Credit Card Score / How to Improve Bad Credit? – Philip Tirone

… With Credit Cards

Although most people live with credit as a daily part of their lives, many others persist in living debt free, using cash to conduct all transactions and never purchasing anything on credit. If you have ever suffered a financial crisis, you might be inclined to join the ranks of these people, wiping your hands of all credit, shredding your credit cards, and vowing to avoid all lending institutions for the rest of your life.

However, I strongly urge against this lifestyle. If you want to start living debt free, do not wipe your hands of all credit. Instead, follow my advice for living debt free with credit cards.

Let me explain.

As appealing as a cash-only lifestyle might seem, the truth of the matter is that it is not possible to sustain. At some point, we all have to rely on a credit score, and wiping your hands of credit lowers your credit card score and your credit score. In today’s environment, employers are using credit scores more and more as a measure of an applicant’s level of responsibility. Without a good credit score, you could lose a job opportunity simply because the employer believes that your level of responsibility is reflected by your ability to manage your debt.

And what if you want to book an airline ticket? You will need a credit card. Whatever the reason, you will need to depend on your credit score at some time and show that you can manage credit responsibly.

But if you fail to use credit, instead opting for a cash-only life, your credit score will suffer. After all, the credit-scoring bureaus cannot assess a person with no credit, so they assign a poor credit, figuring they would rather be safe than sorry.

The best way to prove your creditworthiness is to demonstrate that you can handle a mix of different types of credit, including credit cards. If you want to live as a cash-only citizen, you might be tempted to simply sign up for a credit card and then stow it in a desk drawer for perpetuity. Be forewarned: this will not help the credit bureaus judge your creditworthiness. If credit card accounts do not show some type of activity, they will likely be declared inactive by credit card companies, which means your credit score will not build.

While a cash-only lifestyle just isn’t realistic, living debt free is. Following is a strategy for building your credit score while still living debt free.

Start by gathering all your credit cards. Ideally you should have between three and five credit cards as you will garner a better credit rating that way. (See post “How Many Credit Cards Should I Have?”) Then schedule a monthly “auto pay” from each credit card. If you have four credit cards, pick four different bills that each have a static payment. You might pay your $29 gym membership with your Visa, your $42 cable bill with your MasterCard, your $178 auto insurance bill with your Discover card, and your $85 life insurance bill with your American Express. Schedule an auto-pay for each of these occurring monthly.

Now you have accomplished your first goal: to build your credit score. But how can you go about living debt free if you are making charges to your credit card each month?

Here is the trick to living debt free: Schedule an automatic payment from your checking account to your credit card for the same day!

Let’s say you pay your $29 gym membership on the first of each month using your Visa. If you schedule a $29 Visa payment, also on the first of each month, using your checking account, you will keep your Visa account active, you will show the credit-scoring bureaus that you can actively manage credit cards, and you will accomplish your goal of living debt free.

Not only will you maintain a zero balance on your credit card, you won’t have to deal with interest on your debts. Most importantly, you will maintain four active accounts, which will create an excellent credit profile. As a result, you can start living debt free, without the hassle of creditors or confusing banking procedures, and build your credit score.