I’ve been able to achieve nearly an 800 credit score by age 23 with no debt. How did I do this? Credit Cards!
In my opinion debt is one of the financial sins. Context is important with debt but in most cases I feel it is an absolutely horrible thing to attain and it kills many people’s chances at building long term wealth. Why add bills to your life when you don’t have to? The new phone that has monthly payments, the new car, the house, student loans, and even credit card debt. Having these debts is a quick way to absorb all of your money, leaving you wondering how do you work so hard and end up being broke?
Clearly, I don’t like debt, so I wanted to see if I could have no debt throughout life. Can I still be able to buy the things I need and want as well as build my credit for the day I decide to purchase a home or build a business which might require a loan. Will this help me save money, and retire younger?
This quick answer to those questions are all yes. I have been able to build credit, my life is not harder, and I have been fortunate enough to save most of my income. All of this thanks to credit cards.
How do you build credit? It’s quite simple. A few things that are very important to building credit include, having multiple open accounts (each credit card is its own account), having very few hard inquiries (hard inquiries happen when you apply for loans, or credit cards, or if you credit is pulled by an outside source), keep credit card utilization low (if you have a $2000 limit on your card, don’t have a $2000 balance, try to keep it at $0), and make payments on time.
Pretty much all I had to do was get as many credit cards as I wanted. I didn’t apply for any credit card that was offered to me, but I did look for the best options for me and applied for those cards. These were primarily travel credit cards like Chase Sapphire Preferred, and Amex Gold. So, I have about 8 credit cards, I pay them all off about every two weeks, so my utilization is always very low, and I have never missed a payment. After about 2 years of having credit cards my credit has been slowly building to just under 800.
I’ve used these cards to receive free flights, free gifts, and even extra cash.
I think it’s important to mention that getting other debt is not always a negative thing. If you have no money and need a vehicle to start working, you probably need to get a car loan. However, getting a $30,000 car loan in my opinion is very silly and if you’re purchasing a car that expensive you should be able to save up for it and pay most if it down in cash.
Another place I think debt is ok, and the only reason I care about having good credit is for a house mortgage. Having a high credit can make your loan much cheaper over the course of 15 or 30 years. Home mortgages are one of the best forms of debt, if you are smart with your home purchase and do copious research then this can be a great way to even make some extra income. Buying homes in rapid growth areas or homes you can fix up or have rental properties can be agreat way to add to your income. Credit helps you get higher loans, more loans, and better interest rates on your loans.
Check out my post on house hacking:
So, what do you do if you have zero credit like I did when I was 19? First step is to get your first credit card. Unfortunately, Chase or American Express probably won’t be giving you an amazing travel credit card so what do you do?
There are few options for your first card, one is to get a secured credit card, this is very similar to a prepaid gift card except it’s considered a credit card. Another good option, which is the one I chose was to get a college credit card. Your bank probably has the option to get a credit card that is meant for college students, they will have a very low limit of about $500 or so, but they allow you to build your credit. After a few months or a year, you will be able to start getting normal basic credit cards, like the Citi Double Cash which is one of my favorite basic cards (2% back on everything).
Eventually when you have some credit history and a decent credit score built up you can try to attain the high-end credit cards like the AMEX Platinum or the Chase Sapphire Reserve. These cards are not for everyone, but their perks are worth it for nearly everyone for the sign up bonus.
To summarize, the main way to build credit without debt is to get credit cards, keep those cards forever even if you don’t use them, and pay off the card FULLY every single month.
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