Transform Your Money Mindset to Improve Your Credit Score

Hey there, it's AJ Schneider, the Money Mom, and today, I'm here to share a personal journey that took my credit score from below 580 to a stellar 811 in just seven years. But here's the kicker – I didn't obsess over my credit score; I focused on mastering essential financial habits that transformed my entire financial landscape.

My Journey: From Below 580 to 811

When I began my financial journey, my credit score was below 580, far from the solid ground I needed to achieve my financial goals. My mission was clear: I wanted to pay off my debts, build wealth, and generate enough income to support my desired lifestyle. Improving my credit score was just one facet of this broader financial transformation.

Starting Small with a Secured Card

I started with a secured credit card. It had a modest limit of $200 per month, and I had to make a $40 deposit to obtain it. I used the card sparingly for the first three months, accumulating only about $60 worth of debt each month, which I promptly paid off. This cautious approach improved my credit score by 40+ points.

Leveraging Authorized User Status

Recognizing the importance of diversifying my credit sources, I asked my now-husband if I could become an authorized user on one of his credit cards. This step significantly boosted my credit score as I benefited from his responsible credit management history. An important thing to note. I would never have been able to do this, had my husband not trusted me; the foundation of our relationship was built from financial transparency early on in our relationship. Choosing who you ask for financial support can be one of the most important pieces of all of this work. 

Scrubbing My Credit Report Clean

I took the time to ensure my credit report was an accurate reflection of my financial history. This meant working closely with debt collectors to resolve and remove debts previously in collections. I diligently reported any inaccuracies I discovered and checked my credit report quarterly to monitor progress. I remember seeing a student loan, which I knew wasn't mine, on my score. I reported it and got it removed within a few weeks.

Growing Financially, Expanding Credit Horizons

As my personal wealth grew and my debt obligations diminished, I could take on more diverse forms of credit. This included securing a mortgage, a completely unexpected debt, and responsibility I took on when the opportunity presented itself to buy my mom a condo. 

The Bigger Picture: Holistic Financial Health

Throughout this journey, I focused on nurturing overall financial health and hygiene. It wasn't just about chasing a better credit score; it was about creating a solid financial foundation that could withstand the unexpected and provide financial peace of mind.

So, grab your financial toolkit, because we're about to roll up our sleeves and dive into the strategies and habits that can elevate your credit score while transforming your financial future.

1. Know Where You Stand

First things first, you need to know your starting point. Obtain a copy of your credit report from all three major credit bureaus: Equifax, Experian, and TransUnion. You're entitled to one free report from each bureau every 12 months. Review them for errors and discrepancies.

2. Pay Your Bills on Time

Your payment history is the most significant factor affecting your credit score. Consistently paying your bills on time demonstrates responsible financial behavior. Set up reminders, automate payments, and never miss a due date.

3. Reduce Credit Card Balances

Credit utilization, or the amount of credit you use compared to your credit limit, plays a crucial role in your score. Aim to keep your credit utilization below 30% for each credit card. Ideally working towards 0%. 

4. Avoid Opening Too Many New Accounts

Each time you apply for a new credit account, it can temporarily lower your score. Be selective about opening new accounts and avoid multiple credit inquiries in a short period.

5. Don't Close Old Accounts

The length of your credit history matters. Closing old accounts can shorten your credit history, which can negatively impact your score. Keep those old accounts open, even if you don't use them regularly. 

6. Diversify Your Credit Mix

Having a mix of credit types (credit cards, loans, mortgages) can positively influence your score. Don't be afraid to diversify, but do so responsibly.

7. Set Up Payment Plans for Past Due Accounts

If you have past due accounts or collections, work on setting up payment plans or negotiating settlements. Getting these accounts back on track will improve your credit score. When you're working with collections, you always have the power to negotiate so take charge of that debt repayment plan by making a strategy that works for you.

8. Be Patient and Persistent

Improving your credit score is a marathon, not a sprint. It takes time for positive financial behavior to reflect in your score. Stay persistent and committed to your financial goals.

9. Explore Becoming an Authorized User

Consider becoming an authorized user on someone else's credit card account, especially if they have a strong payment history and low credit utilization. This can potentially boost your score.

10. Get Preapproved Credit Cards

Applying for preapproved credit cards can be a smart move. These offers are tailored to your credit profile and can help you access new credit without the risk of a hard inquiry, which can temporarily lower your score.

Common Mistakes to Avoid:

1. Ignoring Your Credit

One of the biggest mistakes is ignoring your credit issues. Ignoring late payments or errors on your credit report won't make them disappear. Confront them head-on.

2. Closing Old Accounts

Closing old credit accounts can harm your credit history. Even if you don't use them regularly, keep them open to maintain a longer credit history.

3. Applying for Too Much Credit at Once

Applying for multiple credit cards or loans in a short period can hurt your score. Each application triggers a hard inquiry. Be selective and strategic about credit applications.

4. Neglecting Errors on Your Report

Mistakes happen. Regularly review your credit reports for errors or inaccuracies. Dispute and correct them promptly.

5. Relying Solely on Credit Repair Companies

Be cautious about relying solely on credit repair companies. Many legitimate strategies can boost your credit score without their services.

In conclusion, improving your credit score is a journey worth embarking on. It's a powerful tool that can open doors to financial opportunities you may not have imagined. Remember, I'm here to guide you every step of the way. Together, we'll work towards your financial success!

What's the point of having a good credit score:  Opening Doors to Financial Freedom

The result of all this hard work? My credit score soared to 811, and with that magic number, a world of financial opportunities unfolded before me. Here's how:

1. Low-Interest Loans: With an 811 credit score, lenders see you as a low-risk borrower. This means you can qualify for loans with some of the lowest interest rates available, saving you significant money over the life of your loans.

2. Prime Credit Cards: Top-tier credit cards with amazing rewards and benefits become accessible. You can enjoy cashback, travel perks, and exclusive discounts that can help you stretch your budget further.

3. Mortgage Approval: Achieving your dream of homeownership becomes a reality. Mortgage lenders are more inclined to approve your home loan application, and you're likely to secure a favorable interest rate.

4. Rental Leverage: Even if you're not buying, your 811 score gives you leverage as a renter. Landlords prefer tenants with excellent credit as they're seen as more reliable in paying rent on time.

5. Lower Insurance Premiums: Insurance companies often consider credit scores when calculating premiums. With an 811 score, you're more likely to secure lower rates on auto, home, and life insurance.

6. Business Opportunities: If you're an aspiring entrepreneur, you're more likely to secure business loans or credit lines to fund your ventures, helping your business dreams become a reality.

7. Financial Peace of Mind: Perhaps the most significant opportunity of all, an excellent credit score provides you with financial peace of mind. You can weather unexpected expenses, emergencies, and life changes with greater ease.