Figuring Out Credit Scores, Credit Karma and Credit Cards

After getting a grand total of $16 donation bucks from 3 of 125 people that liked my picture on Instagram, I was motivated to write this “How to Credit Score Improvement Plan” thingy.

Seriously, thank those three benevolent souls because I would have given this specific write-up, a side-eye. But I’m gonna link the FinCon homie Marko, since he is good at explaining this stuff, and MissBeHelful (cuz ya should know her too).

Here’s the outline I came up with on the DC metro for about 8 minutes:

Know your real money issues. The credit score is merely a report card.

Where did all that interest go?
There are rules to this.
Budgeting is still a thing.
Bonus Tips (If you made it that far)

Table of Contents

The Basics on Credit

Credit is the ability to borrow money or access goods or services with the understanding that you’ll pay later. Lenders/Creditors ie Banks, even Utility Companies and etc. grant credit based on their confidence you can be trusted to pay back what you borrowed.

Unfortunately, because they like to make money; they also charge you interests. Those with “good credit,” are typically afforded better rates which translates to less money they have to payback. For those with “bad credit”, they charge you a lot more. For example, check cashing and rent-to-own stores act as if they have deals but you can end up paying 28% in interest rates.

FICO/Credit scores range from 300 to 850, with higher scores being better. The national average is around 650-700. Above that, it is considered pretty decent. Anything over a 760, they are likely to roll out the red carpet.

To be advised

Just because you have good credit, if you don’t have the money (or specifically the debt to income ratio); you can still get declined.

So how are you evaluated?

Generally, these are most common factors that affect your credit scores:

Payment history accounts for 35% of your credit score. One missed payment can have a negative impact on your score. Multiple missed payments like I had back in 2012, earned me 515 credit score.
Your credit utilization ratio (accounts for 30% of your credit score) is calculated by dividing the total credit you are using by the total of all your revolving credit limits. The bigger the gap the better but they still want to see that you are active. A zero doesn’t mean much to them.
Credit mix is regarded as having a diverse portfolio of credit accounts ie student loans, credit cards, mortgage, and etc. They want to see if you are a functioning adult that can be trusted with more than a Macy’s card. If multiple people trust you, I guess you just might be trustworthy.
Hard inquiries are recorded each time a lender requests your credit report as part of their decision-making process (ie for another credit card for example). Just used Credit Karma or a Free credit service like Experian. These Hard inquiries remain in your credit file for up to two years and they aren’t good.
Negative information. Late or missed payments, foreclosures, collection accounts, and charge-offs can appear as negative marks on your credit score (some for 7+ years).

Fixing This Issue?

1. Know your real problems

I always start off telling people that if you did the crime, you got to do the time. Easy fixes often miss the opportunity to really fix your problems for the long term. Skipping the heavy lifting (gym analogy) leaves you looking flabby. Here’s a numbers’ analogy to test your knowledge:

Say you had $100 and lost 20%, what’s the percentage do you need to correct that issue (recovery percentage)? Answer: Not 20%, it’s 25%

Say you had $100 and lost 50%, what’s the recovery percentage? Answer: Not 50%, it’s 100%.

Math is messed up that way, but the analogy is the same.

The issue that got you here will take even more effort to dig you out. That effort requires that you evaluate your spending patterns.

Digging deep will let you know that you are living above your means. ⇠ more reading.

The next part is to look at the interest that you accumulated up until this point.

I accumulated over $6,500 in interest fees from 2012 to 2019. Most of it was early on when I was not paying attention. I bought things that I didn’t need and spend money on people that ultimately didn’t matter. $6,500 is more than the trip that I took for two people to over 12 countries in Europe for 14 days. Those $10-$30-$50-$92 here and there, do add up. You have to know that cost and get angry. It’s your fault. How much did you waste in interest? Do you even know? Check your credit card statements. Write them down and see the damage.

2. Know your cards and their interest rates

Commercial cards such as store cards, i.e. Macy’s, JCPenney typically bury you in 26.99%. Anything higher than 16% needs to be handled asap.

That Black Friday splurge of $1,500 at 18.99% hurts you in the long run. Check out this calculator for yourself from Bankrate.com:

List your debts and attack the credit card with the highest interest the most.

You should look up the Debt snowball or avalanche method.

3. Three Rules you should know and Never Violate

Don’t exceed more than 10% on any card‘s available balance.
Don’t exceed more than 30% of all your total balances.
Never miss a payment (period)

4. Budgeting Still Matters

Budgeting is not a bad word. Knowing where your money is versus avoiding it until the end won’t help you. I started off with a job paying $21,000 before taxes so I know the struggle but you still have to understand how to cut costs and make sacrifices to fix your credit. I know people making north of $130,000 per year and still broke. Understanding the need to budget matters more than the amount you make. Not knowing how to manage $40,000 only gets worst at $100,000.

*Money is a thing but you can increase that along the way. For example, read How I 5x My Salary in 5 years With Indeed.com.

I created multiple excel sheet to help with this, all FREE AF – no strings, no tracking no nothing:

The first step is to take your time and learn. The next step is to understand it enough to teach someone else and inquire about solutions. The third step is to actually share it (which most people don’t since they are selfish). ⇠ It’s a Karma thing.

I’ve gained more by sharing but that is just me. Cut wherever you can, you would be surprised where you are overleveraged on spending. Hint: Housing is your biggest cost cut.

Read Wait, Did I Pay More Money Cutting Cable? – Save Up to $1,000 Per Year

5. Five Bonus Tips (but only Three that I Vouch For)

1. A popular move is credit card debt transfers with no interest fees for a couple of months. It’s a double-edge gambit. Money is behavioral so when you see that you have a card with $0 balance, you might fall back into old habits. And end up with two cards with balances. Payoff the new card as soon as possible. And make sure, like 100% certain that you aren’t incurring a transfer fee. It happened to me.
After paying consistently for 3 months. Call your creditor and ask for a lower rate. They might say no but it’s worth a shot. They might be merciful. There is a human being on the other end if they can help, they will. If they can’t help don’t stress, they work there, they aren’t your mortal enemy. Just make sure that they aren’t doing any hard inquiries. Be honest, I tell them the truth. See if they can do a credit limit increase without a hard inquiry. Example: “Hi, my name is XXX. I’ve been trying to make payments on-time for the last 3 months and I really need a break. Anything you can do to lower my interest rate? Please.”
Got multiple cards, wait another month and call the other creditor. With some success, you will be able to eventually play them on themselves. If they see your credit score went up, they might be able to get you a better rate.
I personally won’t do this but others jump for credit card repair companies. I don’t care for them since I think they are scamming folks 90% of the time, but in some cases, they might be necessary. Reach out for Free local services and see what they can do. Shop around.
There are bank credit cards or secured credit cards but I don’t know enough to explain it so… Good luck. You can also “Dispute inaccurate information on your report” – It worked once for me.

In closing (for my $16 bucks):

Forgive yourself and stop trying to take shortcuts. Shortcuts got you here. You might have buried yourself in debt but it’s up to you to climb back from it. Own up to the mistakes and change your patterns to change your life. The ironic part is that your life will improve so much more from this, you just think that you will miss out. That’s your immaturity talking.