Rebuild Your Credit And Your Savings, Plus Why 7 in 10 Americans Feel Squeezed

Elizabeth Ayoola (0:00)

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Sean Pyles (0:08)

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Elizabeth Ayoola (0:18)

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Sean Pyles (0:34)

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Elizabeth Ayoola (0:48)

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Lelaine Bigelow (0:59)

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Elizabeth Ayoola (1:01)

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SPEAKER_4 (1:11)

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Elizabeth Ayoola (1:17)

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Lelaine Bigelow (1:26)

Hilton, for this day.

Sean Pyles (1:29)

Rebuilding credit and getting serious about your sinking funds. To some, these goals might seem in conflict, but done the right way, they can help you make headway on multiple life goals simultaneously. Let's get into it.

Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Pyles.

Elizabeth Ayoola (1:51)

My name is Elizabeth Ayoola.

This episode's question is all about balancing different financial goals, as Sean just mentioned. And the goals in question are saving money and rebuilding your credit. Hi, NerdWallet. I'd love your advice on rebuilding credit after a rocky financial history. I had missed payments, high balances, and other credit mistakes in the past, but I finally gotten out of debt and have been working hard to change my habits. I currently have two credit cards with only about $400 limits. I've become really interested in sinking funds and using cash savings intentionally, but I'm trying to figure out how to balance that with rebuilding my credit. I'd eventually love to get a travel rewards card for a future international trip, but I'm nervous to apply.

Should I focus on building a longer track record with my current cards before applying for a travel card? And how should I structure sinking funds so I can take advantage of credit card rewards without falling back into old habits? I'd especially love advice on making the transition from repairing bad credit to actually building excellent credit. Thanks, Whit. Whit, thank you for that question. Joining us to tackle Whit's question is NerdWallet senior credit expert and a friend of the pod, Amanda Barroso. Hey, girl. Hey.

Amanda Barroso (3:09)

Hey, girl. I'm glad to be back with you guys. It's been a while.

Sean Pyles (3:12)

Welcome back, Amanda. We've missed you. Thanks, Shawn. Let's talk about building credit, restoring credit, however you want to call it. It's been a little while since we discussed this. What are maybe two to three things that are relatively easy for folks to do to actually get their credit into a better spot?

Amanda Barroso (3:28)

I think this is a great starting point. I think the two biggest things anyone can do to build their credit is number one, pay bills on time every month. Believe it or not, payment history is the number one factor that both FICO and Vantage score use to calculate your credit scores. Missing one payment can really harm your score, so that's the number one thing you can do. Make sure you pay those bills on time.

The second thing that you can do is to keep your credit utilization at 30% or less. And that's kind of a fancy word for just saying the amount of your available credit that you're using at a given time. You want to keep that below 30%. So if you're like Witt, like our listener, and you have a $400 limit on your credit card, you're only going to want to use $120 or less at a given time. Once you make a payment, that kind of restarts the clock, right? But that's kind of the threshold you're looking at.