Years ago, I landed a great job with excellent pay. I bought a Porsche and a house. I had one business credit card from my old company—it was my card, not my employer’s.
Every penny I earned went towards becoming debt-free. I paid off the car in 2.5 years and the house in 12. I kept driving the car, putting 197,000 miles on it, and paid off my card balance every month.
This year, the car finally wore out, so I went car shopping. That’s when I discovered I had no credit rating. It’s called a ‘thin’ credit file. After two years of no credit usage because everything was paid off, my file went thin. Turns out, business credit cards don’t report to personal credit agencies, so none of the $30k I spent fixing up the house showed up.
I had enough in savings to buy a new car with cash, but I wanted to rebuild my credit. I worked with my credit union (I’m not a fan of corporate banks) to get a loan. I put down 20% and showed them my investments, proving I had the funds. They gave me the loan, but not at the best rate, and it took some convincing.
The lesson here is that even if you’re debt-free, you still need to use your personal credit card regularly. That’s the only way to keep a record of credit use. Now I have a personal card that reports to the credit agencies. I make payments every month and pay it off right after the statement comes out, showing credit use without paying interest.
I’ll keep paying the loan for about a year, then pay off the car. But I’ll continue using my new personal credit card for regular purchases to keep my credit active—and earn cash back while I’m at it.
I keep two credit cards open, use them, and pay them off regularly. I rotate between them and keep my credit limit at $100k with an 810 score. It could be higher if I had an installment loan. Good for you for staying on top of things and having cash for a new car!
@Jem
You’ve got the right plan! I used to live paycheck to paycheck, but a good friend advised me that being debt-free was the way to go. It’s one of the best pieces of advice I ever received.
Another key to my success was keeping my car for 20 years. Since it was so much fun to drive, I had no problem doing that, though the repairs were a bit of a hassle. Oh, and one more thing—never buy extended warranties. If you skip them, you’ll save enough money to cover any repairs that do come up, and not everything is going to break!
@Blue
I bought my car for $1050 back in 2011, and it’s still in my driveway. From that move and some smart financial decisions, I’ve built a nice portfolio with stocks, options, crypto, metals, and cash. Meanwhile, a friend of mine just bought a car with a 7-year loan and an extended warranty… Some people just won’t listen.
@Blue
I kind of stumbled into this plan. Had a lot of credit card debt but kept getting balance transfer offers. Now I’ve got a high credit limit with low usage and pay it off every month. I sit between an 823 and 830. Going from credit card, car, and student loan debt to 0 debt is amazing. Now, on to the next goal—buying a house.
@Jem
Nope, and I totally forgot it wasn’t set to autopay. It is now, though! At least for the minimum payment, so if I space out again, I’ll avoid late fees and a hit to my score.
Darwin said: @Jem
Nope, and I totally forgot it wasn’t set to autopay. It is now, though! At least for the minimum payment, so if I space out again, I’ll avoid late fees and a hit to my score.
Haha, you’ll be alright hanging out in the 790s until you get back up there. Most people would love a score like that!
If you had the cash to buy the car outright, it wasn’t really a problem then, right? That should have been your move. My only debt is personal credit cards that I either pay in full or keep at 0% promo rates, and that’s fine for disciplined spenders.
But getting a car loan just to rebuild your credit? I don’t get it. I’ll never pay interest just to maintain a credit history. A good score is supposed to save you money, not cost you money.
@Reese
Right. OP can afford to throw away money like that, but most of us can’t. Taking out a car loan just to boost your credit? Terrible idea. Just put something small like Netflix on a credit card and pay it off. Same effect, no interest.
I don’t get why everyone’s giving you grief just because you’re clearly doing well financially. Your advice is 100% spot on.
I live similarly, just on a smaller scale—paying off college and car debt ASAP while using a credit card regularly. As long as you aren’t overspending and pay it off every month, it’s a great system with big rewards.
Dar said: @Poe
Would you still pay off college debt ASAP if it’s at a 4.5% fixed rate? That’s my fiancée’s situation.
Personally, I just hate being in debt. My mentality is, what if an emergency comes up or I decide to take a lower-paying job one day? I’d rather not have any debt hanging over me.
