Elizabeth Aldrich

Elizabeth is a personal finance writer specializing in credit cards, debt repayment, and small business. Her work has appeared on The Motley Fool, MSN Money, Yahoo! Finance, and Business Insider. She’s an avid credit card points collector and perpetual traveler currently living in Costa Rica.

Recent Posts

MOVED 7 Ways to Beat Your Parents' Credit Score

Posted by Elizabeth Aldrich on Dec 31, 2019 8:00:00 AM

Get ahead of the game while you're young, and your credit will thank you.

With age comes more life experience and financial stability⁠ -- which may also mean a higher credit score. The Ascent's study on credit scores in America found that individuals over 60 have an average credit score of 747, which is 88 points higher than adults that fall into the 18-29 age range.

In other words, older Americans are more likely to have very good credit, whereas young adults are more likely to have credit that's considered "fair." After all, people in their 20s haven't had a lot of time to build good credit.

Small child defeating grown man at arm wrestling.

Luckily, with some determination and strategic decision-making, it's possible to obtain good, or even excellent, credit at a young age. Here's how you can increase your credit score and maybe even surpass your parents.

1. Get started as early as possible

Your first goal is to build a lengthy payment history. You can start from scratch by opening a credit card with a cosigner or choose a card that's designed to build credit -- like a student credit card.

If you want to try for a regular credit card, use your current relationships to your advantage. Your local credit union may be willing to approve you for a credit card if you already have a positive, long-standing relationship with them.

You can also explore opening a secured credit card which requires a refundable deposit in exchange for credit. The best secured credit cards require a deposit ranging from $49 to $200 and come with a low credit limit. They can be a great option for someone who has just started their credit-building journey.

Finally, if you're having a hard time getting approved, you may have better luck applying for a store credit card. These are usually easier to qualify for, but they tend to have high interest rates and lousy terms. So treat this route as a last resort and make sure you pay off your balance in full each month to avoid interest.

2. Use your credit card regularly and pay it off every month

You can't build credit by simply carrying a credit card in your name. You have to use it. 

Consider using it to pay for a few of your regular bills each month. This can help you get used to using a credit card without swiping it for things you don't need.

One of the worst things you can do to your credit is miss payments. Set up automatic payments to ensure this doesn't happen, and pay off the full balance whenever possible to avoid interest fees.

3. Carry multiple credit cards

Once you've adjusted to using one credit card responsibly and built up some credit, you can open your next line of credit. Balancing several credit cards at once shows you can manage multiple due dates, which creates a more robust payment history.

You need to be smart about when you apply for credit and how you manage your payments. Stick to one or two applications per year to avoid a negative impact on your score. You can keep track of your payment due dates by setting up notifications with your credit card company and signing up for autopay.

4. Keep a low debt-to-credit ratio

You should use your card regularly, but not enough to max out your credit limit. Always keep your balance low, even if you're paying off the full amount each month. This will help keep your credit utilization low, which is an important component of your credit score.

Essentially, your debt-to-credit ratio -- or your balance(s) in relation to your overall credit limit -- should remain below 30% at all times. If you find yourself hitting your credit limit regularly, request a credit limit increase or consider opening another card. This will decrease your credit utilization, as long as you don't increase your balance.

5. Keep old credit cards open

As your credit score improves, you might find yourself gaining access to more rewarding credit cards. But it's important that you don't close your old credit cards unless they charge an annual fee.

As long as your credit cards aren't costing you anything, keep them open to maintain the length of your credit history and the average age of accounts. Both of these factors play an important role in determining your credit score. It will also keep your overall credit limit high, which helps your credit utilization rate. 

6. Sign up to include your banking and bill payments in your credit score

You no longer have to rely solely on lending information to determine your credit score. Services like UltraFICOTM and Experian Boost can give you alternative ways to boost your credit with existing positive financial data.

UltraFICOTM allows you to choose to include information from your checking and savings account to better demonstrate your financial responsibility. You can also opt in to Experian Boost to allow Experian to access your online banking information and include utility and phone bill payments in your payment history.

7. Go slowly and avoid scams

Building credit takes time. Be wary of  services that claim they can help you immediately or quickly achieve excellent credit without requiring any work on your part. These can be a scam, or at the very least, potentially risky.

You never have to pay money to build your credit. Even though taking out a loan can sometimes help, you shouldn't take on debt that you don't need just to improve your credit score.

Instead, rely on free credit-building methods -- like using credit cards and consistently paying your bills on time. It may take some time, but your diligence will pay off and set you up for future financial success.

Topics: Credit Cards, Cash Back & Rewards

MOVED No Credit? No Problem: Building Credit Has Never Been Easier

Posted by Elizabeth Aldrich on Dec 30, 2019 4:00:00 PM

New credit card companies and ways to boost your score are opening up access to credit.

It can be tricky to get a loan or open a line of credit without a credit history. It's the notorious credit-building Catch-22: You need to access credit to build good credit, but you need to have good credit to access credit.

Folks with no credit will be excited to learn that this maxim may not ring so true anymore. Thanks to new technology, lenders can now draw on additional information like your banking behavior and bill payment history to evaluate you as a potential borrower. This means that you don't necessarily need to show that you've used credit before in order to access credit.

Trio of women in flannels and construction helmets looking at a credit card.

UltraFICOTM and Experian Boost give you credit for paying the bills

Most lenders rely on your FICO® Score to make lending decisions. The problem for many consumers is that there's more to their financial picture than this score alone. And so, new services like UltraFICOTM and Experian Boost have developed algorithms that fill in some of these missing pieces with additional data. 

Both services incorporate data from your bank account to provide a more holistic picture of your habits as a borrower. They make credit opportunities more accessible by expanding the information that determines your credit score. 

UltraFICOTM looks at your checking, savings, and money-market accounts and considers factors like account age, balances, overdrafts, and bill payments. Experian Boost pulls payment information from your bank account for bills like utilities and telecom services, often improving your credit score if your bills are consistently paid on time.

Experian Boost and UltraFICOTM are both free services, which you can opt in to if you want these additional factors to be reflected in your credit score. They may be helpful for consumers with no credit, but they can also help push borderline consumers over the edge into good credit. 

New no-fee credit cards make building credit easier and cheaper

Although the services above can give you a credit boost, they aren't going to catapult you to excellent credit on their own. Getting excellent credit requires a lengthy history of on-time payments.

One of the best ways to do this is by using credit cards strategically.

If you're starting from scratch, secured credit cards have long been the way to go. These low-limit credit cards are easy to qualify for, and will help you build a payment history. You'll need to provide a refundable security deposit of anywhere from $50 to $500. 

Secured credit cards are a great starting point, but they are limited due to their security deposit requirements, low credit limits, and lack of benefits or rewards. They aren't meant to be a long-term solution -- you'll eventually want to transition to an unsecured credit card with a higher credit limit.

The great news is that  secured cards are no longer the only option for consumers who need to build their credit. New credit card companies are popping up that look at alternative data (information outside of your credit score) in order to approve consumers for starter credit cards. In fact, several of the new cards geared toward consumers with no credit are even better than secured credit cards. They come with no annual fee, no security deposit requirement, and upfront terms. Some even offer rewards.

Although building your credit is important, credit cards are a serious responsibility that should only be used to pay for purchases within your means. You should also always plan to pay off your balance in full each month to avoid interest fees.

A good credit score should never cost you money either, meaning that you shouldn't have to take on debt just to build up your credit score. Instead, focus on taking small, consistent steps that move your credit score up the scale over time.

With so many new ways to build your credit, having no credit is no longer the long-term barrier that it used to be.

Topics: Credit Cards, 0% APR & Low Interest

MOVED Most Americans Think They're Disciplined With Money. Here's Why They're Not

Posted by Elizabeth Aldrich on Dec 28, 2019 8:00:00 AM

We might be overconfident when it comes to our money habits.

People often struggle to know whether or not they're on track financially. How do you know if you're saving too much or too little? Are you really ready to take on a mortgage? The answers to these questions are rarely clear-cut.

It's difficult to gauge your financial situation if you don't take the time to lay out all of your finances, develop clear goals, and track your progress regularly. Unfortunately, research by The Ascent on personal financial habits shows that the average American spends little to no time on their finances. When you consider this, along with some other startling statistics, it's not so surprising that most Americans are well behind where they should be -- even though they generally feel positive about their financial discipline.

Woman looking at her much larger and stronger-looking shadow.

Americans are financially overconfident -- but they're still behind on saving

The numbers don't lie. Americans are overconfident when it comes to being financially disciplined. The financial habits study found that 59% of those surveyed felt they were financially disciplined, but their savings accounts told a different story.

Only 21% of Americans are confident they have enough funds to stay afloat beyond three missed paychecks. This means that for the majority of the country, one mishap could send their family into debt.

And although you may have the best intentions when it comes to financial discipline, it's important that your actions reflect your intent. The average American spends less than two minutes each day managing their finances, which is only about one hour per month. 

The secret to managing money well is setting aside time in your weekly routine to check in with your spending, budget, savings, and other financial goals. With so little time spent focusing on finances, it's no wonder that Americans are neglecting their savings accounts.

Why emergency funds are crucial to financial stability

An emergency fund is meant to cover any major unexpected financial blow, which can include anything from car repairs and veterinary bills to the loss of a job or a temporary disability. Its main purpose is to prevent you from having to borrow money during an emergency situation, which could land you in expensive debt.

During a financial emergency, you're likely to already be in an emotional state. Having an emergency fund allows you to make necessary financial decisions without the added stress of trying to produce money out of thin air or having to borrow at high interest rates.

An added benefit is that a well-padded emergency fund can enable you to take advantage of more risky opportunities -- like starting a small business, accepting a better job offer, or investing in a rental property. You can start a new adventure without worrying that one mistake will land you in long-term debt.

How to buckle down and build a healthy emergency fund

We could all benefit from spending more time on our finances. The study shows that the average American spends almost 100 times more time per month watching TV than they do working on their personal finances. But these poor financial habits can be unlearned.

Make a commitment to put your finances first. Set aside a specific time each week to review your finances in detail.

Set clear and attainable financial goals. One of your first major goals should be to save at least six months' worth of basic living expenses. These funds will serve as your emergency fund and should be set aside before you begin saving for any other big purchases.

Create a budget that will help you build your emergency fund. Calculate how much you can afford to save each month and how long it will take to reach your goal. Identify areas in your monthly spending where you can cut back to increase your savings. Write your goal and deadline in your planner and put it in your phone. The more places there are where you can visually see your goal, the more likely you'll be to stick to your plan. 

Set up automatic deposits that move money into your savings account each month. It's best to set the automatic deposit date for right after you'll receive your paycheck. This way you'll pay yourself first and avoid spending that money elsewhere throughout the month.

When you have your plan in place, evaluate your progress weekly and adjust your plan as needed. Look at how you can maximize your savings. For example, you can use a high-yield savings account for better returns on your money. You can also transfer leftover money at the end of the month from other budget categories to build your emergency fund even faster.

Building healthy financial habits takes time and dedicated action. But that upfront effort can give you an important safety net in case your family gets hit with unexpected expenses.

Topics: Banks

MOVED 9 Ways Having No Credit Score Makes Life Harder

Posted by Elizabeth Aldrich on Dec 24, 2019 10:00:00 AM

...and how to build good credit from scratch.

If you don't have a credit score, you're not alone. A recent study on credit scores done by The Ascent shows that nearly 1 in 5 Americans are "credit invisible" or "credit unscorable". This means they either have no credit history with the main credit bureaus or there is insufficient information to generate a credit score.

Unfortunately, having no credit score makes your life harder in a number of ways.

Stressed-out bespectacled man looking at document.

1. It's difficult to buy a car

Without a credit score, it'll be hard to qualify for anything other than predatory auto loans with sky-high interest rates. Unless you can provide a cosigner or pay in cash, you'll end up paying a premium to buy a car. 

What's worse, because cars depreciate in value quickly, it's easy to end up upside down on an auto loan. If you take a loan with a high interest rate, you could wind up owing more money than the car is worth. If you were to wreck your car in this situation, your car insurance would only cover the current value of your car, meaning you'd be stuck paying back an auto loan for a car you can no longer use.

2. It's almost impossible to buy a house

Having no credit makes it nearly impossible to buy a house unless you can afford to make a huge down payment and pay astronomically high fees. At the very least, the process of getting approved for a home loan will be extremely lengthy and involve lots of additional documentation, as you don't have a credit score to prove to lenders that you can borrow responsibly.

These barriers make it much harder to invest in property, meaning folks with no credit score have limited access to one of the most popular methods of asset building and wealth generation.

3. You might struggle to cover emergency expenses

We all have to deal with unexpected expenses from time to time. While it's always best to have cash reserves on hand to cover them, sometimes it's not possible. People with good credit can access low-cost financing tools in these situations, such as low-interest loans and 0% APR offers on credit cards

People with no credit, on the other hand, will have to rely on secured credit cards or high-interest loans, which are extremely costly. They can even start your credit score off on the wrong foot -- high interest rates make it more likely that you'll miss a payment -- and with no other credit history, bad marks will be hard to combat. If you have no credit score, it's even more important that you build a generous emergency fund.

4. It can be harder to find a place to rent

Landlords usually run background checks on potential renters, and these often include a check on your credit history. Good credit shows you're likely to pay your rent on-time, while no credit provides no such proof. 

If you have no credit, a landlord might require a bigger deposit or a cosigner. In bigger cities with high demand for housing, they might not give you a chance at all.

5. You won't be able to get a better rate on student loan debt

College students tend to have no credit as they've either never borrowed money before, or they're just getting started with student loans. The problem with graduating from college with a slim credit file and student loan debt is you won't be able to qualify for the best student loan refinancing.

If you build your credit throughout college, you might be able to refinance your student loans soon after graduation. This can lead to a significantly lower interest rate, which often means lower monthly payments and less money spent on interest fees.

6. It'll be hard to qualify for a credit card

You might not need a credit card now. However, there are situations where they come in handy. For one, some businesses, such as hotels and rental car agencies, won't let you make a reservation without a credit card.

Credit cards can also offer lucrative travel and cash-back rewards, and they're even more generous when you've got excellent credit. With a high enough credit score, you can even travel for free with credit card points.

7. Your insurance rates might be higher

Credit history is a factor for some car insurance companies when deciding how much to charge you for an insurance policy. While bad marks such as overdue payments are worse than not having credit at all, many still consider a short credit history to be a negative.

If you have no credit, be sure to shop around for the best rates on car insurance. Some policy providers take credit scores into consideration more than others.

8. You might have to pay a security deposit on utility contracts

Utility companies typically run credit checks before offering you a contract. This includes companies offering electricity, water, gas, cable, internet, and phone service, so it's not something you can simply forgo.

If you have no credit, you'll likely be required to pay a security deposit before signing up for utilities.

9. You won't get the best deals on cell phone contracts

Most cell phone providers will check your credit before offering you a contract for a cell phone and/or cell phone service. While it's still possible to get a new cell phone with no credit, you might not be offered the best deals on new phones.

Many carriers will also require you to put down a deposit of a few hundred dollars on a cell phone contract if you don't have good credit.

How to build a credit history from scratch

One of the easiest -- and cheapest -- ways to consistently build credit is to use credit cards regularly and always pay them off. Secured credit cards are one way that people with no credit can gradually build up a payment history. They require you to put down a deposit, which is usually equal to your credit limit, and allow you to spend and make payments. The best secured credit cards have low or no security deposit requirements and no hidden fees. Just make sure to pay off your bill in full each month to avoid interest charges. 

There are now a number of credit cards that will approve you, even if you have no credit history at all. While there are many downsides to not having credit, the good news is that building credit has never been easier.

Topics: Credit Cards, 0% APR & Low Interest