Credit is a conversation killer. If you’re at a dinner party, you might as well bring up your curious rash, or your meditations on death, or how much you love a McDonald’s Filet­O-Fish sandwich on a Friday.

Bring up credit if you want to clear out the room. I know this from experience.

You may not give a crap about Fair Isaac Corporation (FICO) or how the stock market affects interest rates, but you’d better believe that credit can be a sexy, if stigmatized, subject. Why pay cash for airfare when you can get 50,000 frequent flyer miles by signing up for a new credit card? Why pay 5.75% in interest on a mortgage when you could pay 3.5% and save $100,000?

Good credit can save you money on things you were going to buy anyway, so it’s in your best interest (bad pun intended) to get a “prime” FICO score above 700 and reap these benefits:

  • Best bonus & introductory offers for credit cards
  • Lower interest rates on credit cards
  • Best mortgage rates and car loans
  • Better rates on car insurance
  • Higher credit limits
  • Utilities (seriously)
  • 0% financing on new cars from manufacturers
  • More positive impression on potential employers
  • More positive impression on potential landlord

Hopefully, I’ve got your attention now.

Credit Score Basics

The best analogy I’ve heard for credit scores is financial report cards for grownups. Your score is a three­digit grade, ranging from 300 to 850.

Potential lenders, banks, landlords, and insurance companies use this report card to gauge your creditworthiness. The higher your score, the more likely you are manage credit responsibly and pay back money you borrow—at least that’s the way creditors look at it. And for them, having no credit history is the same as having bad credit.

If you have a 550, your interest rate on a loan may be 3­4% higher than someone who scores over 750. Those 200 points translate into paying $100,000 more for a house with a 30­year mortgage. I’m sure you can dream up 100,000 things you’d rather do with the money than give it to a bank.

Maybe you’re fresh out of college, or just getting started in business. Maybe you have drunk the Dave Ramsey Kool­Aid, and you believe credit cards are from the devil.

Regardless, unless you can reasonably expect to pay for every car and property in cash, you’ll want good credit one day.

The challenge then is separating fact from fiction; real financial wisdom from marketing spin. That’s where most of us start beating our heads against the wall, and why it’s important to take baby steps.

Pay attention.

The first step toward raising your credit score is deceptively simple. Pay attention to it. You wouldn’t expect to improve your golf game without practicing, right? The same goes for credit smarts.

Maybe the ideal really is cutting up all your cards and paying for everything in cash. But in less­than­ideal circumstances—which exist 99% of the time—a high credit score is beneficial. It’s better to have a tool you never use than to not have it the one time you need it, right? Slowly build up your financial expertise through reading, research, and experience. Educate yourself. You can only measure what you pay attention to, and awareness precedes improvement.

Separate the facts from the myths.

There’s a lot of misinformation out there, so you may need to forget some things you thought you knew: Wealthy people don’t necessarily have better scores than poor people. Checking your credit report doesn’t hurt your score. Credit cards only hurt your score if you abuse them, and bad credit won’t hound you forever, particularly if you intervene now.

Raise your financial IQ.

I stole the phrase “financial IQ” from Robert Kiyosaki, who probably stole it from somebody else. The fact that you’re reading this blog post means you’re off to a good start. You’ve woken up from your credit stupid dream. You’re walking the path to credit- smart. You’re now going to take measures to improve your credit score. You refuse to let scare tactics and marketing hype lobotomize you.

After you finish these baby steps, check out Kiyosaki’s Increase Your Financial IQ and

Dave Ramsey’s The Total Money Makeover from your local library. Take notes. Begin developing your plan.

One thing you’ll notice: the financial “experts” often contradict one another, which just goes to show that no one has all the right answers for everyone.

Stay organized.

If you don’t already have a free Dropbox or Google Drive account, then sign up for one.

You can download the desktop app that automatically syncs with both of these web apps. Create a new “Personal Finance” and a subfolder named “Credit Records.” Save all relevant files to these new folders: tax returns, budget spreadsheets, passwords for all of your accounts. If you stay organized, you’ll find it easier to check in on your credit. And the more you check in, the more action you’ll take to improve your score.

Maintain accounts in your own name.

It’s time to set up at least three accounts under your own name. You may be a college student or a recent transplant to the U.S. You may be accustomed to using your partner’s or spouse’s accounts. Regardless, take the initiative to build your own credit history. Most financial products that require an application should work. Examples include credit cards and secured loans.

Learn the basics of credit.

Your credit report is a file that contains a list of your past and present accounts, records relating to how you managed them, and credit applications, both successful and unsuccessful.

Creditors report your payments and what you owe to three credit bureaus: TransUnionExperian, and Equifax. Entries typically stay in your report for 7 years, including those associated with closed accounts.

(You can get your credit report free once a year at

By contrast, your FICO credit score is a three­digit number. As I mentioned earlier, it serves as a snapshot or scorecard of your overall creditworthiness. FICO is the most widely used credit score in the United States. In fact, 90% of decisions relating to mortgages, credit cards, and loans incorporate your FICO score. Creditors report your account balances once a month, and FICO computers calculate it using algorithms.

Note: Your age, ethnicity, salary, assets, and place of residence don’t affect your score.

Lenders use your scores to assess your ability to use credit responsibly. If your creditors happen to report the day before you pay off your balances, your report will give the impression that you live off your credit cards.

For the purposes of maximizing your FICO score for travel hacking, keep your account credit utilization low: ideally, you want your balances at less than 30% of your available credit all the time.

Ensure your credit has a pulse.

Have an active mortgage, car loan, credit card or student loan. A good rule of thumb for proving creditworthiness is some activity on at least three tradelines every 12 months: a mortgage, car loan, credit card, or student loan.

Word to the wise: you don’t have to carry a balance to prove your ability to make on-time payments. Paying off your balances in full each week or month will still help you build your credit.

Track your credit score.

You can get your TransUnion and Equifax scores for free at If you have an American Express, Barclay, Discover, or Citibank credit card, you can also get your FICO score for free. Take a screenshot to document your baseline score and chart your improvement. Add this screenshot to your new Personal Finance folder on Dropbox or Google Drive. Let’s recap the baby steps:

  • Pay attention.
  • Separate the facts from the myths.
  • Raise your financial IQ.
  • Stay organized.
  • Learn the basics of credit.
  • Ensure that your credit has a pulse.
  • Maintain accounts in your own name.
  • Track your credit score.

This isn’t brain surgery. In fact, by following these steps and the better credit tips that will follow in future tips, you’ll probably achieve a better credit score than most brain surgeons.

By the way, if you learned something in this post, then you’ll love my Better Credit in 30 Days guide. The guide is delightfully free of financial jargon in it, and instead focuses on 64 tips and a step­by­step process for improving your credit.

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