Hack the Credit Game With These Tips

Remember the days

when you would go to the arcade and play skee-ball, trying to hit the high score and win a ticket jackpot that you could redeem for the best prizes? Well, that’s credit in a nutshell – albeit a bit of an oversimplification.

As adults, the stakes of this game are higher, the complexity increases, and it becomes necessary to master it. So how do you get your initials on the leaderboard and use that recognition to get the best prizes? You learn the rules, strengthen your skills and understand the power of your score.

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What actually is credit?

Credit is the measure of how much trust a company or lender will extend to you based on your history of borrowing and repaying things like credit cards, loans and sometimes even monthly bills such as home utilities or rent. Those with good credit history or a high credit score are seen as low risk, and they typically end up saving heaps of dinero in the long run because lenders are more comfortable providing services and loans at lower interest rates.

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Credit Tip #1:

Your credit isn’t just used when you apply for loans. Some utility companies like SRP may use it to determine whether or not to waive your initial deposit; home rental agencies often pull it to determine your reliability; insurance companies may offer credit-based discounts.

In addition to lending purposes, credit unions and banks pull consumer credit reports for identity verification and in determining what level of account you can have (savings, checking, cash only, overdraft availability, etc.). Check out the Consumer Financial Protection Bureau for their 2020 comprehensive listing of the various credit agencies.

How do you earn the highest credit score?

There are many factors that can go into generating your credit profile, and the information and weight of those factors can differ among the three main credit bureaus which makes it harder to nail down your exact credit score. The main guideline for the equation, however, is agreed upon by all three main credit bureaus: Experian, Transunion, and Equifax.

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Credit Tip #2:

The typical credit score range is from 300-850. Many people become frustrated when they realize how difficult it is to get a perfect 850. Instead, ask yourself “what is a good credit score?”. Most lenders determine your interest rate using tiered ranges, and those with a score above about 740 can generally expect to get the same rate as someone at 850. Ex. 300-579 is considered a poor credit score and will get you a higher interest rate. 740-799 is considered a very good credit score and will get you the lowest interest rates offered by the lender.

Payment History: 35%

The 100-pointer of the credit skee-ball machine, payment history gains you the most points toward your credit score. This factor helps companies gauge how reliable you will be with paying them back on time.

Amounts Owed: 30%

Coming in just shy of equal importance to payment history is your amount of debt. This could include your mortgage, car loan, balances carried on your credit cards or line of credits, and personal loans. Companies use this metric to determine how risky you are about overextending yourself. If you consistently max out your credit limits or have a lot of unsecured debt like personal loans, this could raise a red flag that you are supplementing your income with loans or you have poor money management.

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Credit Tip #3:

‍A good rule of thumb when using credit cards or lines of credit is to stay below 30% utilization. That’s a fancy way to say that if you have a credit card with say a $2,000 limit, try to keep your balance below $600. ($2000 x 30% = $600)

Length of Credit History: 15%

Next up is a look at how long you’ve been playing in the arena. Seasoned players are seen more favorably because they have been through the trials and they’ve come out with the experience. This gives companies a view of that stability and experience.

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Credit Tip #4

‍Try to avoid closing out your longest running credit line. Got a Capital One credit card way back in the day to start building credit but don’t use it as your primary card because it’s high-interest? Here’s an easy tip to keep it working for you: Use that card for a small purchase each month and pay it off as soon as it reflects on your balance. This will keep your card active and help keep your score up.

New Credit Accounts: 10%

Are you opening another credit card because you like the perks, or is it because you need more credit to tie you over? Did you apply for a personal loan right after getting a new car, and then apply for a store credit card and a personal line of credit, in addition to taking out an equity loan on your home, while at the same time financing a new ATV? It sounds kinda crazy to see it all written down in one long run-on, but it does happen. And it’s a huge red flag to lenders. Not only can each new credit inquiry bring down your credit score, but it shows lenders you are constantly looking to borrow which often leads to financial instability.

Credit Account Mix: 10%

Just like any game, it helps to know all the different techniques to expand your skills. When it comes to credit, it’s important not to focus on just one area, but to be able to switch things up and diversify your profile. Lenders want to see that you can handle the different types of credit that are there. It’s one thing to pay consistently on-time for a $20/month credit card payment, but how do you measure up when the pressure’s on with a $350/month car payment?

If you’ve made it this far

you’ve learned the rules of the game, but there are always hacks on how to get where you want to be – in this case, how to build credit. Some people make it up as they go, and if it works for them, I offer a hearty attaboy! Though for many others, it’s not always as simple as seeing a mark and hitting it. Most of us need a little guidance and practice to get it right. There are simple credit hacks at every level that’ll help you achieve your high score. So where do you start?

Monitor Your Credit

Check your credit regularly. There are many ways to do this; some monitoring services are free, but often require you to pay a fee for total access. Sites like Credit Karma and IdentityForce are among the most well-known credit monitoring companies out there. Being a SunWest member, however, you already have free access to your score, report, and monitoring. Credit Sense through SunWest monitors your credit profile and alerts you to major changes affecting your credit. You can also dispute items or incorrect information directly through Credit Sense and test out different moves in the score simulator to see how those will affect your credit. Credit Sense is a major powerup to help you learn about credit, as well as monitor changes to keep you on track.

Secured Loans

Think of a secured loan as a practice session that actually earns you points as if you’re in a live game. There’s virtually no risk or extra lives needed with this one. Secured loans work by you providing collateral to your bank or credit union for a certain amount of time that you want to keep the loan. Every lender has their own amounts and terms, but most offer a variety of options, and the interest rates are lower than just about anything else you’ll find out there.

• ‍Scenario 1: You deposit $500 to your savings account for a 1-year loan. The bank puts the $500 on hold and hands you $500 in return. Each month you make a payment of about $42, and a little less than $42 becomes available from your original $500 deposit. By the final payment, you’ve gotten back your original deposit of $500, minus a few dollars for the loan interest. Those on-time payments get reported to the credit bureaus and boost your credit score.
  

• ‍Scenario 2: This is an option that isn’t as commonly thought of for building credit, but if you own a vehicle free and clear, you can put this up for collateral instead of cash. You take the vehicle title to the credit union, they run a KBB (Kelly Blue Book) to see how much the car is worth, and you can take out a loan for up to that amount. Again, each lender has their own limits and terms, so ask for comparisons to make sure you’re getting the best loan for you. Not only does it give you a low-to-no risk way of getting that good payment history, but it also double-dips into that Credit Account Mix category.

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Credit Tip #5:

Always check with your financial institution to see what credit building options you have available. SunWest offers a pretty unique Credit Builder Loan where you don’t even have to put a deposit down. Pay $25 once for the set-up, and give yourself some credit.  

Secured Credit Cards

The idea behind a secured credit card is essentially the same as a share secured loan. The difference is that instead of your lender handing you back the lump sum of your deposit, they hand you a credit card you can use for up to the amount you deposited as collateral.  

Credit doesn’t have to be a world champion chess tournament

Learn the objective, learn the rules, learn the hacks, and give yourself a head start. If you get stuck on a level, reach out to those financial professionals to help get back on track. If you stumble with a missed payment, a bankruptcy, a repossession, a medical collection, don’t just give up.

The only way to play it that’s truly wrong when we’re talking about credit is to quit and walk away from the game. Collections can be cleared; your credit can be revived from repos and bankruptcies; perfection isn’t the ultimate goal. Set your objective to be progress – to be better than you were yesterday.

The best way to win is to keep playing and listen to Winston Churchill. “Perfection is the enemy of progress.”