It was four years ago. I was 18-years-old and dying to get my first car. I drove my family’s old 1995 Ford Windstar van around for a couple years. We called it the Great White. I never considered it “my” car, and it definitely wasn’t cool. It was in crappy condition, and if I wasn’t constantly guiding the steering wheel, it would turn sharply to the left. I couldn’t wait for something less ugly, and something I could call my own.
I scoured online for deals on used cars and finally came across a 2001 Mazda 626 for only $8,000. First of all, it was a car, not a van. Second, it had a freakin’ sunroof. It was awesome.
The next day, my dad and I went into the dealership, and thank God, my baby hadn’t already been sold. We did the normal test drive, filled out paperwork, all that exciting stuff. I thought she (I named her Marge, the Mazda) was mine. The salesperson came back and punched me right in the gut. You have no credit history, he told me, we can’t extend you a loan.
I was crushed. I had prepared for this moment for months. I even had $1,500 saved up for a down payment. After much pestering, complaining, and whining, my dad decided I responsible enough to make the monthly payments (who the hell knows how he came to that conclusion). He ended up cosigning for me. He rescued Marge and I’s young relationship.
That was the beginning of building my credit score to 770, where it’s at today. Now, I definitely don’t profess to be a personal finance guru, but I do think having a credit score of 770 is an accomplishment for a 22-year-old college drop out.
Follow these four simple steps and, before you know it, you too will have a sky-high credit score.
- Number one priority: Educate yourself. Most (not all!) Gen Y’s are clueless when it comes to personal finance. We have no idea what affects a credit score. I was really into personal finance at that time. I devoured books, blogs, websites, everything. I loved reading about saving and debt payment and investing (God, I’m such a freakin’ loser). I knew what needed to be done to increase my credit score.
- Make paying off debt your priority. My car loan for Marge broke down to $199 for 48 months. I made WAY more than the minimum payments for some months. Occasionally, I would make thousand-dollar payments. My goal was to pay off that loan as quickly as possible. Force yourself to make that extra debt payment before you blow $75 on dinner and a movie.
- Spend less than you make. One of my favorite bloggers, Everett at Far Beyond the Stars, is a huge promoter of the 30-day rule. If you find yourself itching to buy, write it down. Wait 30 days before you make a decision. Chances are you won’t want it after 30 days.
- Get a credit card. Gasp! I said the C words. A lot of people think credit cards are evil. You will spend yourself straight to hell, people tell you. Ignore them. Once you build a strong foundation, you are ready for a credit card. BUT, you must promise me you will follow these two simple rules: 1) Pay your balance in full every month and never miss a payment. If you carry a balance, you’re giving free money away (in the form of interest) to the credit card company. If you haven’t been watching the news lately, credit card companies charge OUTRAGEOUS amounts in interest. Don’t let them take your money. 2) Don’t use up too much of your available credit. The general rule of thumb is to never use more than 30% of your available credit. Credit score companies frown upon this because it looks like you’re spreading your money too thin. If you follow these two simple rules, your credit score will rise in no time.
There are countless benefits to having a great credit score.
- My friend and I both got iPhones when they were released. He had to pay a $500 security deposit because he didn’t have any credit. Guess how much I paid? That’s right, zero.
- I moved into an apartment two months ago. I scored a 9 out of 10 on their credit rating system, which eliminated my security deposit. The only reason I didn’t score a 10 was because I had no rental history. Also, no security deposit for cable TV, internet, or utilities.
- I bought a new car recently (Marge will always be my first love) and qualified for their best financing (without my dad’s cosigning!) of 2.9% APR.
Building up a pristine credit report and raising your credit score may be hard work in the beginning, but it’s so worth it. You can save huge amounts of money with a high score. Follow the tips in this article and you’ll be saving money and livin’ the good life in no time.
Mike Key says
Great post, but I was recently told that paying off the entire balance each month, does not effect credit score at all, it just effects payment history. However, if you maintain a balance, and keep paying, that will effect the credit score positively. This from the horses mouth, Bank of America. Rule of thumb that I’ve been told is pay all but 20%.
Jonny | thelifething.com says
Mate, another geek who loves personal finance. Finally.
Maren Kate says
Great stuff, I am getting my credit score to go high again after not paying attention and letting silly things like pay my bills a little late clobber it.
Meghan Fife says
Thank you for this detailed post! So many young people think it’s “oh-so-impossible” to have a good credit score at a young age so they might as well “screw it.”
It’s good to hear Tyler Tervooren built credit w/ a single credit card and paying it off in full each month. I got my first credit card a few months ago and have been faithfully paying off the balance each month. I’m looking forward to seeing a “real” credit score here in the future.
Tyler Tervooren says
Good call, Tyler. In the end, everyone has to do what works for them, but I’m quite happy with credit and use it exclusively. My story is similar to yours in that I went from 0 to around 760 in 4 years after getting a credit card at 19 while in college.
I disagree with one idea in your post though: building good credit from scratch is NOT hard. I did it with 1 credit card, no loans, and I’ve never paid a cent in interest. It just takes time and patience. What IS hard is paying off thousands of dollars in debt that you thought was building your credit but was really just draining your resources.
Tyler Regehr says
The part that I meant was hard is getting that first loan or credit card to be able to establish some credit. When I first tried to buy a car, they wouldn’t give me a loan because I had no credit…but I couldn’t get a credit card, because I had no credit.
I was lucky that my dad finally caved in and cosigned for me, or I wouldn’t have been able to build my credit at a young age.
You’re right though, MANAGING credit isn’t hard as long as you’re smart about it. But especially in this economy, banks are stingy when it comes to giving people credit with little or no history, so it’s hard to break into if you don’t have any credit history or a cosigner.
Early Retirement Extreme says
I also started from zero at about the same time and my score is similar to yours. Just following rule 4.1 seems to do it. Get a single card and pay off the balance every month. Doesn’t matter how high the balance gets as long as it is paid off. Due to these years of flawless payment history, credit card companies and banks are now willing to take big chances on me. Strange, that credit score system is …