Eric Frazier’s Top 13 Recommendations to build and Establish Credit

There are no quick fixes.  Just best practices that will pay off over time.

There are no quick fixes for building wealth and establishing great credit.  Just best practices will pay off over time. There is also a right and wrong way to do it.  The good news is that you can do it.  The following are my top 13 recommendations and rules to live by that will help you build wealth, establish and maintain excellent credit:

  1. Credit is a gift.  No one is required to give it to you, especially if you do not meet the credit grantor’s requirements.  It is a privilege to have credit, and it reflects your character. It can also affect your employment opportunities and your ability to finance major purchases, so it is essential to achieve excellent credit.
  2. Credit is a convenience for cash and is not cash.  It has always been a convenience for money except for large purchases.   Therefore, it is never okay to carry a balance and pay interest for anything that you could pay in cash.  Economically it makes no sense to finance consumer goods because you end up paying more for what you are purchasing.  Credit can be necessary for large purchases like homes.    Do not use credit to buy a car.  Do not use credit to finance vacations, trips, clothes, shoes, or any consumer goods.
  3. You need credit because you do not have the cash, for only two reasons: 
    • To act as your emergency fund until you have saved 12 months of income for emergencies. 
    • To buy a home or investment property and for emergency property-related expenses that may occur.   Some will argue that you do not need credit to buy a home.  Paying cash for a home may be possible in some areas in the United States, but if you live in any coastal state, you will need financing to purchase the property.
  4. You only need two to three credit cards, and this applies to everyone. Whether you are 18 to 75 years old or more, if you are building or maintaining the credit or have already established credit, you only need two credit cards.  If you want a higher credit limit, contact the creditor, ask for it, get a better card, and stop using the ones you have. If you obtain more than two cards, you may forget to pay the debt.  You may incur more liability than you should by having more than two credit cards, especially if you lack self-control when it comes to spending. You are setting yourself up for failure.  
  5. Your Rent is Credit.  Do not obtain credit cards to build credit when you already have at least two credit cards.  The rent you pay is credit.   The newest FICO scoring model, FICO 9, includes rent payments as one of the factors that influence your score.  Transunion will report your timely rent payments on their report.  The second type of score is your  Vantage Score for consumers, which was developed by the top three credit bureaus- TransUnion, Experian, and Equifax. The scoring model for Vantage Score factors in rent reporting to its score. If you’re working with a lender that is considering your Vantage Score (which will be on your TransUnion report), then rent reporting can be a fast fix to improving your score without incurring debt. 
  6. Your mobile phone and utilities are credit and can report to the credit bureaus.  All three credit bureaus have programs like this to boost your credit score.  You can receive credit for your phone and utility bills through a program that uses alternative credit to add your positive payment histories to your credit file.  The impact of technology on credit reporting has made establishing alternative credit must easier for all lenders.  In the past, we would need canceled checks or a transaction history from the Utility Company to verify 12 months as agreed payment history, and canceled checks from your landlord.   By using programs like this, you do not incur debt to build credit, which should be your number one goal. All debt is bad debt.  Check out Experian’s program by clicking here.   Fair Isaac Corporation develops FICO® scores. The FICO Score provided by Experian Consumer Services (“ECS”), is based on FICO Score 8, which no mortgage bank, that I am aware of, uses to originate first mortgage loans.   There are nine different FICO models and three credit agencies with consumer-based credit scoring models to help you build and maintain good credit.  Most Mortgage Companies use FICO Model 5 and the middle score of all three major bureaus to determine your credit risk.  To obtain a mortgage loan, currently, your FICO should be 620 or higher depending on the mortgage program.  If you need down payment assistance, the FICO Score requirement may be as high as 680 to 720.
  7. Do not obtain any department store credit cards or auto loans to establish credit.  Their rates are extremely high, and you do not need them to establish credit.  If you cannot pay cash for clothes or sundry items at a department store, you cannot afford them.  If you cannot pay cash for a vehicle, then you cannot afford the car.   Buy use cars and pay cash.    A Visa or Master card is all you need.  The next card you should acquire when you hit the two-year mark of a good credit track record is an American Express Card at zero interest that you can pay off monthly.   Why?  See number 2.   Here are a few options to build credit without incurring debt:

    Free services to establish credit:
    • Esusu: A mobile app that also helps you borrow money from peers, Esusu reports rent payments to Equifax.
    • Zingo Credit: This service requires you to link your financial accounts to identify rent payments. It works only if you live in housing managed by a property management company. Zingo reports payments to Equifax. The service is free for a limited time, according to Zingo’s website. You can add 12 months of rental history information for a one-time fee of $89.99.

      Paid Credit services:
    • Rent Reporters: There is a one-time enrollment fee of $94.95, which includes up to two years of reported rental payments, then the service is $9.95 per month. It reports to TransUnion and Equifax.
    • Rental Kharma: Initial setup is $25, and the service is $6.95 per month. During enrollment, you can report payments made in the previous 24 months for a fee of $60. It reports to TransUnion.
    • Level Credit: Previously known as Rent Track, Level Credit charges a $6.95 monthly fee to have your rent and utility payments reported to Equifax and TransUnion. A look-back of up to 24 months is available on your current lease for a fee.
    • Rock the Score: There is an enrollment fee of $25, and ongoing service costs $8.95 per month. There is a $99 fee for reporting up to two years of rental history. It reports to TransUnion and Equifax.
    • Clear Now: This service debits your rent from your checking or savings account. There’s no cost to tenants, but your landlord must be signed up. If you opt in, payments are reported to Experian Rent Bureau.
    • Pay Your Rent: Variable fees, depending on how rent is paid; in some cases, the fees are paid by management. It reports to all three credit bureaus.
    • Credit My Rent: This service charges a monthly fee of $6.95 and a one-time setup fee between $25 and $145, depending on what tier of service you choose. It reports to TransUnion.
  8. Your current credit cards may have low limits if you have secured credit cards between $500 to 1,000 dollars.   When you are using any credit card, do not exceed 30% of the credit limit and pay off the balance each month.  Never carry a balance under any circumstances on any credit card regardless of the credit limit.  
  9. Set up a credit monitoring program so that you will receive reminders to pay your bill on time.  Also, Identity theft is real so the cost to monitor your credit report is the cost we all pay to conduct business online.  I recommend https://www.myfico.com/ Premier plan.  It’s $39.00 a month.  The cost represents one cup of coffee at Starbucks 4 times a month.  Do not be penny wise and dollar foolish.  Invest in protecting and building your credit.  Not doing so will cost you much more. 
  10. Freeze your credit report to prevent anyone from accessing your report without your knowledge.  You can freeze your credit report on all three major credit bureaus online. For more information on freezing your credit report go to https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs.    Once you freeze your account, remember how to unfreeze when your lender needs access to it.
  11. Establish a budget online and set financial goals and spending limits.  I recommend https://www.mint.com/.   I use Mint.com for personal coaching of all my clients.  This program is only for people who serious about saving money and being more responsible with their spending.  Knowledge is power and this program empowers you to know what is going on with your spending and your ability or inability to save money.  Do not be victim of your spending. Know where you are always financially . 
  12. Get creative with saving money.  There is a great program that can turn your pennies and excess change into serious savings. Go to https://www.qapital.com/ and read all about it.  If you are undisciplined when it comes to saving money, and this app can help you achieves multiple goals, evaluate our spending habits, and make you a better money manager. 
  13. Get a coach and accountability partner.  Start with a great friend or family member other than your spouse and be transparent with them about what you are doing and how you are spending your money.  Nobody cares more than your family because they don’t want you going backwards, but forward in life.  You should be able to trust them to keep your financial affairs private.  If not your family and close friends then it must be someone in their 50 or older with life experience.  Your peers may be great people but if they haven’t lived on this earth very long they may not know any more than you do; and that is regardless of how successful they may appear to be.   Wisdom comes from the Elders in your community.  Wisdom is knowledge with age and experience.  March to the drum of someone who has already been where you are going and allow them to lead you to your promise land of potential and achievement.    

If you would like my help in credit and budget counseling, or mortgage and real estate consulting please call me.  I can help you and direct you.  My work experience, my education and my life experience has prepared me to a coach and advisor.   Check out my resources at The Power Is Now Media Inc.  I am also married for 38.5 years and have 4 daughters.  They are all very accomplished young women and are college graduates.  Three of my daughters have MBAs with an emphasis in finance and hold real estate licenses.  So, I understand the challenges of raising a family.   I have been a mortgage banker for 38 years, a real estate professional for 28 years with a Broker’s license, and I have a master’s degree in business administration with an emphasis in finance.  I understand the cost and value of education.

You are trying to achieve many things in life.  Real Estate investing or buying your first home is just one goal of many.  What can get in the way of achieving your goals and potential in life is not having the right mentors and coaches in your life.  We all stand on the shoulders of great people who have come before us.  I know I do.  I do not possess a single original idea.   Everything I know was shared with me by others who were older and wiser than me.  Everything I have ever achieved has been because of being around the right people, having the right team and getting great training and advice.  Even with great support I have had to make adjustments and continue to receive coaching to stay on track with my goals in life.  It never stops.    Let’s get you the right plan, the help you need and in the real estate investments or home you want as soon as possible.  

Sincerely,

Eric Lawrence Frazier, MBA
President and CEO
The Power Is Now Media, Inc.

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