Money Rehab with Nicole Lapin - 5 Essential Credit Do's and Don'ts

Episode Date: April 21, 2022

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are you ready for some money rehab? And should I have a 401k? You don't do it? No, I never do it. You think the whole world revolves around you and your money. Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand.

Nicole Lappin. Happy, happy Financial Literacy Month. To celebrate, let's take another leap toward financial independence, shall we? If you're looking to make some progress on your road to financial freedom, there is no better place to start than with some good old credit hygiene. Here are five do's and don'ts of financially savvy people, aka money rehabbers. Money rehabbers, dot, dot, dot, don't cut up used credit cards. This might be a little surprising, but bear with me. Let's say you have some random gas cards or department store cards that you don't use anymore. A credit score misconception is that you should just cancel those cards if you want to improve your credit score. Wrong.

You want a record of being able to pay your credit card bills, not being a serial card opener and canceler. The best way to keep up steady payments that you can sustain is to put one regular bill, let's say it's a cable or utilities bill, on each card. Then set up bill auto pay on that credit card so that you're technically using your card but not really thinking much about it while you're racking up good payment points. Two, dispute any credit report errors. A credit report error could be an obvious one like your credit card was stolen and

you had a fraudulent $5,000 purchase on your card. Or it could be a little more subtle, like your credit score reflects that you had four recent credit checks, but one of those credit checks happened three years ago. Typically, a credit check will drop off your credit report after two years. So call the company that issued your credit report and dispute anything that doesn't feel quite right. Don't refuse a credit limit increase. Your debt load is a big contributor to your overall credit score. As a part of this evaluation, credit card companies also look at your utilization rate or how much of your total credit limit you've actually used.

Typically, anything below 30% is considered a good utilization rate. For example, for easy math, let's say your credit card has a credit limit of $1,000. You'll only want to put $300-ish or less on that credit card. If you add more, you'll start raising eyebrows with the credit score gods. I know a credit limit increase sounds like you're asking for trouble, but that's a common misconception. A credit limit increase can be a great thing. Looking back at that example, if your credit card limit is raised to $5,000 and you're still only putting $300 on that card, your utilization rate just dropped from a decent 30% to an excellent 6%. But here's where people get tripped up.

The key to reaping the benefit of a credit limit increase is to keep your spending the same. Just because you have an increased limit doesn't mean you should spend more. In fact, it means you should not spend more. That's the whole point. Keeping your spending low while having more available credit improves your utilization rate, which makes for very happy money rehabbers. Do negotiate the APR on your credit cards. I am so surprised by how few people know this, but the interest rate you pay on your credit card debt is negotiable. You can get your APR down by just calling your credit card company and talking yourself up. You can mention how long you've been a loyal customer, how often you've paid on time, how you keep your utilization score low. I mean, anything that makes your case. This can save you

hundreds, if not thousands of dollars on your credit card bills. Don't turn on overdraft protection. This may be my favorite credit card tip of them all. Many people think overdraft protection is a good thing. I mean, hello, protection is in the name. Why wouldn't we want that? But here's the thing. If you do trigger protection from your credit card company by overdrawing from your account, you get charged a fat fee from that card company. Sure, it's embarrassing to get your card declined when you're trying to pay $5 for coffee, but I'd take that embarrassment over a monstrous fee any day. I mean, a $30 fee on a $5 latte?

That just doesn't add up for me. And I love me some lattes. For today's tip, you can take it straight to the bank. If your credit report is your financial report card, then your credit score is your actual grade. And maybe your grades weren't all that important once you got out of school, but in the money world, your financial transcript is very important. If you're flunking your credit report, you'll pay a higher interest rate on your credit card. When you're buying a home, it's going to screw you on your mortgage rate and your closing costs. And it can be the deciding factor in whether you can get a mortgage at all.

And if you need to take out a loan for something important, banks will look at your credit score to approve you or not. So don't waste any time. Get into those good credit habits today. And when your future self is able to lock in that sweet, sweet low APR, you'll thank your past self for acing that credit report. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team, Michelle Lanz for her development work, Catherine Law for her production and writing magic,

and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.