“You don’t need credit.” “There’s no positive side to credit card use!” “Cut up your credit cards and NEVER use them!” Do any of these phrases sound familiar?
If you’ve listened to any of the mainstream “financial advisors,” you’ve most likely heard phases such as these. Let me start by saying that I get it. I get why irresponsible people need to stay away from credit cards because the odds are stacked against them, and numerous studies have shown that a vast majority of folks will drown themselves financially if they irresponsibly use credit cards. This section isn’t for people who fall into this category. This section is for financially responsible adults who are interested in a simple way to demonstrate financial discipline.
The problem I have is when pundits make blanket statements like this that MUST be followed no matter what and with no exceptions. To put it bluntly, that isn’t how life works. Your life isn’t black and white. Grey is the color of everyone’s life because everyone’s life is unique.
In this post I want to focus on a specific strategy to improve your credit in a small but very effective way. This strategy can be used whether you have poor credit or great credit. The goal with this strategy is to prove that you know how to use credit cards and can demonstrate financial discipline and increase your creditworthiness over time. The proof will be in your credit history.
Believe it or not, your payment history makes up 35% of your credit score. It’s important that you make your payments on time, consistently, month after month. Here’s a strategy to improve your score with this in mind.
Begin by identifying two or three of your monthly bills that accept a credit card as a form of payment. It could be a gym membership, car insurance, trash pickup, etc. The first step is to set up an automatic payment for each of these bills each month with a different credit card.
For example, if you have three credit cards you’re going to pay each your monthly bill you identified with a different card. You would then schedule an automatic payment from your checking account to pay off each credit card every month before the due date.
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Here’s how I’m using this strategy today. I had two credit cards that I opened years ago that I never used. I chose not to close the account, and I didn’t want to randomly charge daily expenses on each card just to keep them active and to build my credit history. Instead, I used this strategy.
Each month our Netflix and Natural Gas bills are automatically paid on each of these two cards. I then schedule an automatic payment from my checking account to pay off the credit card each month before the due date. It really is that simple.
This exercise was done one time and took me less than 15 minutes to do. As a result, I’ve watched my credit score tick up a little each month. I highly recommend this simple one-time change to start you on a path of demonstrating your financial discipline!
