1. I Stopped Defaulting to My Credit Cards
Almost immediately after the meeting with the loan officer, I started questioning whether I needed to use credit cards at all anymore. I had been using my credit cards as my default form of payment, charging everything from groceries to gas in order to get more cash back.
My knee-jerk reaction was to just stop using credit cards altogether, but I know that having a long history of on-time payments increases your credit score. Instead of charging everything I could, I started charging only things that needed the kind of refund and fraud protection credit cards offer, like plane tickets or online purchases.
For everything else, I used cash or my debit card.
A full year later I still do it, and truthfully, I’ve really never felt better about my finances. Paying with cash feels like a “clean” transaction. I don’t have to worry about when a big credit card bill will come in and whether I’ll be able to pay it. Now I can simply look at my bank account and clearly see what I’ve spent and what I have left to spend.
2. I Paid Off My 0% Interest Debt
I always paid off all of my credit cards in full, knowing that the interest charges can eat away at your finances. However, I had a couple of 0% interest debts on which I paid only the minimum, since I wasn’t racking up interest charges: my car and a furniture store credit card. I thought that I was getting the money for free and that it would be silly to pay the bank extra if they didn’t require it. After all, that extra money could be earning interest in savings, or returns in the stock market—not paying off a 0% interest debt.
This thinking backfired on me.
Combining the balance on the 0% retail card with my “standard” credit card spending, the amount of my total credit I was using (known as my “credit utilization”) was almost 70%, exorbitantly higher than the 30% recommended by FICO.
Instead of “outsmarting” the banks, I was sabotaging my own credit score.
I made a concerted effort to pay off my car and furniture credit card by the end of the year, which would mean monthly payments of $450. Combined with using my credit cards less, I was on my way to drastically lowering my credit utilization and increasing my credit score.
“I made a concerted effort to pay off my car and furniture credit card by the end of the year, which would mean monthly payments of $450.”
3. I Resisted Opening New Credit
About five months after we bought our new house, our air conditioning went out, and we were advised by multiple companies to replace our entire HVAC unit. We knew from our home inspection that the HVAC might be an issue, but the seller denied our request to change it before we bought the house. We had hoped the unit had a couple of years left in it.
We had started building a “home repair savings account,” but we hadn’t had very much time to see it grow. After all, we had just made a huge down payment on the house!
But then we were faced with an unexpected $4,500 bill, and the very real prospect of taking out new debt to finance the new A/C unit. The HVAC company offered a very good deal if we opened a credit card through them—a discount on the unit plus a 0% interest rate for the first year—but I couldn’t bring myself to do it.
Opening a new line of credit would show as a “hard inquiry” on my credit report (meaning a lender requested a credit check), and having a new line of credit would decrease the average length of history on my credit report. With my score still barely in the “good” range, these dings to my report could have brought my score down even more. Less than a year ago, I had applied for $5,000 in credit to buy a fabulous new living room and bedroom set. In that same year, I had applied for a $5,000 business credit card to get my little side hustle off the ground. To creditors, I looked like a debt-hungry wolf who couldn’t afford her life.
Instead of saddling my husband with more debt, we drained a major chunk of our emergency fund to pay for the unit outright. Although it was really hard to watch our savings go, we have never regretted our decision.
4. I Started Tracking My Credit Score
I knew that my credit report was free from errors (since I had checked it before meeting with the loan officer), but I wanted to make sure I was tracking my credit score regularly to catch future errors.
I signed up for CreditKarma.com (for free!), and received monthly credit score updates and tips about how to keep improving it.
More than anything, this was a really potent awareness-builder for me. As I stopped using my credit cards and increased payments to my outstanding debt, I saw the effects of my good habits reflected in my slowly rising credit score. Seeing progress was a major encouragement to keep working hard.
Almost one year to the day after getting a wake-up call about my 680 credit score, I checked my credit score again: 783.
While the 100-point addition is certainly exciting, I’m most proud of the changes I made over the past year. I have no more debt. I don’t feel attached to points or miles or cash back. Lastly, even though this sounds cliché, I finally understand what it means to have a “good relationship” with credit.
As my credit history grows longer and my score improves, I know that I’ll be a proud contributor to our next mortgage, with the hard-won knowledge that I was an equal partner in earning our home.