As an automotive special finance writer, I give my readers advice every day on how to be smart about their credit. These are solid, tried and true methods of improving your credit – often advocated by the credit bureaus, themselves. But apart from trying the tips and waiting for results, how are you, my readers, to know this stuff works? Fear not. I'm here to tell you how this advice has worked for me.
Taking My Own Advice
I’ll tell you a secret: I’ve struggled with credit my entire adult life. Financial advice is something that I think was always presented to me as taboo. You just didn’t talk about your finances with other people. Growing up, things just worked out, and my parents didn’t share the ins and outs of their financial burdens or struggles with us. I don’t know if that mentality was unique to my family, but, as I silently adopted the notion that you kept your finances to yourself, I never really thought about the consequences – until now.
I knew that I needed to do something to raise my credit score, because there are some things in life that I’m looking forward to having. These are big ticket items that I’ll need to finance. One of them is a car. So, I decided to put my money where my mouth is and use the advice I give as a writer.
Knowing that I needed to improve my score, I decided to look into my credit reports and score back in January. What I found was a score of 579, a good payment history and length of credit history, and only fair marks in three sections: credit utilization, credit mix, and new credit – because I didn’t have any of these things. There wasn’t any “bad” in my credit reports, there just wasn’t a lot there.
If you’ve ever read up on credit, you may know that there are two important pieces to the puzzle: credit scores and credit reports. The information in your credit reports helps to determine your credit score, with each piece making up a percentage of the total score.
As a refresher, here are the pieces of the puzzle according to FICO, and how they break down:
- Payment History – 35 percent
- Credit Utilization – 30 percent
- Length of Credit History – 15 percent
- Credit Mix – 10 percent
- New Credit – 10 percent
FICO isn't the only credit score out there, just the most widely used by lenders. Other scores, such as VantageScore (TransUnion), use different calculations to come up with your credit score, so it’s possible for you to see a range of scores, depending on where you look. For example, my FICO score is now 619, while my VantageScore is 528.
How I Ended Up Improving My Credit
Because my only debt was from student loans, which are installment loans, coupled with the fact that I hadn’t even so much as thought about applying for credit in years, these two pieces of my credit puzzle were missing. That’s 20 percent of what makes up a credit score that I was ignoring. Based on the advice I give my readers each day, I knew adding to my new credit and credit mix would help.
So, I applied for a store credit card. I was approved, and my new credit went up along with my credit mix by adding revolving credit to my portfolio. That alone has helped raise my FICO score by 20 points in the past six months.
But I know that if I hope to qualify for an auto loan with the best possible interest rate for me, I want my credit score to go up another 21 points before I apply.
What’s Still Holding Back My Credit
In order to get those 21 points I’m hoping to gain, I still have room for improvement. One of the biggest pieces of the credit puzzle is credit utilization, and mine stinks. In fact, my credit utilization went from zero percent to 106 percent. Clearly, I’m not following the advice that I’ve asked my readers to follow. I always advocate keeping your credit utilization at or below 30 percent, which means that you should only use or keep a balance of 30 percent of the credit you have available to you.
When I got my new store credit card, I “might” have gone on a shopping spree or two. Overspending is a bad habit among many credit card holders, and apparently I’m no exception. My available credit, which I maxed out, has the added bonus of interest – which is how my credit utilization got to be above 100 percent, in case you were wondering. This isn't an improvement, but now I have the unique opportunity to lower that usage, and see how it improves my credit score.
Using my card for the past six months, I’ve only made the minimum payment each month. My credit utilization is going to continue to be high until I get my balance significantly lower, or paid off completely. If I had followed more of the advice I give out – like paying off my credit card balance in full each month – I would most likely be seeing better results and a higher credit score already.
Stick with Me, Things are Looking Up
The best advice I can give you at this point is that the credit improvement tips we write about do work. The more you follow them, the better your results are likely to be. Of course, there are a lot of factors that go into building your credit, and your results will vary.
For me, past missteps play a huge part in my personal credit situation. It’s something I’ve learned from and am making up for now. The good thing about credit, though, is that you can always improve it if it’s down. The process won’t happen overnight, and there are many ways you can choose to build your credit, depending on your situation.
I’m going to continue to work on bringing down my credit utilization, and start saving for a down payment, because when I reach my goal, I plan on applying for a car loan. Based on the fact that my score still won’t be great, and that I’ve never financed a car before, I’ll probably need a subprime auto loan. The good news is that a car loan can be a great building block for credit improvement.
If you’re in this boat with me, see what Auto Credit Express can do for you. Not only do we offer valuable tips and advice on auto financing, we can also help connect you to the resources you need to get one. You can get connected with a local car dealer near you to start your own credit improvement journey.
So, stick with me, readers, as I continue on this credit improvement adventure. I’ll keep you posted along the way.