To be honest, I never obsessed about my credit score.
A few years ago I got curious + checked to see that my credit score was 840, and I was like “cool.”
And then I closed out the tab because I thought everyone else had a similar credit score.
I have made an average salary my entire life and have never considered myself as “money expert” growing up until I leaned not everyone sees money management the same way. Today, I have an 850 credit score, but remember, I’m Canadian so our credit scores go up to 900.
Recently I was watching a video on YouTube from Glamour where 20 women from salaries varying from $0 to $1M share their credit score, and I was kind of surprised by the vast range of numbers from every income level.
People who make more money don’t necessarily have higher credit scores or manage their money any better.
That’s why I don’t believe that tips and tricks in money management are enough.
Today, I’m going to be walking you The truth is, I’m not perfect in all aspects of money:
❌ I’ve had a bill go to collections.
❌ I’ve had a missed payment on my credit card.
❌ I’ve had DEBT (student loans). And still, have a mortgage.
❌ I use my credit card FOR EVERYTHING.
But the difference is that I learn from my mistakes and focus on personal growth instead of achieving vanity metrics.
According to Credit.com and Equifax Canada, there are a 5-6 hallmark situations that will affect your credit score:
- Payment History,
- Credit Age/History
- Amount of Debt
- Mix of Accounts
- Number of Credit Inquiries
- Credit Utilization
All of these things affect your credit score, but I found that some affect it more than others. And in today’s episode, I’m going to be walking you through the personal growth habits and systems you need to develop to achieve an excellent credit score.
1. Choose what to focus on in your credit score
First of all, it’s been my experience that some of these factors are more important than others and agencies agree. According to Credit Card.com and The Balance, this is how your credit score was impacted:
35% – Payment History
30% – Credit Utilization
15% – Credit Age/History
10% – Mix of Accounts
10% – Number of Credit inquiries
It doesn’t actually state the amount of debt as one of the factors that determine your credit score, and in my experience, this breakdown is true.
I have an enormous mortgage, like $200,000 enormous (welcome to Vancouver), but it hasn’t seemed to affect my credit at all. I am now renting the apartment, but I saw very little difference when I lived in it, and when I rented it. The bank doesn’t seem to care as long as they get their payments.
However, the 2 very, large factors that seem to affect my credit score are my payment history and my credit utilization, so that is what we will be focusing on a lot on this episode. Yes, the age of credit does count too, but I’m assuming you have at least one credit card in your life. If you don’t then open one because that leads us to our next point on how to get an excellent credit score and that is…
2) Don’t fear credit, use it slowly to build your credit score.
The credit gets a bad rap. It’s like demonized as the source of all evil, but the truth is, credit can be incredibly helpful if you use it wisely. Think of it this way, businesses use credit all the time to get ahead. In business, it’s called leverage as many businesses need loans in order to get started. The difference is, they have a plan to pay it back. That’s all you have to do with credit in order to have a high credit score. Use it slowly, don’t jump in it all at once and create a plan to pay back your credit. Start by putting all your recurring bills on credit and paying it off. Run all your re-occurring bills (phone, internet, etc.) through your credit card and start using it slowly. Then when you get comfortable, start putting your needs like groceries and slowly build up your use of credit.
3) Use one credit card at a time and then increase your limit.
One of the reasons my credit score is so high is because I use so very little of it. The truth is, that every month, I probably put around $500 (give or take) onto my credit card, but my credit limit is over $30,000 across various cards. My trick to increasing my credit limit is to focus on one card at a time. When I first started using credit, I had 2 credit cards, one for primary use and one for emergencies (in case the first one doesn’t work). I would concentrate on my credit use and then ask or accept credit increases. Credit cards are companies too, they want you to increase your limit because they want your business. But developing credit slowly and developing self-trust when it comes to credit allows you to increase your credit score and maintain it. 30% of your credit score is determined by your utilization. After you use 1 credit card a lot, you can increase the limit (for example from $1000 to $5000) and then switch over to your 2nd credit card. Do the same thing (run bills and expenses and purchases you can pay in cash) and then increase the limit. That way you have 2 credit cards with high limits, even though you’re not using a lot of it. That’s how you maintain a high credit score.
4) Schedule credit dates.
I don’t pay off my credit card every month, I pay it off every 2 weeks. I know that many people only think of their bills as monthly, and I used to. However, I shifted my mindset instead of credit and credit cards being something I only deal with at the beginning of the end of the month, which I’ve just incorporated into my life.
I used to check my credit card almost daily. That was pre-COVID when I actually did normal things in life, but now I check it 2-3 times a week.
I pay off my credit cards off every 2 weeks. I know that some people like to save their money in their bank accounts for interest reasons, but that is more advanced budgeting because you really need to be aware of when you’re credit card and bills are due. I have all my bills go through my credit card and pay it off every 2 weeks.
And if something unexpected comes up and I can’t pay it right away, I schedule a date to deal with it. Listen to the podcast episode in full to hear more about my past mistakes with missing payments – but I’ve now created a system to avoid it.
5) Don’t “Pay Yourself First” (Unless it’s For An Emergency Fund)
This is very controversial advice, but I actually don’t believe in the “Pay Yourself First” savings advice, UNLESS you are saving for an emergency fund. An emergency fund is so important and if you’re looking for advice on how I saved my 10K 6 Month emergency fund than make sure to check out this article.
However, I don’t believe in the Pay Yourself First philosophy, because depending on what your money mindset was growing up and is an adult, that kind of philosophy can come with a lot of entitlement.
The hard truth is if you want an excellent credit score, and the opportunities that come with it like a mortgage, leasing an apartment or getting a car, etc., then you need to pay your creditors, not yourself. Again, the only caveat is an emergency fund, after that because you are paying future you, but present you, need to deal with the realities of the current situation.
I don’t like this kind of mindset because it can encourage the “Treat Yourself” philosophy that justifies any kind of self-care purchase. One of the big realities when it comes to money, and that is reflected in your credit score, is your ability to take responsibility for your financial decision and acknowledge that everything is a choice.
If you go on a late-night shopping spree because of something you see advertised on Instagram then you are not “Paying Yourself First” when you put away money for a future vacation instead of paying down your credit card.
Moving away from the victim of circumstance mindset is a huge shift that I don’t think people want to talk about. Sometimes we mess up, I have, but instead of blaming everyone around me, I really had to take responsibility for my actions
For example, I had a bill go to collections when I got into a bike accident living in Ottawa 6 years ago.
Bad credit and bad spending habits don’t just happen to us, they are a choice. And I know it’s a lot easier to blame other people – the credit card company, the landlord, the banks, the government and you know what? It may be some of their faults. But the decision on how to react to it is yours.
If your bills are too high, focus on down-sizing apartments (and getting a roommate) or making more money through a side hustle. I’m not saying it’s your fault for everything, but it is your responsibility and choice on what you spend on. Once we take the entitlement out of financial choices and put in the responsibility, it makes increasing our credit much easier.
6) Check your spending, and budget, often.
Stop checking your credit score, and start checking your credit card statement and budget. I used to obsess over my credit card statements and budget and check it every single day. I wrote down everything I spend, and that has really transformed how I view money and spending. I really focus on assessing my budget and why I spend money instead of going on “no-spend” months, to me that’s not helpful to just delay all my spending. I’d rather focus on why I spend when I didn’t have to. For example, I used to go out to dinners all the time with acquaintance friends that I never had a real connection to. However, I thought I had to be nice and social, until I realized that it brings no value to my life and ends up costing me $50 every time we went out. I still go out to eat at restaurants (not during COVID), but I only do so with people that bring real joy and value in my life.
Focus on intentional spending and living within your means.
7) Be patient with your credit score.
Creating a high credit score takes time. Don’t stress over the number, focus on the growth. I know it can be difficult at first, but that’s what actually makes it easy. I focused on self-trust when I started using a credit score. Now, I could go out and spend $30,000 tomorrow, but I feel no need to. The end result is worth it – good luck!