Credit is still one of the great enigmas of personal finance. It’s virtually a requirement in today’s society, yet millions of people fail to understand their credit scores. In short, credit scores are designed to predict the likelihood that you will meet your financial obligations. The FICO credit score, which ranges from 300 to 850, is the dominate score used in America. Only around 18% of consumers have a score over 800. I’m one of them with a score of 831.
My journey to a near-perfect credit score starts in my teenage years. Shortly after I began driving, my father told me I needed to build credit. “This world runs on credit,” he explains, in his infinite-wisdom voice. I wasn’t quite sure what that meant at the time, but since he also informed me that I would be an authorized user on a gas credit card, I didn’t really think twice. The deal was simple: I maintain excellent grades in high school and stay out of trouble, and he finances my modest driving habits. We both keep our ends of the deal.
College offers lessons outside of the classroom if you pay close enough attention. While I still had access to the gas credit card, I desired a card of my own. Lucky for me, credit card companies just happen to visit campus more frequently than students. One day, when I was returning from class, I encountered a booth offering free pizza in exchange for simply filling out a credit card application — approval not necessary. I knew enough at that point in my financial life to make sure there was no annual fee and proceeded. I’m approved within ten minutes. I now understand how easy it is to obtain credit if you already have it.
I kept only those two credit cards throughout the rest of my college years, and never posted one late or missed payment. I obtained another card with better rewards about a year into my first “grown-up” job. Not once did I give much thought to interest rates when applying for cards because I never carried a balance — ever. I see credit cards as a plastic form of the cash sitting in my bank account. If the cash isn’t there, my cards are practically useless to me. This approach has yet to fail me.