Jon Bear's Financial Focus for May: Getting a Credit Card and Improving your Credit

Getting a credit card is not always an easy decision with the number of cards available out there and the variety of benefits they offer versus the interest rates all relative to your credit score.  I think one of the first big steps in deciding what kind of credit card you want to get is having a good sense for what your credit score is.

Recently I used both credit karma and freecredit.com to get a sense for where I stood in my credit rating.  The sooner you know where you stand in regards to your credit score the easier it will be for you to continue to monitor your credit and do you best to either improve it or keep it in good standing.  Especially when we are young and most of us have parents who take care of the majority of our financial needs, issues like budgeting and concerns about our credit history generally get ignored or pushed to the back of our minds.  It's important to understand though in young adulthood the critical steps and missteps that you can take which may effect your credit.

Speaking from personal experience I have had trouble with my credit in the past frankly because I didn't consider how important it was or how it might effect me in the future in regards to loans or getting a new credit card.  Ultimately I was somewhat carefree and didn't often consider the effects of a late payment.

I have used the helpful hints and tools at creditcardinsider.com to learn more about building or in my case re-building my credit through credit cards.  One of the interesting things that I did not know and discovered on the site was how you credit score takes a slight negative hit when you apply for a new credit card, especially if you have what are called a lot of hard inquiries.   I have applied for a new card and must wait to see if I am approved or not.  So as a result I have a hard inquiry on my record now.  Seeing as I have not applied for any cards in several years though I do not have any other hard inquiries on my record.  If you apply for a lot of cards or multiple cards in a short period of time then it can negatively effect your credit rating.  It was also interesting to learn that your credit is not effected if you get rejected.

One of the things that was a little bit confusing for me from a personal perspective was finding out that my credit rating is different according to the different sites that I checked my credit on.  My Experian score was considered Fair while my Equifax score and another score were considered poor though they were just below the Fair category.  Equifax is a company that gives out loans or a lender.  I am not yet sure how this differs from something like your FICO score, but I am still learning as I try to get better at this.  The fact that I am in the poor to fair category as far as my credit though is going to make it more difficult for me to get a approved for a new credit card.  Using the information at credit card insider's best credit card's page I tried to do my best to apply for a card that I might have a chance to get approved for.  There is a little big of a humility hit that I take for revealing all this, but hey, if I can't be honest with you all when discussing this then how can I be honest with myself about it and take the necessary steps to improve it?

Things that worked against me in my past were 4 reported instances of late payments on student loans, though the last time I have a record of any late payments is over 4 years ago.  So bad credit decisions stick with your score and you really have to work to try and improve it once you've taken a hit.  When I was late on those payments at the time I never thought much of it because I figured, "hey, I payed them, they got there money".  And while that is essentially true, when you get reported for not making that payment on time it stays on your history report.  The more late payments the more risk you are taking with your credit. 

Also back in 2006 I had a lean against my paycheck for failure to fully pay my tax debt.  It was definitely not something I consciously did, but I was careless and when I had my taxes done I did not realize at the time that I had to mail in my state taxes, even though my federal taxes were transmitted and payed for at H & R Block, where I had gone to get my taxes done.  I never paid close attention back then to what I got in the mail and probably missed warnings that my paycheck would have a lean put on it, but I did not even notice until the point when the money was being taken out.  The sad thing is it was only a couple of hundred dollars and while it did not really effect my paycheck at the time too much it certainly effected and hurt my credit.  I have never made the same mistake since, but sometimes an old mistake hurts, and that is especially true with your credit.  I have to "hope" now that the fact that it was a decade ago will not hurt me "as much" as if it were a year or two ago. 

So while I have these issues in my past that I am not proud of and now have worry might keep me from getting the card I recently applied for (I should know in about a week or so if I get approved) I do have the slight plus of having 0 credit debt.  My total debt, still remaining from my two student loans is around 29,000.00.  So I have a ways to go with it, but for several years now I have been making all my payments regularly and on time.  I have to make sure to keep that up though. 

While I know this is a rather lengthy and personal post I hope that in sharing it that some of our readers might learn from me and use some of the tools that I am trying to use now to either avoid getting in my situation or worse; or help them see that there is a light at the end of the tunnel.  There is a way to try and change your credit history for the better.  The only reason something is impossible is if you refuse to take the first step.  I am hoping that my credit journey will be a testament to the ability to build and improve your credit.  My credit goal is to do everything I can to build my poor and fair credit scores to good credit scores.  Optimally I would have an excellent credit score, but right now I want what is hopefully a more realistic goal moving forward.