One essential thing every entrepreneur, healthy business, or business owner has is leverage. Leverage is an investment strategy of using borrowed money from different financial instruments to increase a return on investment. So, how do you get ahold of borrowed funds and various financial instruments for leverage? Tradelines such as credit cards are can be used as great leverage when you’re ready to flip a house or start a business, but that’s a little further down the road. First, you must have a strong, established, diversified credit report that reflects great creditworthiness to obtain large credit limits with great perks. If you’re reading this, you’ve already read many different articles about credit reports. I’ll give you a few tips that I wish I knew years ago when I was a young service member.
Your actual credit score is probably not what is reflected in many of these credit sites. For starters, CK and others use the Vantage 3.0 scoring model, but lenders and all credit bureaus use the FICO scoring model. What’s the difference? Different algorithms. To make things even more convoluted, there are four different types of FICO scores. FICO, FICO 4, FICO 8, and FICO 9. Lenders use these different models according to the type of credit applied for. For example, auto lenders prefer the FICO 8 model for application approval. Who came up with this system, I don’t know but I think they did this on purpose to keep consumer’s confused. Not you though, you’re going to stay three steps ahead of them.
The good news is CK and others do a good job of accurately compiling information on your credit report and their current status. If you discover accounts in collections, this is a good place to obtain phone numbers and names of the company that holds the account, especially if the account is no longer with the original grantor. For example, if an apartment has an unpaid balance from an old tenant, that closed account is sometimes sold to a debt collector, and the account information will be in the account details on CK.
This is self-explanatory, but be careful with the order in which you pay off credit. Bring all open accounts to a zero balance before paying any closed accounts in collection. Accounts in collections have already negatively affected your score, and paying off that debt will not increase your score as much as lowering your credit-debt. Secondly, remember that closed accounts fall off your credit after seven years. Depending on how old the account is, it may be more advantageous to let the account timeout. Lastly, before you payoff closed accounts in collections, dispute them. Yes, this is frankly dishonest if the account is legitimate. If you are comfortable with your moral compass, dispute the account, and the creditor may not respond in the thirty-day allotted period. Also, it’s better to dispute any information in writing as opposed to online.
When you do pay off an account in collection, ask them for a “pay for deletion.” This means that once you pay off this account, they agree to remove it from your credit report. Technically that account is supposed to be reported as a “charged-off account paid in full.” That is what will be in the remarks of any collection account that has not been removed. And these accounts, although paid off, still negatively affect your credit report. You can still get a 700 or above, but it does make it much more difficult. A “pay for deletion” is frowned upon among debt collectors and shouldn’t be directly asked for. You must be clever when negotiating account closure and account removal. If they agree to remove the account, get proof in writing. If you need any assistance, Credit repair services can do this for you and are acting on your behalf by disputing whichever accounts you’ve identified as inaccurate. Keep in mind. You can do this yourself; it just takes time.
If you have anyone that you trust and have known for a long time, like a parent, ask them to add you as an authorized user on an account that is old and in good standing. Preferably, a credit card with a high limit, low balance, and long credit history. In my experience, once added as an authorized user, my credit report showed this account as a new account. This may not happen to you, and the whole credit history might transfer. The good news is the credit card balance and limit were added to my credit to debt ratio. Contrastingly, my average credit history length time decreased. This is always a downside to opening a new account. This should be a net positive effect because credit-debt is weighted higher than credit history length. Lowering your credit-debit ratio is more beneficial than the reduced credit history length.
This credit card is great because there are no annual fees or over-limit fees. It’s like a credit card with training wheels. You should practice good money management and remain under the allowed limit, but it’s nice to know you wouldn’t be penalized in any event. Also, they have low, competitive APR no matter what your credit score. This is one of the few privileges of being a service member. This is not the best credit card on the market, but it’s the best for new service members without established credit. Most people would have to start with a secured credit card. Remember, this is just the beginning, and you will be on the fast path to obtaining the coveted cash back and travel reward cards.
Ultimately, you will build a strong credit history over the next two years, and that will allow you to get more illustrious cards that have many perks and are more highly regarded by lenders.
Use your card and pay off the balance at or before the next billing cycle in order to avoid credit card interest. In the event that you can’t pay off the balance, try to keep credit usage under 30% of the credit limit. Lenders view you as distressed if they see balances over 30 %. Many consumers get into an early debt cycle running up a credit line and then spending the next 3-4 years paying down the balance because of accrued interest. This is how credit card companies make money, making money from lending money. Not a product or service, just lending money. It’s practically extortion.
Managing credit lines is the foundation of creditworthiness. These credit lines and credit reports are a representation of you to future lenders. Many times I hear people say they only deal in cash. That sounds good until it’s time to buy a car or house, and most of us will not be able to save up enough money for a whole new car or house. You will need your credit report to reflect that you are creditworthy, which makes you eligible for all the sweeter deals such as 0% percent introductory rates on credit cards, auto loans, and lower APR’s on all accounts. This will save you hundreds of thousands of dollars over the course of your life. Lastly, you’re building life long strong credit history in the event you want to secure large business loans for any potential business opportunity that may arise years down the road.