The best gift I received for my 40th birthday this year was a total surprise: I was finally approved for a credit card after 15 years of living without one.
If you think there’s a backstory there, you’re right. Coming from a working-class background meant I didn’t have much money to start with. As a grad student, I survived on student loans and a paltry stipend. My financial situation was compounded by the deleterious effects of childhood sexual abuse and debilitating depression.
I eventually dropped out of grad school and took a job in a doggie day care. It paid minimum wage, and I’d spend parts of my work day crying, surrounded only by dogs. I robotically placed each bill that arrived in the trash. I felt so utterly hopeless that tending to my bills was more than I could manage. It took every bit of my strength to simply survive.
Over a period of years, with the help of therapy and medication, I slowly began to improve and become functional again. But by that point, the damage to my credit was done. My student loans were in default, and my credit card had gone into collections. I started the long, arduous process of rebuilding my credit.
So, when I was approved for a legit, unsecured credit card, I was thrilled. But I was also utterly terrified to use it. It represented a long and hard struggle to not only get my head above water, but to begin to actually get ahead financially.
Good credit, which I lacked for so long, has many benefits that help people achieve success and financial security. But considering the fact that the average amount of credit card debt among households that carry a balance is a staggering $16,048, using my new card felt tenuous and fraught with risk. I wanted to benefit from its advantages, but I didn’t want to make any mistakes that would hinder my progress. Here’s what I did to rebuild my credit, one month at a time.
Operate From a Place of Need, Not Want
It can be tempting to use your credit card to treat yourself and your loved ones to things you want, especially if, like me, you have been living with zero financial wiggle room for a long time.
I definitely wrestled with this initially because my credit card suddenly made it possible for me to make big purchases. Having money at my disposal was a powerful, heady feeling I wasn’t used to after living from paycheck to paycheck. But I learned that in order to successfully use credit, I had to approach it very conservatively
Always Pay Your Balance in Full
Paying your balance off in full not only shows creditors that you pay your debts in a timely fashion, but it keeps you from paying interest. If you make only the minimum payment each month, you’re barely paying off last month’s interest. You’re not making a dent into what you actually owe.
Plus, if you’re still using the card while making only minimum payments, the amount you owe will only grow each month. One expert calls it the debt treadmill — and I can’t say I disagree.
If you aren’t able to pay off your credit card in full each month, ask yourself if that new item you’re thinking about charging is worth the sticker price, plus the interest you’ll pay on top of it.
If You Carry a Balance, Always Pay More Than the Minimum
Accidents and emergencies happen; they’re part of life. If you find yourself needing to rely on your credit card for a costly, unexpected expense that you can’t pay off in 30 days, then at the very least, pay more than the minimum payment each month until it’s paid off.
A good rule of thumb? Aim to pay at least twice as much as the minimum payment. This will drastically reduce the amount of time you spend paying off your balance.
Ultimately, it’s best to avoid using your credit card for emergencies. Instead, have a cash emergency fund in place. That extra financial cushion can keep you out of credit card debt if a critical situation arises.
Be Wary of Benefits-Based Cards and Store Cards
Once you begin successfully using and paying off your credit card, expect more offers of credit to come your way. I’ve certainly seen my mailbox padded with them. With their tempting points systems, store cards make it seem like they will save you money. But the reality is often the opposite.
Recently, I was nearly seduced into an Ulta store card. The bonus points seemed magical, and visions of lovely new nail polishes and eye shadows danced in my head. But I checked the fine print and discovered the interest rate was 26.24 percent!
Needless to say, I didn’t apply. I was also reminded that I don’t need points. They will only entice me to shop from want, not need, and to live outside my means.
I’m proud to say that I have limited my credit card spending to only what I need and that I can afford to pay my balance in full each month. My credit score keeps improving, and I continue to be inundated with offers of credit. But I’m not falling for those old tricks anymore.