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Consider this your disclosure, I am not a certified accountant, financial advisor, or anything of the sort. This is my personal experience and I am sharing it with you in hopes that something I say connects with you and lights whatever spark is needed for you to make positive changes in your own life.
Why is a board game blog talking about credit building? My focus is to use board gaming as way to promote positive mental health, and one of the 8 Dimensions of Wellness categories is financial wellness. This was something that I had neglected and in the last year and a half or so I started to look at my credit score, like most other things in my life, as a game for me to learn, master, and win.
Fair Isaac Corporation (FICO) was founded in 1956 by engineer William Fair and mathematician Earl Isaac. Now, 66 years later, all of us in the United States have a FICO score that tells potential credit lenders if we are trustworthy enough for a personal loan, credit card, car loan, home loan, etc. The irony of individual citizens being assigned a numerical score of credit worthiness in a country with a national debt of $30.6 trillion is not lost on me, but this is the system in place and that determines how well I can provide for my family so in January 2021 I decided to approach it as a board game.
Imagine that I’m teaching you a new board game and I tell you that you can do A-B-C-D-E to score victory points. That may seem like a lot of options for a game you’ve never played before.
What path should you take? What do you focus on? What will get you the best reward for effort? I feel like a lot of people, including myself, saw their credit scores this way; confused on how or why it is what it is.
Now imagine if I tell you success in A determines 35% of your score, success in B determines 30% of your score, success in C determines 15% of your score, and then success in D and E will determine 10% of your score each. What are you going to focus your time and energy on now?
There are many factors that play into your score, but the rough breakdown is as follows; 35% of your score is determined by your payment history, 30% of your score is determined by your credit utilization, 15% of your score is determined by your length of credit history, 10% of your score is determined by the number of accounts, and 10% of your score is determined by the types of credit you have.
Before I could fix my credit, I needed to know what was wrong with it. The Fair and Accurate Transactions Act allows consumers to request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies (Equifax, Experian and TransUnion). You can obtain your free copy at www.AnnualCreditReport.com.
With this knowledge now in hand, I came up with my strategy and began to execute the plan. The first thing I did was pay off everything that that I could that was in collections. When I had pulled my free credit report, I discovered several $30 co-pays from nearly five years ago that was in collections that I was unaware of. I had some larger debts as well in collections, one over $5k, one at about $2k from school, and then some more medical debt ranging from $200 to $600. However, the $5k was from 2011 and the report noted that it was scheduled to come off my report in a few months, so I ignored it. If the rules of the game were that it was going to be falling off my report in a few months, I wasn’t going to worry about it. I also want to be very clear on this, I completely understand and acknowledge that I was fortunate enough to be in a position to have income to apply to older debts and that not everyone is in the same position. This also didn’t happen all at once, I spent several months focusing on making payments to eliminate these debts.
The next thing I began to do was to apply for a credit card. I had not had a credit card in nearly a decade. I needed to begin establishing payment history other than my car payment and house payment. I was approved for one and began to use it, making sure I never used more than 10% of the available credit. I set my payments for Netflix, Hulu, and other subscription services to this card and set up auto pay for the credit card itself. The credit card was never in my wallet so I wasn’t tempted to use it for anything else.
I also discovered SELF and signed up for it. This allowed me to select an amount to pay per month and allowed me to select the duration. They set up a certificate of deposit (CD) for that amount. I make payments each month towards that, and at the end of the duration I get the CD. Each month, that payment made is reflected on my credit report. After three months of payments, I received a SELF credit card with the max being the amount I had contributed so far. I began using that card, again keeping it below 10% of the max, which added to my payment history. The more I paid into my SELF account, the higher the limit on my SELF credit card went. As my credit score began to improve, the limit on original credit card began to be automatically increased as well. This increase made my debt to available credit improve, which in turn increased my credit score more. See the game yet? That’s engine building if I’ve ever seen it.
With just focusing on payment history (35%) and credit utilization (30%), I managed to increase my credit score 100 points in less than a year. I am now in the “very good” category and am beginning to work on the other categories of number of accounts (10%) and types of accounts (10%). The length of credit history (15%) is controlled by time and can’t be manipulated, other than your choice of starting now. So what are waiting for? Get the Game of Credit off of your “shelf of shame” and begin to play it.