Category: CREDIT BLOG

One of the most frequently asked questions about credit is this:
Can I raise my credit score by paying off my debt?
The short answer is yes, but there’s a big caveat: You must keep your credit cards active.
Two of the factors that the credit-scoring bureaus consider when assigning credit scores are:

1. Your balance-to-limit ratio.
2. Whether your accounts are active.

Let me start with your balance-to-limit ratio. Credit-scoring bureaus award higher scores to people who have credit card balances that are no more than 30 percent of their overall limit. If your limit is $10,000, for instance, your balance should never exceed $3,000.
One of my first strategies for helping a person build a 720 credit score is to lower each credit card balance to no more than 30 percent of the credit card’s limit.
That 30 percent target is the minimum you should aim for. If you can pay your credit cards entirely, great! Your score will be higher.
Important: Many people think that if they pay their credit card balances in full each month, they don’t have to worry about having a high balance the rest of the month. This is a common misconception.
From a credit-scoring perspective, bureaus look at your credit-card balances as a snap shot in time, which means that if you have a credit card with a $2,500 limit and a $2,000 balance on the day your credit report is pulled, your score will be lower … even if you just sent in a check for $2,000 that simply has not cleared the bank.
That is why in my Webinar, I teach people to never charge more than 30 percent of their credit card balance. And the closer they can keep their balance to $0, the better!
This brings me to my second point.
You must keep your credit cards active. When I give my webinar, I explain to people learning how to build credit that they must use their credit cards. Otherwise, the credit-scoring bureaus have no way of telling whether you are a responsible borrower.
Consider it like this: Let’s say you own an airplane. Owning an airplane isn’t enough to be granted a pilot’s license. You must first demonstrate your ability to take off and land, you must have hours of flight practice under your belt, and you must hold the proper certification.
Likewise, owning credit cards is not enough to demonstrate that you know how to use them. And because credit-scoring bureaus consider the most recent activity to be the most important, you must use them regularly.
So how do you keep a low balance on your credit cards while still keeping them active?
Simple. Let’s say you have four major credit cards that you want to pay off but keep active. (Ideally, you should have between three and five major revolving credit cards.) Here is a plan that shows you how to raise your credit score by paying off your debt.
1. Identify four bills that have a set monthly payment. For instance, your gym membership, magazine subscription dues, car insurance, and health insurance bills are probably the same amount each month.
2. For each of your four credit cards, schedule an auto pay of one of these bills.
3. Then, create an auto payment from your checking account to each credit card company. This auto payment should occur two days after your credit cards are charged for the bills. Let’s say, for instance, that you create auto payments for your Visa, MasterCard, American Express, and Discover cards to pay your gym membership, magazine dues, car insurance, and health insurance bills (respectively), on the 5^th of the month. You would then create another level of auto payments so that your checking account pays your credit card balances two days later.
This way, you will never pay interest, keep your credit cards active, and keep your credit cards paid off.
So what about other debt, like loans? Here’s a tip on how to build credit by getting small loans:
Let’s pretend you are going to buy some new furniture. Assume that you have enough money to buy the furniture outright; however, you would like to build your credit.
If the bank will report the loan as an “Installment Loan” to all three credit bureaus, it’s a great idea to finance part of the purchase. Then, pay the bills for three months before paying the remaining balance in full.
Let’s assume you finance $5,000 and pay 10 percent as an interest rate. Your monthly payments are $41.66, and you pay these for three months before paying the balance in full. During these three months, you pay only a little bit in interest, but you have a new item on your credit report that appears as “Paid in Full” and “In Good Standing.”
If you have any other questions about credit, be sure to post them below.
Make it a great day,
Philip Tirone

Sometimes, people wonder whether I really read all the comments on my blog.
I do …
… even when I just got back from a nine-day vacation with my wife and kids.
You see, I just got back from the Bahamas. Technically, I’m “out of the office” until Monday, so my beautiful wife, Lily Tirone, is going to shoot me if I spend too much time writing this. But just to prove to you that I do read every single comment, I wanted to respond really quickly to one of them from last week’s email and blog…
One of my readers asked why I didn’t take a simpler vacation with all the kids instead of buying all those plane tickets and hauling my brood through security. True, we could have driven just 20 minutes and had a nice family vacation. I could have saved the money on airfare and taken my wife to the Bahamas another time.
But here’s the thing…
If I took the kids on a trip down the road, I would have ended up working a ton more than I worked. It wouldn’t have been enough of a change in scenery to cause me to make the psychological shift necessary to focus 100 percent on my family.
Because I was a very long way away from home, I felt separated from all the distractions. In fact, I didn’t checked in with my staff while I was in the Bahamas. Lily, the kids, and I enjoyed our time together, and I made sure that my time was protected so that I could spend it with the people who matter most.
I’ve found that in reaching a goal, it is critical to create an environment that allows a psychological shift to occur. This is true with the delicate balancing act of family and work. It’s also true when it comes to getting your finances in order.
If you are struggling with debt, credit, or other financial problems, ask yourself how you can change your physical environment so that you are more likely to create the psychological shift necessary to fulfill your financial goals.
Maybe that means logging your purchases and reviewing your budget monthly. Maybe it means dedicating 10 minutes a day to reading books about financial management. Maybe it means joining Debtors Anonymous.
And be sure to share your ideas below! I promise to read them all!

If you want to learn how to build credit and raise your credit score, you simply must pull it.
I’m talking about your credit report.
I tell my clients that they must review their credit report at least once every six months, and, depending on how low their credit score is, perhaps even quarterly.
In Step Five of my book, 7 Steps to a 720 Credit Score, I explain that almost 80 percent of people have errors on their credit report, and 25 percent of these are severe enough to cause a person to lose a loan or a job opportunity.
So what do you do if you spot an error?
First and foremost, if you think you are a victim of identity theft, call the three credit bureaus right away to put a freeze on your credit account. This way, no one else can open credit in your name.
If the mistake doesn’t seem to indicate that you are a victim of identity theft, you can start by filing an online dispute at each of the three credit bureaus. Following are links:

• TransUnion
• Equifax
• Experian

As well, contact the credit card company or the bank in question. If they are reporting incorrect information, you can get the ball rolling by asking them to investigate the mistake.
One of the most common (and dangerous) mistakes you will find is an inaccurate credit limit.
So why does an inaccurate credit limit hurt your credit score?
The credit-scoring agencies give higher credit scores to people with lower utilization rates (your credit card balance as a percentage of your limit.) If your limit is, for instance, $2,000, and your balance is $600, you have a utilization rate of 30 percent.
This is a good utilization rate, and it should help your credit score.
But if your credit card company is reporting your limit as $1,000 instead of $2,000, your utilization rate will appear to be 60 percent (a $600 balance on a $1,000 limit). This is a bad utilization rate, and it will cause your score to drop.
So if you want to build your credit score, start by filing a dispute with all three credit bureaus. At the same time, place a call or send a letter to your credit card company demanding that they report your correct limit.
Then, be sure to pull your credit report again to make sure that the mistake has been corrected.
Oh, and one more credit repair tip: Your credit score will never be damaged if you pull your own credit report. Though inquiries into your credit score by lenders will cause a dent in your score, pulling your own credit report is considered responsible behavior. So do it freely!
Have any questions? Need a credit repair tip that will help you build a 720 credit score? Be sure to leave a comment below.

Would I rather be glad I bought the latest iPhone, or be glad I saved money for a vacation so that I can relax with my amazing wife Lily Tirone?

That’s the question I posed last week, when I suggested that you ask yourself a simple question before making a spending decision …
At the end of my life, would I rather have this or that? (If you missed this post, you can read it here.)
This is Part 2 … a follow up on last week’s post. I wrote it on Tuesday because a lot of people pointed something out …
This question can be applied more broadly and expanded beyond the topic of finances. It can be asked to guide the choices we make and determine whether these choices are in line with our life values.
This week, something came up that hit home for me …
My wife (Lily Tirone) and I are taking our kids to the Bahamas.
I want you to have a little taste of what my family looks like, so I’ve posted a picture below. My oldest, Ava, is five. Dominic is almost four, and Luke is about two and a half.

At any rate, this is a really special vacation because it is probably the last time the Tirone family will take a vacation together … just the five of us.
See, Lily is about three months pregnant, so in six months, Baby #4 will be here, and the Tirones will be a family of six!
Now, if you are a parent, you can probably imagine what it’s like getting the Tirone family through the airport. Lily and I have three car seats, a triple stroller, bags of baby gear, books for the kids to read, toys … the list goes on and on.
Lily and I basically look like pack mules, and no one ever wants to be behind us in the security line. Frankly, it’s kind of a nightmare.
It’s really tough traveling with three young kids, and both Lily and I have had thoughts of not going … it would be a lot more convenient to just stay home.
But if we stayed home, I’d inevitably end up working. I know I would. In the Bahamas, I’ll turn off my cell phone. I won’t check my email. I’ll tell my staff to call the hotel room only if someone is bleeding.
The Tirone family of five will be able to spend some really special quality together-time.
And at the end of my life, I’m going to say, “I’m sure glad I spent that time with my kids and with Lily. I’m glad Lily and I hauled my unruly young kids through security line and suffered the headaches.”
If we decided to skip the vacation, I’m positive that I would never look back and say, “Boy, I sure wish I hadn’t gone on vacation with my family and had stayed home and worked instead.”
Every single time we take a vacation together, our family grows closer and closer.
In fact, when I come back, I’ll tell you what I learned on this trip!
For now, I just want to encourage you to remember to make choices — financial or otherwise — that reflect what you want long-term. These choices might be inconvenient in the short-term, but if they honor your life values, you won’t look back and regret them!
If you have any thoughts about this, or if you want to share your stories, be sure to post a comment below!
– Philip Tirone

Most people approach marriage and credit with a one-for-all, all-for-one attitude. They open joint credit cards, apply for car loans as a couple, and stop building separate credit histories. After all, they have joined their lives together; why not marry their credit histories?
Though the sentiment is appealing, keeping some credit accounts separate has big advantages. Holding credit jointly puts a couple at even greater risk during times of financial crisis. Here are two common credit pitfalls of marriage.
Pitfall #1: Joint Credit Cards and Automobile Loans
Let’s imagine what would happen in a typical household by considering Jack and Jill, a married couple with joint credit cards and joint automobile loans.
Jack lost his job, so the couple is trying to make ends meet. After a couple of months, they start realizing that they cannot afford all of their bills. So they stop making payments on several credit cards and on one of the two car loans. The credit card bills are sent to collections and the car is repossessed.
And both Jack and Jills’ credit scores are in the trash.
Now let’s see how the same situation would play out with Peter and Paula, a married couple with separate credit cards and automobile loans.
When Peter loses his job, the couple creates a strategic plan about their forthcoming financial problems.
Peter and Paula know they can only afford to pay all their bills for three months; the money will run out after that. Peter searches high and low for a job, but is unsuccessful. After three months have passed, the couple decides to stop paying credit cards and car loans in Peter’s name. They stay current only on bills in Paula’s name.
Of course, Peter’s credit score suffers. But Paula’s remains pristine. This means that Paula is able to apply for loans in her name, while Peter learns how to rebuild credit.
Opening all loans jointly is among the biggest credit-scoring mistakes a married person can make. Let’s take a look at another one.
Pitfall #2: Holding All Credit in One Spouse’s Name
Opening all credit cards and loans in one spouse’s name is another big no-no for married couples.
This usually happens when one spouse works a nine-to-five job and the other stays home with the kids. The spouse with the paycheck opens all credit in his or her name.
But what happens if something happens to the working spouse? A bankruptcy, death, loss of income, or divorce would make the other spouse vulnerable. Because no credit is the same as bad credit, the stay-at-home spouse would have no ability to secure a loan.
There’s another problem with this strategy. Let’s switch this scenario up a bit and imagine that both spouses work. The wife has a part-time job with a small salary, so all of the credit is in the husband’s name. The couple decides to buy a home. To qualify for a loan, they need both spouses’ income.
The couple now has a big problem: The wife has no credit history, so her score is low. Putting her name on the home loan would endanger the loan. And the husband cannot qualify for the loan on his own—he needs his wife’s income for that extra boost.
Most likely, the couple would not qualify for the loan. At a minimum, the couple would pay a higher interest rate.
This pitfall can be avoided if both spouses build their own credit scores.