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Credit Card 101: Credit Scores

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What’s the power for you to obtain that loan? 

What’s the most influential power holder in the debt world? 

Let me give you a hint, two words:

Credit Score!

Want that dream home? That shiny new car? Or what about that watch? Or if you are really good and a lover of financial stability, then knowing and understanding your credit score is crucial. 

What is it? 

A credit score is a three digit number – a numerical representation indicating your creditworthiness. When you apply to get credit, lenders will examine your credit scores so that they can determine your credit risk. Credit score is also known as FICO scores. 

There are three credit bureaus that keep credit information about you which is then used to calculate the score. Have you ever heard of Equifax, TransUnion or Experian? 

Credit score can range from 300-850 with the higher number being the best kind of like an A+ on a report card. Who doesn’t want that? A credit score about 700 or higher is good. So maintain that if you can. It is important to note this score is derived from your credit history, payment behaviors, financial behavior and any outstanding debts. What behavior you may ask? Well, if you pay your bills on time – it shows that you are financially responsible. 

Why Does a Credit Score Matter? 

Borrowing Power

This allows the ability to borrow money when you need it such as a mortgage for that dream home or a credit card to use. The credit score assess the risk of lending you the money. No one wants to give money out if they can’t be repaid. 

Good Interest Rates

If you have a good credit score this can be a benefit to you such as receiving lower interest rates. If Lenders see that you are less risky (high credit score), they will offer you favorable interest rates. This will help save you money in the long run. 

Financial Opportunities

With money, comes opportunities. Having a good score can open the doors to things you may want to pursue such as receiving a business loan or purchasing a second property to rent. 

How to Improve Your Credit Score

Pay Your Bills on Time

When you pay on time, it won’t impact your score. A friendly tip is to set up automatic payments or even phone reminders to make sure you never miss the deadline. 

Credit Utilization

Make sure to keep your credit card balances low compared to the total credit limit. For example, try to have a ratio below 30% to demonstrate responsible management. If your credit limit is $1,000 – don’t go over 300 (1,000*30%).

Diversify Your Mix

Different types of credit is better as it can positively impact the credit score. You can have credit cards, installment loans and retail accounts. Make sure you open accounts that are user friendly, necessary and make sense to you. 

Check Your Credit Report

Make sure to check your credit report so that there are no errors (it can happen). If there are discrepancies – dispute it since this is a reflection of your financial behaviour. 

 Ways to Increase your Credit Score

  1. Make sure when you complete a credit application, it accurately reflects you. 
  2. Be responsible with your credit card, pick a credit card that suits your needs and do not spend over what is needed. Live within your means. 
  3. Pay the credit card balance in full when it’s due, avoid the interest if possible. Pay the bill on time even if that means making the minimum payment by the due date.
  4. If there is a problem paying a bill, ask for help. Contact the lendor and see if you can figure out a payment plant. Asking is better than not asking.
  5. Keep your information updated such as contact information and address. You don’t want anyone receiving your bills and you miss the deadline since you never received the bill. 
  6. Establish responsible financial behaviour – don’t splurge but don’t forget to treat yourself. 

Rakstars, remember your credit score is not just a number. This is a tool that can help you in your life. When you treat your credit with respect, you will see long term benefits than to use and abuse it. Keep an eye out for that three digit number, since it does have the power to unlock your dreams. After all, money is power, at least they say. 

 

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Back to the Basics: Listen up, School is out, Real life is in!

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Credit Card 101 

Rakstars, do you own a credit card? Just joking, I know you do. Credit Cards have become the fundamental use of payment. There is nothing better than swiping, inserting or tapping. When you receive your goods that you purchased, there is no other incredible feeling than being rich. Yes, you heard it correctly. Richness and credit cards – don’t they go hand in hand. Money you can use whenever and wherever you like. But just like a cheating lover, so can a credit card be. 

We love credit cards because they provide us with security, power, convenience and even more important – rewards. Whether it’s cash back or points, you know it’s better than cash because you are getting something back for using the card. 

Credit Cards are great and are easy to use. If they are lost, you simply report the card and issue a new credit card. It’s easy as 123. On the other hand, cash is risky – if it’s stolen – well it’s gone. Hasta La Vista! Thus, we turn to credit cards but you need to be wary. You can’t go into the relationship thinking that it’s all fun and games, until you see the receipts. Yes you know, your credit card statement. That’s when the truth of the relationship starts to show. 

Before you immerse yourself with your lovely partner aka credit card, get to know what each credit term means. 

Annual Fee

First things first, there can be a fixed cost of owning a credit card, so make sure you understand which credit card you have and if it has a fee associated with it. Don’t worry, not all credit cards do. 

Balance

This is the amount of money that you owe back to the credit card company. Basically, all those items purchased added up and now you are staring at the total cost. From feeling rich you now suddenly feel poor. Who knew that vegan fur jacket was actually $600? But it’s so soft. 

Credit Limit

This is the maximum amount that you can use on your credit card per month. So let’s say the credit card company offers you a credit limit of $3,000, you can spend up to 3,000 and anything over the 3k mark will be declined, so be careful. Good news is that once you pay off what you owe, it will reset to the full $3,000. 

Annual Percentage Rate (APR)

This is where the fun begins. APR is the yearly interest rate that gets charged to your account when you don’t pay the bill on time. Remember you purchase items in one month, you must pay by the next month otherwise you will be charged interest, thus making the items you purchased more expensive. Ain’t nobody gonna give you money for free, boo!

Credit Bureau

No this is not the FBI, but a reporting agency. They collect information on consumer usage of credit. Nothing to worry about.

Introductory offer

This is an interest rate that is normally given to you, when you sign up for a new credit card just as an introductory offer, thus the name. But remember, these rates are normally lower than the standard rate to attract you to join them. Make sure you are well aware of what the actual rate is once you say goodbye to the introductory offer.  

Minimum Payment

You might have seen this at the bottom of your credit card statement. This is the amount that you must pay by the due date to ensure that you are in good standing. However, the remaining amount that you don’t pay – say hello to interest!

Credit Rating

Your credit report card. This is the evaluation of your ability to manage debt. If you ever want to borrow money for big purchases like a house or apply for a loan, this is what they look at before they grant you your wish. 

Just like any Rakstar, maximize your benefits and minimize any costs that you can avoid. 

 

Pros

Cons

Convenience: With you at all times, can purchase no matter the cost. Say goodbye to counting out your change at your local barista.

Interest: Paying a percentage on an amount that we borrowed but haven’t paid back.  This makes our purchases more expensive than necessary. 

Immediate Purchase: That cute top you just have to buy. Well, you can with a quick swipe of course and no we don’t mean Tinder. But in all seriousness, if there is an emergency and you don’t have an emergency fund(link to other article) then it’s wise to use.

Fees: Credit cards have a fee just to use them (not all but some). So make sure the credit card is offering you a benefit of using it, otherwise find a credit card that is worth your while. Spend time researching. As we say, knowledge is power and so it links to our wallets. 

Keeping a Record: Budgeting, saving money and being financially free – that’s your motto – well, using a credit card can help you keep on track creating a record for you to plan and see what money is going out.

 

Rewards: Yes, baby, yes. Using a credit card can create a benefit to earn points to get free stuff, who doesn’t like free!

 

Finder’s Keeper: Having a credit card is linked to you and only you compared to cash if it’s lost it’s gone. You can simply cancel your card and make sure it doesn’t get into the wrong hands. 

 


Rakstars, here is friendly advice, budget and track your spending. Make sure you are able to pay your credit card bill when it’s due. Otherwise, the interest can accumulate and debt can grow like a mole. 

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Credit Card CPR: How to Survive?

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Rakstars, have you ever used a credit card? Just joking! I know you have. These rectangular pieces of plastic are the absolute best thing invented. Take it wherever you go and spend as much as you can, so long you don’t hit your limit. But wait, amidst the excitement of purchases and the fact that most credit cards, you get rewards (Bonus – why not shop? It’s like rewarding after a reward, right?), there are some pitfalls. Most importantly, debt!

Welcome to Credit Card CPR, saving lives one credit card a time. 

 I am a survivor. I am a thriver! 

The Minimum Payment Trap

Have you ever noticed on your credit card statement, there’s always a minimum payment, which we see (cue in the sign of relief). But wait, no! Don’t snooze or you will lose. Paying the minimum can lead to debt! DEBT is no good. Why? Interest accumulates and the balance left on the credit card will increase and increase, like a never ending treadmill. 

Credit Card CPR

Health is important but so is your financial health. Rakstars, paying more than the minimum payment required is beneficial. Here’s why: 

Say bye to the Interest Tap

If you can pay more than the minimum, you are able to chip away at the principal balance. Principal balance is the amount due – the amount you used to pay for your shopping with the swipe of the rectangular plastic. By paying more than the minimum or if you can, the whole amount once the credit card bill comes due, you can reduce and minimize that interest which lags on overtime. Interest is like a stalker – it keeps following.  

Accelerate Repayment

If you can make larger payments – this allows you to pay off your credit card debt faster thus, allowing you to reach financial freedom sooner than scheduled. Rakstars, you are regal – so reclaim that control over your money. After all, this is a monarch. 

Did someone say Credit Score?

You bet right, we did. When you pay off more than the minimum, this is shown positively on your credit score. Credit score is like a report card which shows how good you are with money aka financial responsibility which means when you need a loan, you can receive it easier. 

Saving $

Interest accumulates – it increases like there is no tomorrow, so the more you pay now, the less you pay later. Saving money on your interest payments, allows you to use that money for other items in your budget allowing you to achieve your financial goals. 

Start Credit Card CPR

Remember your Budget

Yes, your budget. Take a look at your monthly budget and see how much money you can allocate to your credit card payments. See if you can cut back anywhere so that you can have an effective payment strategy. 

High-Interest Debt

Rakstars, do you have more than one credit card? Well, if you do, focus on paying more than the minimum on the credit card that has the highest interest rate. This can help you save a lot of interest on those payments. 

Payment Automation

Do you misplace credit card bills or just easily forget about them as you don’t want to deal with them? Don’t worry, you are not alone. You can set up automatic payments so that you can pay more than the minimum allowing you to stay on track and away from those interest penalties. 

Celebration

Along the Credit Card CPR route, make sure you do celebrate your victories. Whether it’s paying slightly more than the minimum or a ton load than the minimum, each payment you make is one step towards financial wellness. Keep on thriving. Rakstars, we know you got this. 

Next time, you see your credit card bill, try Credit Card CPR and reach your financial empowerment. Stay committed and soon you will be in control of your financial destiny. 

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