5 Essential Credit Do's and Don'ts

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Happy Financial Literacy Month!

To celebrate, let's take another leap toward financial independence, shall we? If you're looking to make some progress on your road to financial freedom, there's no better place to start than with some credit hygiene. Here are five do's and don'ts of financially savvy people (AKA Rich Bitches).

Let's fill in the blank. Rich Bitches...

DON'T cut up unused credit cards.

This might be a little surprising, but bear with me. Let’s say you have some random gas cards or department store cards you don’t use anymore. A credit score misconception is that you should cancel those cards if you want to improve your credit score. Wrong. You want a record of being able to pay your credit card bills— not being a serial card opener and canceler. The best way to keep up steady payments that you can sustain is to put one regular bill, like cable or utilities, on each card. Set that bill to autopay on your credit card so you are technically using your card but not thinking much about it while racking up good payment points.

DO dispute any credit report errors.

A credit report error could be an obvious one, like your credit card was stolen and you have a fraudulent $5,000 purchase on your card. Or, it could be a little more subtle. Like, your credit score reflects that you’ve had four recent credit checks, but one of those credit checks happened three years ago. Typically, a credit check will drop off of your credit report after two years. So, call the company that issued your credit report and dispute anything that doesn’t feel quite right.

DON'T refuse a credit limit increase.

Your debt load is a big contributor to your overall credit score. As a part of this evaluation, credit card companies also look at your utilization rate— or, how much of your total credit limit have you used. Typically, anything below 30% is considered a good utilization rate. For example, for easy math let’s say your credit card has a credit limit of $1,000. You’ll only want to put $300ish or less on your credit card. If you add more, you’ll start raising eyebrows with the credit score gods.

A credit limit increase sounds like you're asking for trouble, but that's a common misconception: a credit limit increase can be a great thing. Looking back at the same example, if your credit card limit is raised to $5,000 and you’re still only putting down $300, your utilization rate just dropped from a decent 30% to an excellent 6%.

But here’s where people get tripped up: the key to reaping the benefit of a credit limit increase is to keep your spending plan the same. Just because you have an increased credit limit, doesn’t mean you should spend more. In fact, it means you should not spend more… that’s the whole point! Keeping your spending low while having more available credit improves your utilization rate, which makes for a happy Rich Bitch.

DO negotiate the APR on their credit cards.

I'm surprised by how few people know this, but the interest rate you pay on your credit card debt is negotiable. You can get your APR down by calling your credit card company and talking yourself up: you can mention how long you've been a loyal customer, how often you've paid on-time, how you keep your utilization score low— anything that makes your case. This can save you hundreds— or even thousands of dollars on your credit card bills.

DON'T turn on overdraft protection.

This may be my favorite credit card tip. Many people think overdraft protection is a good thing. I mean, hello, "protection" is in the name. Why wouldn't we want that? Here's the thing, if you do trigger "protection" from your company by overdrawing from your account, you get charged a fat fee from your credit card company. Sure, it's embarrassing to get your card declined when you're trying to buy a $5 coffee, but I'd take that embarrassment over a monstrous fee any day. I mean, a $30 fee on a $5 purchase?! That just doesn't add up.

xo,

Do you want to get rid of debt, lock in that raise, plan for your best retired life, find unclaimed money and generally cruise along the road to financial freedom? Here are more ways to get it together and get it all:

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