Karma and credit

I’ve been on a continual (internal) search for a new career, trying to imagine what type of job would bring me joy on, at a minimum, a weekly basis. Only two ideas ever come to mind: something where I can cook and create new recipes, and something where I can give financial advice. 

When I looked up the knowledge required to obtain the certification to become a certified financial planner (CFP), I pretty much fell asleep reading the class listing. Soooo… basically… that’s out for me. I did meet a really nice guy at a networking event with the Houston chapter of the Havana Boys Club who is currently sitting for that exam, so good luck to him. He made a few suggestions to me indicating I might could find work in some form of financial planning, like investment advising, without actually going so far as obtaining the CFP, but I haven’t done much research on that since we talked. (Note to self: email Oscar and ask more questions.)

Last week at work, a colleague walked past my computer as I was online checking my credit score. I’m sure I failed some unspoken rule of social decorum by not immediately acting embarrassed he’d seen my “super secret personal financial information,” but I truly didn’t care. I have a good credit score! And, at that moment in time, it looked especially excellent. Excellent to the tune of 770. 
This coworker, who we’re going to call Bob, was intrigued. “How on earth do YOU have a 770?!” he asked. “I do good, son! Don’t question me,” was likely my response. However, I then proceeded to bombard him with information he didn’t solicit. Oh well!
The good stuff..
As we continued talking, I first recommended he check out his credit score. I, personally, use Credit Karma. By all accounts, it’s secure and it has zero impact on your score, no matter how often you check it. I stand by it, I recommend it, I use it. If ever at any point that changes, I promise I’ll update my post and probably tweet about my distrust of it. Until then, go sign up. Use it. Now. I’m waiting….

To my surprise, Bob actually did sign up for CreditKarma.com! Not to his surprise, his score was nothing to write home about.. So, a few days later, he came back by my (lack of) desk in the office and had a few more questions for me. “What are you doing different than me?” “How did you get your score so high?” “What could I do to get mine higher?” he asked. Believe me when I say I got amped at the chance to share some of what I’d learned from all the hours I’ve spent reading personal finance blogs. AMPED, I tell you. So, I’m happy to do the same for you! A couple of assumptions first though.. A) You’ve not done anything SUPER terrible to derail your credit at this point, B) You’re a millennial with a pretty stable and respectable income.. somewhere between “I might not be able to afford groceries this month” and “I should buy ANOTHER car” money, and C) You recognize that I’m not responsible for the outcome of anything you do — even if you’re following my advice that, seemingly, has worked for me thus far. Do A-C apply to you? Good. Let’s proceed.

1) Remember that a credit score is not an indicator of your financial health.
Credit scores are used by banks to decide how risky you are as a borrower of their money. It has nothing to do with how good you are with money and it doesn’t reflect how smart your decisions have been in the past. A gazillionaire who buys everything in cash may have a terrrrrrrrrible credit score, simply because he’s never borrowed money to shop. Theoretically, a thief may have a pretty good score, assuming he steals to pay off his bill each month.. but hey, good job being resourceful, buddy.
2) Know what your goals are.
Are you looking to increase your credit limit? Or are you thinking you might buy a house or new car soon? Those goals are vastly different. There are different steps a person could take to get them closer to either of those goals — some of which could sabotage a different goal.
Here's where we hit a little caveat: because it's my blog, I can dictate what your hypothetical goal is. Your goal is to quickly raise your credit score, much like Bob wanted to do. Steps 3 and 4 lead you to the quickest way I know to raise your score.... but it's not to be taken lightly! Do it ONCE. Don't repeat, unless you wish to risk lowering your score in the long run. 
3) Pay off that lingering $1,000 from the trip you took last fall.
You’ve got the money. You know you’re supposed to. DO IT.

4) Get a new credit card.
Search online at different banks (Citi bank, Capital One, Chase, etc) for a pre-approved credit card offer. When you have a pre-approved offer, the bank is basing this on information they already have about you. Maybe it’s the bank where your car loan is. Maybe it’s through the credit union at your job. But pre-approved cards are granted to you without the bank making a hard inquiry on your credit…. So no impact on your credit score! (Oh.. yeah.. News flash: Applying for stuff - new utilities, new apartments, new credit cards---> makes your credit score take a little dip. Not a bad one. But still.)
Doing this makes a really quick huge impact on a huge factor in your credit score: your utilization rate. Your credit utilization rate is how much you’re regularly borrowing on all the credit available to you. If today, you have like, $4K charged on a card with a $5K limit - that’s an 80% utilization rate.. To the banks, it makes it seem like you’re nearly using up all they’ll loan you - and that’s scary! What if you can’t pay it back? But if you paid down that hypothetical thousand we talked about in step 3, then got approved for a new card with $10K limit, your utilization drops drastically! Immediately, you go to a 20% utilization! (just so you can check my math: $3K in debt/($5K limit on the old card + $10K limit on the new card) That looks awesome! It’s as if banks think you’re such a baller that they trust you with more money than you could ever spend! 
The not-so-good stuff... See my age of credit history? That's what happens when you open lots of new accounts at our age.
The key here is just not accidentally spending your new limit.. unless you can pay it back. Try this out and let me know how it works! Credit utilization is a factor on your credit score that has no history. Have a poor utilization this month? No big. Clean it up and it won’t even matter 30 days from now. Let me know if you have any questions! I'll do my best to answer or point you in the right direction.


- #hartzogswag