Credit Score: The New Form of Investing

When we think of investing, we think of stocks, bonds, mutual funds, and real estate. So what do we do? We take our life savings; "gamble" our money away on an investment we think is going to make us some money. We get the investment, and then we lose the money we've been saving for so many years. Our heart is in the right place, but we are going about things the wrong way. I'm going to share the most important investment you can have in your wealth-building arsenal. It's called a perfect FICO score.

The reason a lot of African-Americans can't build wealth is partly racism, and a big part (one part that we can actually prove) is credit. You walk into a bank with a perfect credit score; the bank is going to have to do a lot of explaining if they deny you for a loan. So don't give any bank the ammo to deny you. A good credit score of about 700-850 will let you swing your financial "dick" around like a horse. What I'm going to share with you is going to take a little discipline and a little time. I'm not a financial guru, so please consult an expert. If you want to put this to use, feel free.

So what affects your credit score? Here are a few things that affect your credit:

35% is your payment history--your goal is to raise your credit score by having a good track record of paying your bills on time

30% is the amount of available credit you have--when you have credit cards, don't spend more than 30% of your available credit. If you have a $500 credit card, the most you should be spending is about $150.

15% is the length of credit history--The longer you have a credit history, the better. That means if you've never taken out a loan or credit card, you better get cracking. Also, the newer your credit is, the more it dilutes your credit worthiness. For example, if you have a credit card that you've had for 3 years, and you have a credit card that you've just opened up, the credit card that you've had for 3 years is the one you want to hold on to. Don't pay off a credit card and cancel it. The longer you keep it, the better it looks.

10% is based on new credit--that means whenever you have inquiries or new credit applications, this affects 10% of your credit.

10% is the mix of credit you have--You have credit cards (revolving credit), mortgages, and installment loans (student loans, etc.). Credit cards are good, but they're not the most powerful form of building your credit. If you have a line of credit, car note, student loan, or mortgage (types of credit that may take months or years to pay off), that you're paying on time, this can raise your credit score a lot quicker than credit cards alone. It's good to have a mixture of revolving credit and other forms of credit on your credit history.

In this next section, I'm going to share some solutions that I'm going to take to build my "investment" in gaining a perfect credit score. It's not going to happen overnight, but it will happen much quicker and have you and me that much closer to building wealth for ourselves and our community.


Get access to your credit score. Before you can reach a destination, you must first know where you stand. You can get a free credit report that you can check on an annual basis (you can only get one free credit report per year, I think) or you can check your credit score whenever you want with one of these services out there. I use myFico.com. It's only about $15 a month, but you can shop around for something cheaper. When you make an investment, you want to keep an eye on how well it's doing whenever you want. Not just once a year.

Also, with this service, you're going to see the items that are affecting your credit score. You may have items that need to be removed due to fraud or other varied reasons. Once you see the issues affecting your credit score, it's time to get started.

Get some credit and pay off the overdue balances on your existing credit. You want to establish that you have a credit history; this is one of the first things you need to get because if you have no credit, the lenders won't know how well you pay off your debt. They want to check out if you're going to pay on time or act like you don't owe anybody anything like most Americans do.

Mix it up. Having a mixture of credit goes to 10% of your score as well. Here's how you want to build it up. First, get yourself a credit card. If you don't get denied for a credit card, get yourself a secured credit card. That means you give the bank the money you want as your credit limit. Give them $500 so they can give you a credit card with a $500 credit limit. If the credit card is secured or unsecured (the credit cards you apply for without putting any money down) it won't matter because it's still a credit card nonetheless. Start using that card for small purchases like food, gas, etc. Remember that you don't want to spend more than 30% of your available credit. When the bill comes, pay more than the minimum balance, but don't pay it off entirely. You can pay off the credit card with about 2-3 payments. Paying it off in full does not raise your credit score.

Maintain a healthy payment schedule. When the bill comes, pay it A.S.A.P. The credit card company won't harass you and it won't reflect poorly on your credit report. Remember payment history is 35% of the scoring. You don't pay your bills on time; you're going to notice your score drop fast. After you show the lenders that you pay your bills on time, apply for a personal line of credit. This has about as much power as having a car note, according to Jay Morrison in his free eBook, From Hip Hop 2 Homeowner. Once again, if you don't get approved for an unsecured line of credit, save some money and get a secured line of credit. You want to put down, at least, $1,000. Ask the bank about interest fee, annual percentage rates, etc. to make sure you can keep up with the payments. You can use your line of credit for bigger purchases or paying off debt. For example, let's say you don't have enough money to pay your bills at the end of the month. You can borrow the money now and pay it back later. Make sure, just like your credit card, you're paying it back on time.

Don't buy a car or home until your FICO score is high enough. Before you decide to buy that new Benz, pay close attention to your credit score. You want to make sure your credit score is in the 700s or better. The higher your FICO score, the lower your interest rates. That means you'll pay for the same car as someone else with a lower FICO score, but you'll pay less overall. You may pay only $3,000 in interest while the other person may have paid $4,500 in interest. Your account where you check your credit score should tell you how much you'll be paying in interest with your credit score range.

Pass on your financial knowledge to your friends, family, and neighbors. As black folks, and just people in general, we want to share our knowledge with the people who are willing to take the same route as us. That dusty dude in your building may be dusty from lack of financial guidance, not by choice. You don't have to give a dime, but with the knowledge of building their credit and wealth, that's better than giving a million dollars. At least now, they'll be able to maintain it! Just by doing this alone, you are empowering the black community. The more financial discipline we get, the more power we have and wealth we can get.

Start now! Plan your angle of attack on building your credit. Around tax time, instead of blowing it all on trinkets, take that money and get a secure line of credit. Instead of buying some rims and a sound system for your car, pay off those credit cards and use them wisely. Once you have good credit--and paying your bills on time--the banks can raise your credit limit. Just because they raise your credit limit doesn't mean you should go buck wild and spend more than you can afford. You want to make sure you can pay off the debt without having a late fee.

When you have a perfect or near perfect FICO score, the banks will look at you like a thirsty dude staring at a big, juicy ass. You now have power and can borrow money to do the things you want. You now have the discipline to pay your bills on time and maintain that FICO score. You are that much closer to building your personal wealth.

Before I go, here's a video I saw about a couple of months ago. It's not a video I created, but it's part of how I want to accelerate the wealth building process. Enjoy! –Confidence Magnet (December 3, 2013) Courtesy of UPA (Post)

(You can check out more videos from this channel here.)

Good post. If you have a partner or two, you can lend each other small loans or credit lines through your corporations and report them to all bureaus. After time has passed, you can go out and get corporate capital and build personal credit this way too. –Mack Naga (December 17, 2013) Courtesy of UPA (Comment)

I recently got a secured loan to start building credit. Most banks don't do secured loans for less than $2000 nowadays. However, my friend that recently bought a house schooled me to Credit Unions. They will do secured loans of any amount.

I suggest if anyone wants a secured loan to go to his or her local credit union. Credit Unions also have lower interest rates.

I got a $500 secured loan and my monthly payment over the life of the loan (which is 1 year) is $42 a month. –Kareemac (December 26, 2013) Courtesy of UPA (Comment)

  

(If you enjoyed this post, then please consider subscribing to stay up-to-date with my latest postings and sharings. Also, please share and support Worldly Game.)