How I Got My 800 Credit Score

A few months ago, I logged into CreditKarma to see that my credit score with TransUnion and Experian had surpassed 800! I’m not the best at seeing the long-term and so when I started working post-college in early 2010 with a non-existent credit score, I was convinced that would be the case forever! By the end of 2011, when I started condo/mortgage hunting, I had managed to get my credit score to the low 700s, which although didn’t result in the best mortgage rates, was pretty reasonable. I was definitely impatient at times in this process, but now that I have achieved the ideal credit score, I plan to no longer worry about my credit.

What principles did I follow to successfully build my credit?

  1. In the early days, I kept my credit utilization to at most 30% of the limit. Now, I don’t worry about this because I have a ton of unused credit and much higher limits.
  2. I would go 6-12 months between applying for new credit.
  3. I made every single payment on time.
  4. I applied for new credit and increased my credit limits as deemed useful early in the process.
  5. I constantly tried to remind myself that patience is a useful virtue.

2010

I tried unsuccessfully to apply for the Chase Amazon.com Visa once or twice before I smartened up and instead hunted around for a credit union that would give me a secured credit card with no annual fee. The first few places I found (cough a big bank cough) wanted to charge me $39/year for me to let them hold $500 of my money to give me a credit card! This process all boggled my mind though – why would no one lend me unsecured money when I was making $100,000 a year?

By the end of the summer, I had a $500 secured credit card from a credit union, which really just meant that $500 of my savings account with them was my credit card limit. I set my internet bill to auto-pay on the credit card each month and diligently paid the credit card off when I got the statement. Progress!

Near the end of 2010, I had finally saved up enough money to buy a car in cash*. So what did I do? My parents had always taught me that you should buy a car with credit and then save/invest the money instead. That was because they had good credit and could buy a car with a 0.9% interest rate. Me with very minimal credit ended up with a 4.99% interest rate. I wrote a check for the first $10,000 of the car, financed the remaining $10,000 and change at 4.99% for 12 months, and set up the automatic payment from my savings account, which resulted in a ~$900/month payment. Yes, I had a $900 car payment. My mom thought I was crazy. I hate debt and wasn’t willing to pay interest for any longer than necessary. I didn’t see it that way though – I saw it as the loan being offset by my savings account that were at the same credit union and so in my mind, I didn’t really have a car loan even though I did.

I also got a $1,000 normal credit card from the credit union that gave me the car loan. In 2015, I never use that credit card anymore, though I will not close it until some other useful credit card is my oldest one as this is the card giving my credit history a reasonable age.

2011

After six months with the (ridiculous) secured credit card, I asked the credit union to convert it to a real credit card. They increased my limit to $1,000 and it became a normal credit card. The points were terrible, so I hardly used it after that point. I eventually put a recurring $25 donation on it, set up a $25 auto bill payment from my checking account to it, and ignored the credit card.

I finally got approved for the Chase Amazon.com Visa…with a whopping $400 limit! What exciting times! I tried unsuccessfully to increase my limit after six months.

I was really surprised at the end of 2011 when I started condo/mortgage hunting to discover that my credit score was around 700 and I qualified for a solid 3.5% interest rate. (My credit woes were probably lessened by my 20% cash down payment and solid cash reserves.) The mortgage lender, on the other hand, was super confused by my $900/month “car payment” that was over 10% of my gross income and that combined with the proposed condo monthly costs would take up a third of my gross income. That’s okay because the “car loan” got paid off as I was going through that process.

2012

In mid-2012, I closed on my condo with a credit score in the low 700s still and a 3% interest rate.

I also opened up two store credit cards to get discounts at the till. I think I got $100 or $200 off at Home Depot for opening up one of their credit cards (and they even let me pay in cash for the purchase – never used the card and eventually closed it in late 2013) and about 20% off at a women’s clothing store for opening up one of theirs.

I promptly refinanced my condo’s mortgage at the end of 2012 once I’d paid it down to 25% and secured myself a 2.5% interest rate for the following five years.

2013

In early 2013, I made a goal to finally move away from constantly paying down credit cards to keep the utilization at a reasonable level. It went swimmingly:

I asked my primary credit union (the one that gave me the car loan) for their cashback credit card with a limit of $10,000. They said yes, basically on the spot. That card gives 1% back on everything and its points were automatically deposited into my membership accounts every month. Easy cash back, awesome.

The second step was to ask my other credit card company to increase my limit to $10,000 as well. I didn’t get the answer I wanted at first and I didn’t give up. I politely explained that 30% of that amount represents a very small amount of my monthly income and my monthly spending and asked if there was anything further they could do. I was transferred to someone with more authority who did give me a bit more of an increase from the initial offering. I’m happy with that. This card essentially gives 2% back on gas stations, drugstores, and restaurants.

By mid-2013, I was trying to optimize my credit card rewards a bit more. I ended up going with the Fidelity American Express and lo and behold, they gave me a $10,000 limit! That card was great and is definitely a keeper. It’s back to being my primary card again at last.

At the end of 2013, I did some small churning: I applied for the Chase Freedom for a $200 bonus and the Barclaycard Arrival for a $440 bonus. I still have both of those cards today, though I’m just as terrible at remembering about the quarterly categories as I had thought I would be.

2014

On my three year anniversary with my Amazon.com Visa, Chase increased my limit by $1,000! That was a nice touch, especially considering that I was hardly using the card by this point. Oh, actually, that in hindsight seems to have coincided with when I applied for the Chase Sapphire Visa. (which I plan to do again next winter once my twenty four months are up!)

I went on a closing accounts spree in 2014, closing my first credit union card and all the accounts there, my Home Depot card, my Loft card, and my Chase Sapphire Preferred months ahead of its fee being charged simply because I didn’t use it.

2015

Sometime mid-2015, my credit score surpassed 800! It’s now hovering around 795-805, which I’m perfectly fine with.

I’ve started some slow churning now with being able to charge my grad school costs to a credit card. I paid for my fall tuition with a credit card to get points and will probably continue to do that.

I’m going to downgrade/cancel the Barclaycard this year with the negative changes coming its way, especially with my reduced credit card spending. If I cancel it, that will result in just over a three year average age of credit cards at the end of this year, which isn’t too bad for having only five years and a bit of credit history.

In conclusion, time and patience will build your credit history. Good luck telling that to my 21 year old self!

 

*In hindsight, spending $20,000 of my $70,000 and change net worth on a brand-new car was a bit strange of a decision, but everything has worked out just fine and the then-$20,000 no longer seems like a luxury with my now-net worth.

I might keep my Barclaycard Arrival

I’ve been using my Barclaycard Arrival Plus World Elite MasterCard for everything except for 5% Chase Freedom categories and Amazon.com purchases. I have to admit that it is pretty awesome having essentially only one credit card. (I don’t notice having a separate card for Amazon.com purchases since the card is already linked and I don’t carry it around with me.) As much as I have a tendency to overcomplicate things, it is really nice to keep things simple from time to time.

In some ways, I’m still trying to build my credit history. The average age on my credit cards isn’t quite 24 months because I keep applying for new credit cards and canceling older ones. (I’m trying to cut down on that now, but I picked some early credit cards that didn’t turn out to be very useful…) So my goal for the rest of 2014 is not apply for any more credit cards.

I’m not convinced that the Barclaycard Arrival will keep its program at 2.22% cashback forever, but maybe it will since it has an annual fee of $89. I’ll keep my Fidelity American Express as a backup 2% credit card forever (plus it’s nice at Costco!), just like my 1% cashback credit union visa with no foreign transaction fees. I don’t know about the Chase Freedom, but I’ll probably keep it around for a while since it has no annual fee and it is with the same bank as the Chase Amazon.com visa which I doubt I will ever get rid of since a) it is no hassle and b) I’ve now had it for 3.5 years, which is by a slim margin my second oldest credit card. I’m going to ditch the Chase Sapphire Preferred Visa once I use the ~70k points ($875) to book something (even if it’s after the annual fee hits because using the points to book something will earn me $175 more than redeeming them for cashback directly). But the Barclaycard? I love it as much as you can possibly love a credit card.

I tracked my “everything else” spending (basically everything except for foreign purchases, restaurants, and Amazon.com purchases) for the period of July 2012 – June 2013. I spent $19,384.88 total, with an average cashback earning of 1.75% based on where took American Express and where did not. I would have earned an additional cashback of $91.11 in these categories by using the Barclaycard Arrival for everything, covering the $89 annual fee with $2.11 to spare. I also spent $954.99 on foreign transactions, for which I lost out on 1.22% of cashback or $28.48. Lastly, I spent $3,799.25 at restaurants and drugstores, for which I lost out on 0.22% of cashback or $8.36. So if I had only used the Barclaycard, I would have earned an additional $22 in cashback for the year over the annual fee, making it basically a wash, except that instead of needing to carry three cards (Fidelity Amex, Chase Amazon.com Visa, and credit union visa) to accomplish that, I only need to carry one (the Barclaycard).

What would my ideal single credit card look like? I explained this in a comment on Emily’s post a few weeks ago:

  1. Visa/MasterCard (accepted more widely than American Express)
  2. Chip and PIN (easier when traveling – remember, this is an ideal single credit card)
  3. No foreign transaction fees
  4. 2% cashback on everything (no categories)
  5. Easily redeemable
  6. No annual fee
  7. No maximum on the earnings
  8. Free FICO score
  9. Trip cancellation insurance, baggage delay insurance, and supplementary rental car insurance (I’m super worried about something going wrong while traveling)
  10. Flexible automatic payments (Chase and my credit union both reduce the automatic payment if you make an extra payment.

The Barclaycard Arrival World Elite Mastercard meets all of them except 6) and 10). Points are easily redeemable since I travel often enough. I love not having to worry about whether a merchant is foreign or not.

I’m not really done optimizing…

You guys knew this post was coming. Last night, I applied for the Chase Freedom Visa and the Barclaycard Arrival World MasterCard. Why? I’ll get a $200 statement credit for spending $500 on the Chase Freedom Visa in the first 3 months and $400 worth of points for spending $1,000 on the Barclaycard Arrival World MasterCard. I have about $1,100 of planned spending in the next few weeks that doesn’t take American Express, so that’ll be perfect for the Barclaycard. I was also pretty excited because the Chase Freedom Visa is now my highest limit card – it’s over $10,000! And I was instantly approved for BOTH of them!! That has NEVER happened to me before. You guys, my credit is finally good! Maybe my income being just shy of $200,000 helps a bit too and me actually declaring that. Since it’s so close to the end of the year, I used this year’s income including RSUs, interest, and investment dividends. Earlier in the year, I was using last year’s W-2 income which was much lower.

My plan is to use the Barclaycard Arrival World MasterCard for just enough purchases to meet the $1,000 limit and then leave it alone until I make a travel purchase of $400ish and then I will probably cancel it after a year.

My plan is to use the Chase Freedom card for my first $500 of purchases after I satisfy my debit card requirements and then only for the quarterly categories:

  • Jan-Mar Gas stations, movie theaters, and Starbucks
  • Apr-June Restaurants (and Lowe’s)
  • July-Sept Gas stations (and Kohl’s)
  • Oct-Dec Amazon.com, Zappos.com, and select department stores (looks like it includes Nordstrom, Macy’s, and JC Penney)

I’ll probably keep it around as a long-term card for now and just use it for the rotating categories. For the last quarter of 2014, I almost don’t even need to keep it in my wallet since I can set it up to just automatically pay for all of my Amazon.com purchases instead of the only 3% my Amazon.com visa gets. It’s also not that annoying because it has the same login information as the Chase Amazon.com visa I already have. It’s also not like you can get the bonus again and there’s no annual fee, so it’s not that bad to keep it.

It also looks like if you have a Chase checking account, you get 10% bonus points still! So now I’m on the lookout for a bonus to open one of those in early 2014 since it’s a new calendar year! Otherwise, I won’t open it because my estimated return on $1,500 by doing that is 0.48% and would be < $10. So if I did open the checking account, I would possibly still close it after 6 months. Now to go back to cleaning my actual apartment since I am off work…

Financial Plan for 2014

Simple goals, simple implementation, right?

Income plan

The vast majority of my income comes from my W-2 day job. This is separated into regular salary, which is paid out monthly, and stock of which I will see two comparably sized vests this year. I am expecting my overall W-2 income (before deductions) to be somewhere between $160,000 and $200,000 for the 2014 year. This assumes a modest 2% increase and the 52 week low and 52 week high +20% stock prices for the RSUs. I anticipate my income surpassing the Social Security tax maximum ($117,000 in 2014) with my September or October paycheck.

My RSUs see a flat 25% of federal income tax deducted from them, which isn’t quite enough tax because my base pay alone takes me into the 28% federal income tax bracket these days, so I need to compensate for that with my W-4 allowances. My spreadsheet suggests that at this point in time, I should set zero (0) allowances on my W-4 for 2014. I will re-evaluate this after each RSU vest and raise.

Investment contributions

I plan to:

1) Contribute the 2014 maximum of $17,500 to my 401(k) for the year, spread out throughout the year:

  • H3 = annual base pay (gross)
  • J2 = Yearly max to the 401(k) – $17,500 for 2014
  • I2 = ROUNDUP(J2/H3,2) = the % that I should contribute monthly from my paycheck to max out the 401(k) over the course of the year, e.g. if it is XX.3%, I will set it to XX+1%. I will most likely reduce this by one percentage point for my April and subsequent paychecks.

2) Make my 2014 Roth IRA contribution of $5,500 through the backdoor on January 2nd, taking the funds from my savings account.

3) Continue contributing the maximum to my Health Savings Account until the plan year ends partway through 2014. I will then re-evaluate health insurance plans and whether I will contribute to the Health Savings Account again (depends on which plan works out the best).

4) Set aside my 2015 Roth IRA contribution from my final RSU vest for the 2014 year in a savings account. This will probably either be $5,500 or $6,000.

Mortgage plan

All funds that are not set aside for spending, my 401(k), my Health Savings Account, or my Roth IRA will be thrown at the mortgage. My estimate is that this should be around $2,500/month on average, plus RSU vests.

Investment allocations

This exercise is similar to what I did for 2013. As of 12/12/2013, my investments portfolio is worth ~$130,700. I estimate adding about $25,000 to the portfolio this year, including my 401(k) contributions, my employer match, and my Roth IRA contribution, putting an estimated year end balance at $156,000.

(Note: when I wrote this post last year, I estimated that my end of year balance would be $98,100. It is $34,600 higher than that as of November 30th. Crazy!)

My target asset allocation at the end of 2014 will be:

  • 27% Fixed income
  • 36.5% US stocks
  • 36.5% International stocks

Based on this, let’s calculate my ideal portfolio at the end of 2014 and compare it to where my portfolio is now:

Current Ideal EOY Difference
US stocks $48,500 $56,945 $8,422
International Stocks $47,900 $56,945 $9,073
Fixed Income $34,400 $42,124 $7,773
total $130,700 $156,000 $25,268

I will add my $5,500 Roth IRA contribution to the Vanguard Total Stock Market Index Fund Admiral Shares, which means I only need to add another $2,922 to US stocks for the year. Subtracting out my 401(k) match from there leaves my 401(k) contributions as follows for the year:

  • 4% or $654 to add to US stocks (S&P 500 index fund)
  • 52% or $9,073 to add to international stocks (total international index fund)
  • 44% or $7,773 to add to fixed income (stable value fund)

There, we can set and forget for the rest of the year!

I will re-balance the Extended Market index fund vs S&P 500 index fund amounts in January 2015 when I make my Roth IRA contribution for that year – for now, I just care about US vs international vs fixed income.

Banking plan

I’m going to have my entire pay direct deposited to my credit union checking account and then pay the mortgage from there with the leftovers each month. My credit cards are all on auto-pay from here and all of my bills are on auto-pay to a credit card.

I will continue to withdraw any health expenses from my HSA after putting them on a rewards credit card through the end of this plan year. I will re-evaluate my HSA plans during open enrollment.

My plan for expenses is as follows:

  1. If purchase is in person and < $15, use debit card until I reach N transactions. This should earn me just under $200 in interest for the year, i.e. meets my $100 gain for the year rule.
  2. All Amazon.com purchases go on that credit card (this is mostly automatic, so no big deal), as well as restaurants and in-person places that don’t take American Express.
  3. All non-foreign purchases that take American Express go on the Fidelity Amex card
  4. All other purchases (including possibly foreign ones) go on the credit union cashback visa (I love this one because it does automatic redemption every month, no matter the amount!)

This algorithm should net me about $400-550 in cashback rewards for the year, based on 2013 spending levels.

Based on my spending patterns and my rule that I will only add a credit card if it will gain me at least an additional $100/year in cashback rewards and I think I could use the card effectively for at least two years, I can’t really optimize any further than this. I could add the US Bank Cash+ Visa Signature card for 5% cashback on restaurants, but with my spending levels, that may or may not actually make any sense. My credit history is still new enough at this point that I don’t want to churn yet (under 4 years), but I will re-evaluate that in 2015.

I’m really enjoying how simple this plan is and I can’t wait to let it be implemented! Here’s to an awesome 2014!

Optimize Efficiently: Credit Card Rewards

It’s no secret that I love optimizing things. I have to make a strong effort to optimize what I optimize though. Sometimes I get caught up in optimizing things that just aren’t worth optimizing. Lately, I’ve become pretty excited about the idea of optimizing my credit card rewards. I slowly realized that I spend enough to earn something from funneling all my purchases through credit cards, but the less you spend, the less you’ll earn. I’ve been tracking my credit card spending over the last few months in a Google doc. I made a list of the major extra spend categories that you can get credit cards for and made a pie chart of my spending in those areas:

2012 Average Monthly Credit Card Spending 2013 Average Monthly Credit Card Spending

Notice how big the “Everything else” category is in the pie charts? Yeah. So the biggest win will be to optimize there.

Side note: Notice that last year my Restaurants spending was 20.7% in an average month and this year it’s only 8.2%? I’ve decreased it from about $400/month down to $150/month. That’s a pretty good drop! I’m also not spending as much on Amazon.com, which is good too.

My current system is as follows:

  • 3% Amazon.com spending (Chase Amazon.com Visa)
  • 2% Drugstore, restaurant, and gas station spending (Chase Amazon.com Visa)
  • 1% everything else (Chase Amazon.com Visa or credit union Visa)

I could double the Everything else rewards by simply by adopting the Fidelity Investment Rewards American Express Card that gives you 2% back on all purchases. (Thanks to tj and Executioner for recommending it on my last credit card strategy post!) I would be able to redeem the rewards for $50 in cashback every 2.5 months based on my current spending for a reward of about $240/year versus the current $120/year. Not everywhere takes American Express, but many places do. Based on last year’s spending, adding the Fidelity 2% Amex would have netted me an additional $175 in cashback over my current system since that pulls in groceries, airlines, and department stores, as well.

Another option would be the Fidelity Investment Rewards Visa Signature Card, which gives you 1.5% back on your first $15,000 in spending and 2% thereafter. But, my estimate of “Everything else” spending for the year is only $12,000, so I’d likely only get the 1.5% back on everything. You can’t redeem the rewards until you’ve accumulated $50 worth either and the points are separate from the Amex one, so I’m not sure if it’s worth it to go for both. The break-even point would be if > 50% of my “Everything else” spending dollar-wise was done at places that take American Express, then combining that card with a 1% one makes more sense than using the 1.5% Visa card.

I’ve also looked at cards with bonuses for the following categories:

5% cashback at gas stations – That’s a great cashback rate, except that I spend very little at gas stations. Last year, I averaged $40/month and this year I’m at $23/month so far. Getting a 5% gas card would net me an extra $8 this year or an extra $14 last year. That’s not nearly as worthwhile as the $174 jump with improving the “Everything else” category. You also need to be careful to not overextend yourself with credit cards and you can’t redeem the cashback often enough that the points expire. So if I was to get a gas card, it would be the PenFed Platinum Cash Rewards card that automatically credits your 5% cashback each month. The problem then would just be remembering to have it on me when I happen to get gas.

5% cashback on airfare – On every airline! This card is also through PenFed and it’s an Amex, the PenFed Premium Travel Rewards American Express Card. I was kicking myself for not having this card when I spent ~$1,000 on overseas flights a couple months ago since that was a loss of $40 in cashback rewards. Oh well, I did get about $10 in cashback rewards from that at least. I may consider adding this card at some later point, but I think I’ve bought all the flights that I will for this year now.

American Express Blue Cash Preferred/Everyday: This card has some great benefits:

  • Preferred: 6% cashback at grocery stores, 3% cashback at department stores and gas stations, 1% everywhere else ($75 annual fee)
  • Everyday: 3% cashback at grocery stores, 2% cashback at department stores and gas stations, 1% everywhere else
  • Roadside assistance

6% at grocery stores with the Preferred card looks great until you factor in the $75 annual fee. You would need to spend more than $2,500/year or an average of $208.33/month for this card to break even over the Everyday card. And the Everyday card is a $25/year increase in cashback rewards at that level over the 2% Fidelity Amex, with most likely only being able to redeem the rewards twice a year. Honestly, if I got one of these two cards, it would be mostly for carrying the Roadside assistance feature and some of the purchase protection from American Express like extended warranty and return policies. Plus, right now, they’re offering $150 in bonus reward dollars if you spend $1,000 within the first 3 months of opening the Preferred card or $100 with the Everyday card. So I will probably give in and open the Everyday card eventually, mostly for the free roadside assistance and the $100 bonus.

I had been looking for a no foreign transaction fee credit card beyond my Charles Schwab debit card, but it looks like my credit union is in the process of removing the foreign transaction fees from their credit cards, so no action is required on my part to obtain a no foreign transaction fee credit card. That’ll be pretty nice.

I’ve already opened the Fidelity Cash Management account necessary for redeeming the rewards from the Fidelity 2% Amex card, but since my plan was to wait until July to apply for another credit card, I’ll hold off for another month and a half or so. I’ll apply for the Amex Blue Cash card in early October when my current roadside assistance is about to expire.

Hope everyone is having a good weekend!

My New Credit Card Strategy

One of my goals for 2013 was to put every purchase on a credit card. Before I’d even published that post, I had a plan in place and it’s been enacted. I really should have done this sooner, but I didn’t want to while the refinance was in progress and my brain totally forgot about doing it after I closed on the condo because I’ve gotten so used to paying for everything with my debit card.

What did my plan entail? Asking.

I asked my primary credit union to increase my limit to $10,000. They said yes, basically on the spot. That card gives 1% back on everything and it will get automatically deposited into my membership accounts every month. Easy cash back, awesome.

The second step was to ask my other credit card company to increase my limit to $10,000 as well. I didn’t get the answer I wanted at first and I didn’t give up. I politely explained that 30% of that amount represents a very small amount of my monthly income and my monthly spending and asked if there was anything further they could do. I was transferred to someone with more authority who did give me a bit more of an increase from the initial offering. I’m happy with that. This card essentially gives 2% back on gas stations, drugstores, and restaurants.

For the next 6 months, I plan to ask for no new credit. In July, I will investigate refinancing again and I will also look into a third credit card. I’m considering looking for a no foreign transaction fee for that one, for use when traveling.

My tentative new credit card strategy is as follows:

  1. My dividend rewards checking account pays a pretty healthy amount of interest that would take a LOT of spending to make up for losing, so I will use my debit card for the first N in-person transactions each month. I may decide to skip this step later or figure out another way to get to the N transactions.
  2. All purchases from the following will go on credit card #2: Amazon.com, restaurants (unless I learn that they don’t match the merchant code for that), gas stations, and drugstores.
  3. Everything else will go on credit card #1. This works out great because it has the highest limit.

There. I finally feel like a grown-up, having a credit card with a limit > $1,000. It’s pretty cool logging onto the online banking and seeing how much I’ve earned in cashback for not even modifying my habits. I figure that I should be able to earn $15-30/month in cashback, with which I might be able to stay above $1,000/year in passive income for 2013.

Readers, what is your favorite credit card?

Confession: I opened a Loft card

So, I did something silly this week.

I opened a store card at Loft.

I swore that this year, I wouldn’t make any requests to the credit card companies, that I would let them come to me, to keep my credit score good for a mortgage. So then why did I open this store card?

I think it was partially to see if I can and because I have been shopping there a fair amount. Also, with the card, I won’t pay for shipping at all and they stock so much more petite sizes online than in store. The last time I tried to apply for a store card, my credit wasn’t good enough.

I was also tired and for some reason, it seemed easier to say yes than no that time…

Oops! I’m annoyed with myself. I would far prefer to get one of my more “useful” credit cards to have a higher limit than get new credit.

Readers, did you do anything silly this week?