending limit. Only put $40 on the credit card and pay it off every month.
- And that brings me to the most important piece of advice – PAY OFF THE CARD EVERY MONTH. Period. Don’t carry a balance on your credit card EVER.
- If you’re trying to increase your credit score, you allow the first card statement to be issued before you pay it off. This was tough for me because I had to have $30 looming over my head for 20 days before my statement was issued. However, you want the statement to release so it gets properly reported that you used the credit card. Then, of course, pay it off in full when you get the statement. The key to increasing your credit score is in your established payment history.
- Do not be tempted to fall back into debt or to take on multiple credit cards! More credit cards – even if they don’t carry a balance will have a negative impact on your credit over time.
Okay, there’s my Ted Talk on credit and my hatred for debt. 😂
Here’s a video going into more detail about all of this:
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