How to Build Credit into Your Budget
If you have existing consumer debt (credit cards, car payments, HELOCs, personal loans, etc.), I strongly recommend becoming debt-free instead of following the advice in this article.
This article is intended to show how to build credit when you’re debt free and want to build up a credit score to take on a strategic debt, like a mortgage.
Quick steps:
Create a budget.
Add a line in your budget for the credit card you plan to use. Use only one card and set a strict dollar limit.
Once the month begins, only swipe your credit card for planned purchases.
Pay off the card immediately after each purchase, down to the cent.
Track each payment in your budget against the credit card line you created.
Never go over the limit you set, and never carry a balance into the next month.
Example:
Your take-home pay next month is $5,000.
You add a budget line: "Credit Card - $300."
In week 1, you spend $20.06 at happy hour. Pay off the $20.06 the same day.
In week 2, you spend $129.54 on groceries. Pay that $129.54 off immediately.
Repeat this until you’ve spent up to, but not beyond, your $300 credit card budget.
Use cash or debit for everything else.
Pro Tips about Credit Scores:
It’s not about how much in total you swipe. It’s about how much of your available credit you use. The lower, the better.
If your credit card limit is $2,000, plan ahead to use as little of that as possible. The more of that credit you use, the worse it looks on your credit report.
If you’re going to build credit, do it with a plan and strict limits. Stay in control.
Contact Justin for one-on-one tutoring or small group instruction.
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