How Gen Y Can Maintain a Healthy Credit Score

I recently wrote up a post about how your credit score can run your life – from getting a loan to landing a job.

Far too often I interview people who have some pretty horrendous scores, and I mean bad. Like, I didn’t even know credit scores could be that low kind of bad. Granted, during a recession when people lost their jobs and houses went into foreclosure at alarming rates it’s somewhat expected that credit will be affected, but a lot of the time I’m interviewing college grads who don’t have those kinds of financial issues, yet they still have horrendous credit.

Most of the college grads I’ve interviewed have never owned property, therefore foreclosure is not an issue. Most of them also haven’t had a job to get laid off from and live with mom and dad so it’s not like they had to make ends meet with a credit card. They’re also still within their grace period for student loans so that hasn’t affected them yet either. In fact, most of the time they just got themselves into credit trouble from buying way too much crap or not understanding how credit works.

So here it is laid out all nice simple for you – you’ve borrowed money that needs to be paid back. The longer you take to pay it back the more the interest will accumulate and the more will end up coming out of your pocket. This affects your credit score which then pretty much affects everything else in your financial life.

Got it? Okay.

So how do you keep your credit score healthy? Or, in many cases, how can you improve your credit score? Read on, friends.

Pay in full each and every month.

This is what I do because I was taught to be anal about my credit. I pay my balance in full each and every month. How do I know I’ll be able to pay it off? Because I know exactly what’s going on my cards (cell phone bill $100, life coaching certification tuition $600, transportation $100, charity of choice $25). As for other expenses that come month to month, I try to do pay those in cash or with a check unless I’m getting some sort of worthwhile incentive (triple miles anyone?)

Some of you may wonder why I put my bills on my credit cards instead of using check or cash. There are a few reasons for this. First, I’m building my credit. I’ve got an excellent credit score and I’d like to keep it that way. Second, I’m a fan of my airline miles so I rack them up by putting my monthly expenses on my card. And third, sometimes companies screw up your bill so I’d rather have it on credit where I can dispute it quickly rather than having a company mistakenly take too much money from my checking account.

Don’t spend money before you have it.

Credit cards are not free money. Quite the opposite, they’re actually expensive ass loans. That being said, it would not be very wise to spend money before you have it. Simply put, crap happens.

Maybe payroll got delayed. Maybe your client won’t send a check in time. Maybe a deal fell through so you won’t be getting that commission bonus you were banking on.

Or…

Other unexpected expenses come up. Maybe your car breaks down. Maybe you have to go to the doctor. Maybe those damn traffic cameras caught you doing something stupid and now you have to pay a ticket. All of these cases can cost a pretty penny and take money away from paying your debt.

In all cases of the above cases it would suck if you racked up your credit because you thought you had money coming in or you didn’t expect to have so much money going out.

What if you already have shaky credit?

“But Amanda,” you say, “I already racked up my credit. What do I do then?”

I’m glad you asked. Here a few ways you can start paying down that debt:

Stop putting stuff on credit - You clearly already have an issue so let’s not exacerbate it.

Find ways to make extra money – Side hustling will allow you to put more money toward paying down your debt. Whether you find a part time job, take on freelancing or decide to babysit, try to find ways to make extra money.

Pay more than the minimum balance – You’ll never get anywhere by only paying the minimum. Try doubling it. Better yet, make it triple.

Make the necessary sacrifices – Take a look at your expenses and see what you can cut. A little bit here and there can go a long way. Start brown bagging your lunch, give up cable TV and cut down on the Starbucks.

Use ImpulseSave – ImpulseSave is a neat way to get you in the habit of saving money. Several people have dedicated their ImpulseSave accounts to saving up money to pay off their debt.

Make Bi-Weekly Payments – This is a great tip from Carrie over at Careful Cents. In fact, her explanation is so good I’ll just let her take it away:

Submit half the payments to your lender every two weeks instead of the regular monthly payment. This will accomplish three things

1. Less interest will accumulate, because your payments will be applied more often.

2. You will pay an extra payment, because there are 52 weeks in a year, which equals 26 yearly payments (or one extra).

3. Doing this for the duration of the loan could shave off several months.

Make sure to discuss this with your lender before making bi-weekly payments, because you might be penalized for any extra payments or paying off the loan balance early.