You have two ways to start building credit. The first is through reporting your rent. Second, you’re going to use Prepaid credit cards.
There are a couple of websites that you can leverage and your rental payment, which will help you increase or create some type of credit history over time. The first one is Rental Kharma. The second one is RentReporters, and the third one is RentTrack.
For Prepaid credit cards, I’m going to keep it at a very high level in another post. It’s going to be all about credit cards. I’m going to do a breakdown for credit cards. For those who don’t have a credit history, those who need to increase their credit history, and those who already established credit history, a credit card works like a debit card.
There’s a third way for you to build your credit score. I didn’t include this here before because it hasn’t been implemented yet by the credit bureaus, but I believe it’s Experian or Equifax. They’re planning to leverage your cell phone bill as a way to help you either build credit or just continue to improve your credit history. Then what they are going to do about it is you simply provide a copy of your bank statement, and they will see how often and how punctual your phone bill payments are. Then they will consider that for you to build your credit score.
Building credit step by step
You’re going to apply for a credit card through a bank. You’re going to agree on a predetermined amount that you will deposit into the card right away. You can do as little as 300, whatever amount of money you’re comfortable.
Now, if you’re someone in between, meaning your credit is not too good, but not too awful, well, this is going to get interesting. What you’re going to do first is you will open up a personal loan. You can go to companies like Upstart, Upgrade, LendingTree, and so on. There is a lot more out there.
You’re going to take a look at your total amount of credit card debt that you have. You’re going to try to pay that off with this personal loan. You can do that in this way, or you can use some of your money in your 401k or your savings, but that defeats the purpose of what you’re trying to do. What you’re trying to do is just to put more and more cash aside so you can use that as a down payment for an investment property that you’re trying to buy or build up your portfolio. Try not to touch that cash and try to like recreate it someplace else.
In this case, you’re going to get a personal loan. Yes, I know the rates are going to be high, but hear me out. I have a solution. You’re going to take this, and whatever amount of money you’re going to take that and pay down your credit card debt. Now, we’re all clear. You have to wait roughly about a month, and that’s when the credit card company reports to the credit bureaus, and your credit score will be updated with the new incredible new score that you’re going to get by paying down the debt.
After that, you will go ahead and open 0% credit cards and replicate the same hack that I told you with that 0% credit card. You’re going to utilize Venmo services or Plastiq. You’re going to leverage each of these services, and you can go ahead and take money out. You will pay your rent using Plastiq and take some cash-out by sending it to your friends, family, siblings, and then giving you the money back. With that money, you can either push it aside or simply use that money and pay down the personal debt because the percentage is high.
It all depends on what you’re comfortable with. If you’re okay by having a loan, that’s at 20+ percent as long as you have that extra cash on the side to continue to expand your real estate portfolio. I chose to keep the debt on the personal loan, and I’m prepaying that slowly every month because I got the best side of the credit card. I paid out my credit cards when my credit score went up to 700 and something. I was able to get more and more credit cards, thanks to that.
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You might be wondering how taking out a personal loan benefits me other than paying my credit card debt down because I will be seen as someone who owns the money? That is true, but a personal loan falls into a different category. Without getting into the “nitty-gritties” and over complicating things, there are two types of debt. I’m sure you read that in rich dad, poor dad books.
There’s good and bad debt
What is bad debt? Credit cards, only if you don’t know how to manage them correctly. If you’re using it to leverage the money to continue increasing your portfolio, that’s great! Don’t use it to go out on a fancy dinner when you can be using that money for something else or buying that pair of expensive jeans.
Anything that is non-value add, be careful when you have the money, but not when you’re trying to build your portfolio. Credit cards tend to fall on the bad credit unless you know how to use it.
Then there’s good credit. What exactly is good credit? It’s anything that’s long-term. You have Mortgages, car loans, and personal loans. What makes this good credit, and what makes this insufficient? Well, this it’s revolving. You can open and then continue to pay down. Then you use it again. You pay that, and you use it also. You use it, you pay down, and it’s like a cycle that goes back and forth. It’s a never-ending cycle.
However, with mortgages, car loans, and personal loans, you have a beginning and an end. Usually, pay back your loan, and that’s the end of the story. You close at that; it’s not a revolving thing; it doesn’t act like a credit card. If you show how you can manage this correctly, then this becomes part of the good credit. They both equally impact your credit. It’s just a matter of how you learn to manage it.
Bad credit can become good credit if you manage to pay it down and keep it on the 20% rate utilization. How do you do that? One, paying it down, or just simply opening up new credit cards so that your credit line keeps growing, and growing, and growing, and your debt keeps looking smaller, and smaller, and smaller.
RESOURCES & LINKS MENTIONED IN THIS EPISODE:
– Rental Karma: https://rentalkharma.com/
– Rent Reporters: https://www.rentreporters.com/
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– Rent Track: https://renttrack.com/
– Capital One (prepaid card): http://bit.ly/prepaid-re (to build credit)
– Citi Diamond (prepaid card): http://bit.ly/prepaidciti-re (to build credit)
– Upgrade (personal loans): https://www.upgrade.com/
– Upstart (personal loans): https://www.upstart.com/
– Lending Tree (personal loans): https://www.lendingtree.com/
– Lending Club (personal loans): https://www.lendingclub.com/
– Rich Dad Poor Dad book: https://amzn.to/2LEnxEh
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