Use it or lose it; my personal take on this idiom:
stretch it and grow it.
First of all, divide your credit history into “need it” vs. “don’t need it” phases.
When you “need your credit,”
you want your absolute highest credit score, lowest revolving balance (IE credit card debt) to credit limit RATIO (total combined credit limit of all your consumer cards/accounts), and the fewest hard inquiries, and NO negative information.
In other words, you polish your credit 3-6 months PRIOR to major financial moves requiring you to leverage your credit- worthiness, so that you may present a sparkly snapshot to lenders and get the best deals (interest rate, terms, etc.) on car loans, student loan refi, mortgage, and home refi etc. *Funny thing is, the feds/dept of education seemed to be the only lender that care very little about a debtor’s credit score when it comes to showering students with high interest monopoly bills. The government, having the ability to make laws, also made fed student loan the ONLY debt that doesn’t go away in bankruptcy. Since feds know it WILL get you, it cares little of HOW it will get you to pay the principle and much more back!
When you “don’t need your credit,”
you get to experiment a bit… This is where each individual develops their own comfort level with “stretching” their credit.
I began with gentle credit exercise in 2007, when I also started to actively manage my debt. (Remember that high interest car loan I rushed to pay off 5 years in advance?) Progressively, I have gotten bolder and enjoyed great success. Fortune favors the brave. IE I have built a very large combined credit limit, the largest of people I know, even including those with 5x-20x more income than mine.
When I say “stretch” my credit, this doesn’t mean I keep adding to my total credit card debt. I dodge interest and shun debt. Instead of stretching my credit cards across the board (parallel stretching), I stretch my cards SERIALLY. I max out 1-2 cards, pay them off entirely when the 0% interest runs out, then I stretch the next lucky card(s) that literally “fall into my lap” from the endless credit offers I receive on weekly basis.
As I stretch my credit cards serially, the highest effective* interest I’ve ever paid was 2%, nearly 0% adjusted for inflation (2014 average monthly inflation rate came out to be 1.62%.)
More than 95% of the time, the only effective* interest I accept is 0%. Each credit card hoped I would keep my balance there after their bait 0% runs out, yet no one ever catches me after the 0% ends. After I have come and gone, carried and paid off my large balances; credit card companies renew their effort to trap me with the next sweet offer.
I call this a win-win situation. I give creditors hope because I use credit A LOT and have a track record of credit-worthiness (IE. a flawless debtor profile of paying everything off.) In return, they tirelessly and eagerly offer me good deals, which I graciously accept to reduce my high interest debt and grow my assets with moderate return (IE vanguard index, etc.)
So in short, figure out when you “don’t need” your credit, and experiment a little, apply to few or several credit cards at once, enjoy the sweet bonus cash back, 0% interest, and have a plan to pay everything off when the sweetness ends.
Stretch it and grow it!
When you need your credit next, you will find it in better shape to get you better deals!
- What is your credit limit now?
- What is your income to credit limit ratio?
- What kind of credit card offers do you get?
- Which credit card offers did you take advantage of? How well did it work out for you?
- How many credit cards/ car loans/mortgages do you carry?
- How many new credit cards are you comfortable with opening at once during your experimental phase?
- Questions for me? Comment below!