Your credit score is incredibly important for many reasons from buying a home to paying less on debt you do owe. People often use good credit to leverage their money and achieve more than those who have bad credit.

If you are wanting to improve your credit and reach a good credit score so. you can have more opportunities then you first need to know what makes up your credit score.

How To Get Your Credit Score

You can get your free credit score from Credit Karma here via my affiliate link. You can also get free scores from major credit card providers.

One thing to note is that Credit Karma and other free services offer your Vantage Score, not your FICO score. Most lenders use the FICO score as your credit score which means your free score you are tracking may be off. Based on what I’ve seen from hundreds of people it can be off anywhere from 2 points to 100 points depending on your credit profile.

If you want your accurate credit score that lenders will see then you have to pay for it. You can purchase your score from the consumer facing side of the FICO brand at My FICO. This is the only option to see your FICO score unless you are working with a lender who will let you see it in their portal.

You can get your FICO score at My FICO with plans starting at $19 a month, via this affiliate link and cancel when you don’t need it any longer.

What Makes Up Your Credit Score

The information in this post and video about what makes up your credit score is from Credit Karma. I chose to use Credit Karma as an example because it lays out the information well and makes it easy to understand. It’s also a FREE platform that has helped hundreds of thousands of people improve their credit.

According to their platform (and from what I’ve seen in improving my own credit score), your credit score is made up of these 6 factors:

1. Payment history
2. Credit card use (credit utilization)
3. Derogatory marks
4. Credit age
5. Total accounts
6. Hard Inquiries

As you will see, these factors also differ in how much they affect your score. Some will make more of an impact like payment history and others will make less of an impact like hard inquires.

Seeing 6 factors makes credit seem less overwhelming since you only have 6 things to work on improving.

Payment History

Payment history makes a huge impact on your credit score. It’s well known it contributes almost a third of your score so making sure you pay bills on time is incredibly important.

Even one late payment can injure your credit score and drop it by many points. It’s important that you always pay your bills on time and if you are late on any payments you make sure you try to correct or dispute it.

Remember that a single 30 or 60 day missed payment is easy to recover from in the long run but will initially hurt your score a lot. A 90 day missed payment can be so damaging it leads certain loans and lenders to disqualify you automatically. This is all calculated via a formula that includes all possible payments on all accounts so the more missed payments you have the worse it will be and the harder it will be to recover.

Lenders want to know that you will pay your bill on time so make this your highest priority when thinking about credit.

• Action steps: Set up auto pay for as many bills as possible and set calendar reminders for due dates to make sure things get paid on time.

Credit Card Use

Credit card use or credit utilization is the calculation of how much of your credit you are actually using. Credit card use is a good way to measure this because credit cards are a line of credit where you have access to a lot of credit and can use it – or not.

Credit card utilization matters most for each individual card but your score also takes into account the average use across all cards and lines of credit.

The goal is to stay under 30% of your credit used and 10% is ideal. You don’t have to carry credit card debt or pay interest in order to build credit. You can open a couple cards and charge just a small amount and pay it off every month.

• Action tip: Calculate your utilization rate for each credit card and then work on a plan to pay down balances to 10%.

Derogatory Marks

Derogatory marks like collections, bankruptcies, civil judgements and tax liens are all things that are negative and can negatively affect your credit score for a long time. These can stay on your credit report for 7-10 years so it’s best to avoid or remove them if possible.

Debt collections have to have proof that you own the debt and everything is accurate so you can work through the process of verifying, disputing, and settling your debt.

If it’s over a couple years old you may also just decide to let it fall off your credit report. The older a collections account is the less it will affect your credit score.

• Action steps: Make a list of all the derogatory marks on your credit report. Start working on improving them by using the “pay for delete” method for collections.

Credit Age

Credit age is another important factor because creditors like to know that you are going to be using credit wisely for a long period of time before they lend to you.

Experience handling credit is important and to show this you should always keep your oldest accounts open. I cringe when people pay off their credit cards then close the accounts because they hurts you so much in the long run.

Make sure you keep your oldest credit card open and use it for 1 small thing every since month so it is active and not auto closed.

• Action step: There isn’t much you can do here other than make sure you take out credit early and keep it active!

Total Accounts

The total number of accounts you have is another factor in your credit score but this one has a low impact on your actual score.

Having different type of accounts like credit cards and installment loans is a factor in your score. This is something people generally build over time as they open more accounts with different types of credit.

Personally I’ve seen that you generally want at least 2 credit cards in use and one installment loan in order to have the best credit.

• Action step: Make a plan to strategically increase your accounts by opening a new line, but don’t just rush out and open multiple at once!

Hard Inquiries

Hard inquiries are a factor in your credit score and while they have a low impact, having too many can drop your credit score.

Luckily unlike the other factors this is usually a temporary drop and will even back out after about three months.

As you can see from my credit score slide above, we recently applied for a new refinanced mortgage which is why we had more inquiries and our score dropped temporarily.

• Action step: Only apply for credit when you absolutely need it and try to plan ahead to minimize these inquiries in the year before you get a mortgage.

Building Your Credit

If you are struggling to build or repair credit then this should give you a good start to work on improving your credit. By focusing in on 6 different elements you are able to eliminate things that don’t matter but could waste your time.

I recommend you start from the top of the list and then work your way down. You will get the most improvement from your efforts if you focus on what affects your score the most. This means getting organized and making a plan to strategically pay off debts and increase your credit score!

In the United States our society is increasingly built around using credit to make not only purchases but financial decisions about people. Credit scores are used for more than just getting a credit card – they are used for a number of things from getting a home to getting a job.

Credit scores demonstrate your “credit worthiness” which shows your history of paying off debts as an indicator that you are responsible with your finances.

For most people having a good credit score gives you amazing benefits.

Why do you need a GOOD credit score? 

The unfortunate reality is that your credit score matters. 

Good credit gets you access to better rates, allows you to pay less on big items like homes and cars, and even determines your ability to qualify for certain jobs or rentals. 

You don’t have to love debt or need credit card debt to get a good credit score. In fact, I hate debt. But I also live in the real world and out here your credit score is a tool that can open up doors to a better experience in life.

Having no credit sounds like an amazing idea but in the real world it makes things much harder. You will have access to fewer companies when you apply for a mortgage because many won’t do manual underwriting. You’ll  have access to less rental options because many landlords don’t want to (or can’t) go through the hassle of evaluating your finances and manually approving you. 

The fact of the matter is that having good credit opens up doors for you.

Benefits Of Having A Good Credit Score

Here are a few reasons why building a good credit score is important:

• Good credit will get you better interest rates when you need credit for financing a large purchase.
• Good credit means you will pay less overall on those big purchases you have to make on credit.
• Buying a home requires a credit score with most lenders and the better your credit score, the better loan you will be able to get. 
• Having bad credit can stop you from being able to buy a home at all until you improve it.
• Your credit score determines your ability to rent an apartment and many won’t accept below 700.
• Your credit score can affect getting certain jobs in certain industries where you have to appear trustworthy.

Let’s look at the benefits of having good credit in more detail.

Credit Affects Your Ability To Get A Mortgage

The most obvious area where having good credit matters is when you are wanting to get a loan to buy a home. Mortgage lenders base their decisions off many factors about your finances including credit scores.

Most mortgage products have a minimum credit score you must have in order to qualify. If you don’t have good credit you can’t qualify for the best mortgage loans and have to accept more expensive products with worse rates.

The interest rate you get on a mortgage is dependent on your credit score and that interest rate will directly impact how much you are paying each month on your mortgage. Low credit scores end up being very expensive when you learn how much extra interest you have to pay.

You Can’t Even Rent With Bad Credit

When you have bad credit you won’t even be able to rent certain apartments. Landlords can use your credit to decide whether they want to rent to you or not and many large apartment buildings have minimum required credit scores.

If you want to live in a certain area you may need to have good credit to be approved as a renter. Property rental is considered as a loan in some way and landlords want to make sure your credit is good enough that they will get paid each month.

Auto Loans Require Good Credit

Most people are not able to buy a car in cash in addition to their regular monthly expenses. It can take a long time to save up enough money to buy a car in cash and many people need to have a car to get to work before that.

Because it is difficult to buy a car in cash most people apply for a car loan in order to purchase a car. Your credit score will greatly affect whether this is a good idea or not because a good credit score means you can finance for nearly 0% interest but a bad credit score means you will pay much, much more.

Bad credit will cost you more when you get a car loan and can affect if you even get qualified and if you even qualify a bad credit score will limit the amount of money you can borrow. Bad credit scores limit your choices and end up costing you much more money.

Credit Can Affect Your Employment

Not ever employer checks your credit but many employers have started conducting credit checks as part of your hiring process. Employers will pull your credit report and evaluate your ability too pay back debt and handle your finances.

A bad credit history may convince an employer that you are not going to be able too handle the salary they can offer or you may be a risk in some way depending on the type of work. Employers may be hesitant to hire you when you have a bad credit history.

Credit Scores Affect Car Insurance Rates

Did you know that your credit score can affect your auto insurance rates? When you apply for new insurance the insurance company will check your credit in order to determine your rates.

Insurance companies will use information from your credit report and insurance history to develop your insurance risk score, which often penalizes people with low credit scores. If you have bad credit you will end up paying more for your insurance premiums than someone who has good credit. People with good credit scores routinely pay less for their insurance than similar applicants with lower credit scores.

Business Loans Require Good Credit

If you are planning to start a business and plan to take out a business loan then you will need good credit personally. When you are taking on business debt lenders will be using your personal information and credit profile to make their decisions in addition to your business plan.

Having good credit can help you start a business that eventually makes you more money than you would have made in a traditional job. Having bad credit can prevent you from doing this or make it more risky by taking on higher interest loans that put more stress on your new business.

Credit Can Affect Your Daily Living

While many services do not report your payments to the credit bureaus they do use your credit to determine factors about your account or whether or not they will establish you as a customer.

Utility companies will check your credit in order to see if you will be a customer that pays on time or not. Most utility services will conduct a credit check – from cable to cell phone providers to water.

Because all of these services check your credit it can be more expensive and difficult to afford normal living expenses if you have bad credit. Having bad credit shows your level of financial responsibility so having good credit will indicate to any service you need that you will be a responsible and worthwhile customer.

Having Good Credit Makes Life Easier

Clearly having good credit is important. It affects many areas of your life and having bad credit will force you to pay more for the same things others get at a much lower overall cost.

The good news is your credit score is something you can work to improve!

Here are a few posts where you can find tips to improve your credit score:

• How To Improve You Credit Score
• Favorite Credit Improovement Tools

While you can’t improve your bad credit overnight you can start taking steps to improve your credit history and credit score today. In a few months you’ll start to see you credit improving and eventually you’ll have all the benefits of good credit too!

I love watching investing videos on YouTube about dividend stock investing, and I put off doing it myself for almost two years.

However, I know one of the biggest investing mistakes is not taking action toward a goal so in early 2020, I started an account specifically for dividend investing.

Why Start Dividend Stock Investing?

Are you interested in investing in dividend stocks? Do you know why people choose dividend stocks? Why should you start investing in dividend stocks?

Let’s look at the basics of dividend stock investing!

What is a dividend stock?

If you are first being introduced to dividend stock investing you might wonder what exactly dividend stocks are.

Divide stocks distribute a portion of the company’s earnings to their investors on a regular basis. Most dividend stocks pay the investors quarterly but some do it on a different payout schedule like monthly.

When looking at dividend stocks you will see it has a dividend yield, which is the percentage of the stock’s current price that is paid out to shareholders.

If you hold shares of a stock with a dividend yield then you will be paid out based on that number. It is important to realize that stock dividend yield’s can change over time in response to the market and companies can also suspend or decrease dividends if they need to based on earnings.

When you receive a dividend payment it means the company things you will benefit more as a shareholder than they would by reinvesting that money. This is why newer companies tend to not have dividend payouts but older companies are more likely to pay dividends.

Why invest in dividend stocks?

Many people choose dividend stocks for their investing strategy when they want an investment that offers regular income.

Divide stocks distribute a portion of the company’s earnings to their investors on a regular basis. Most dividend stocks pay the investors quarterly but some do it on a different payout schedule like monthly.

Investing in dividend stocks mean you will be building up an income stream that is made up of those dividend payouts.

Dividend stocks are a great option for buy-and-hold type investors who plan to reinvest the dividend because your dividend payouts will be buying more of the stock for you.

Dividends are only one part of the stock’s total rate of return because these stocks also change in share price like every others stock. The stocks increase in return also provides growth to your overall portfolio.

What are the benefits of dividend stocks?

There are so many benefits of investing in dividend stocks.

The first of course, is that income stream from dividend payouts.

The next is that dividend stocks tend to be less volatile than growth stocks so they can help you diversify your overall strategy with a different type of risk.

Dividend stocks like the Dividend Aristocrats can be a reliable source of income over the years. (Read more about these stocks further on!)

Personally I chose building a dividend stock portfolio for the creation of an additional income stream that would continue to provide income in the future. I also wanted to diversify and play around with learning about specific companies since my main investments are all in index funds.

Where To Buy Dividend Stocks

So how do you invest in dividend stocks? How exactly do you buy this type of stock investment?

Choose An Investing Platform

You can invest in dividend stocks on any investing platform that allows you to open a brokerage account to buy individual stocks. Here are a few popular ones that allow you to buy stocks without any commissions.

• Robinhood App (one free stock for signing up)
• M1 Finance (amazing technology and fractional shares)

You can open brokerage account to buy these stocks. A brokerage account is not a retirement account so keep that in mind.

You can also open a Roth IRA account and look into purchasing dividend stocks within your Roth IRA as well.

How To Pick Dividend Stocks

One area where I think many of us struggle when trying to invest is choosing what to invest in. How do you pick stocks? How do you evaluate dividend stocks?

Here are a few considerations when trying to choose dividend stocks for your portfolio:

• Look at the company as a whole financially. Do they have a stable history? Do they have sound financials? Are they in massive amounts of debt or have plenty of cash?
• What’s the history of the stock? Does the company have a long history of profit growth and dividend increases?
• Is a dividend sustainable for the company? Evaluate if you think the company is paying out too much of its profits to dividends. Personally I like to see that the dividend stocks I buy don’t pay our more than 50% of earnings as dividends. Keeping earnings allows companies to grow.
• What is the company’s growth potential? Some companies have limited growth opportunities so you want to consider if the company you are investing in has the ability to grow continually.

Remember that I’m not an investment advisor so this is just what has worked for me and my opinion.

If you aren’t sure of which stocks to buy you can always turn to investing experts of a list of stocks that are traditionally known as the Dividend Aristocrats. The Dividend Aristocrats are stocks that have increased their dividends for 25 consecutive years and it can be a great place to get started when you aren’t sure how to begin.

Here are some curerent examples of Dividend Aristocrats you’ve probably heard of who’ve had a long consecutive record of dividend growth:

• Aflac (AFL)
• AT&T (T)
• Cardinal Health (CAH)
• Clorox (CLX)
• Coca-Cola (KO)
• Colgate-Palmolive (CL)
• ExxonMobil (XOM)
• Johnson & Johnson (JNJ)
• McDonald’s (MCD)
• Medtronic (MDT)
• PepsiCo (PEP)
• Procter & Gamble (PG)
• Sherwin-Williams (SHW)
• Target (TGT)
• Walmart (WMT)

This is just a small selection of the Dividend Aristocrats and you can find the others through a quick Google search to see which companies are on the current list. The list is updated once a year in January and occasionally some companies can be removed for other reasons.

The companies on this list have several qualifications and generally have to be large enough and have high share volume to meet demand for millions of investors. This leads companies on the list to generally be good picks because they usually remain stalwarts that are unlikely to be acquired by another company (and are usually the ones doing the acquiring).

These can be a great place to start as a beginner to choosing dividend stocks since they are companies with a proven track record of paying out dividends.

Investing in dividend stocks through ETFs

Another option for buying dividend stocks is to do it through an ETF. ETFs are exchange-traded funds which means they are investment funds traded on the stock exchange just like stocks.

ETFs can hold assets like stocks, bonds, or commodities and there are many different types including ones made up of dividend stocks. ETFs are bought and sold during the day while the stock exchange is open and this causes the price to fluctuate during the day.

One of the benefits here is that a dividend ETF usually includes dozens if not hundreds of dividend stocks which spreads out your risk over multiple companies. This generally protects your ability to get a dividend because even if some companies cut their dividend that will have a smaller effect on the fund’s dividend overall.

When choosing a dividend ETF you should again look to evaluate the fund you are buying:

• Find dividend ETFs buy searching for them on your broker’s website (find a broker above in “where to buy dividend stocks”)
• Analyze what the ETF is actually invested in and the details. Consider the actual investments, the dividend yield, the returns over the last 5-10 years, the expense ratio.

Just like buying a dividend stock you will want to evaluate the ETF in the same way.

Where I Do Dividend Investing

I decided to start my dividend investing on the Robinhood App platform.

My dividend investing portfolio is set up for the goal of achieving a dividend income for my daughter in 15 years or so.

It’s a long term play for me which is why I buy strong stocks that pay dividends and then reinvest the dividends into my portfolio.

How I’m Investing In Dividend Stocks

My plan for investing in dividend stocks in my “Penny Portfolio” is a little bit different than the normal way most people invest. I will be investing a small amount monthly, but I mostly plan to use this as another impulse spending tool. I plan to fund this account irregularly in a couple different ways.

• First way I will invest in these dividend stocks, whenever I want to impulse buy something my daughter doesn’t need like cute clothes, I will instead invest in her account. She has enough clothes to last til she goes to kindergarten so I don’t need to buy them, I just want to. Instead I plan to buy a stock share with that money and continue to create an asset that will last for decades instead of a piece of clothing she will outgrow in a few months.
• Second way I will invest in dividend stocks is whenever I sell something of hers that is currently not being used I will invest that amount of money. I have a pile of toys that need to be out of my house soon, so when I declutter I will contribute that amount earned into the Penny Portfolio.
• The final way I will invest in dividend stocks in this portfolio, is to contribute $10 a month in our normal budget. As you guys know, I like having small amounts like this in our budget just as a reminder of our bigger goals. While it may not be a focus, those little amounts add up in the background as we are doing other things with the majority of our money. Plus, $10 isn’t much and doesn’t hurt out budget since we’ve cut so many regular expenses and focus on free fun activities!

Free Stocks I’ve Got On Robinhood

The great thing about growing an account on Robinhood for dividend stocks is that referring other users allows me to earn free stocks.

People who watch my videos and read my blog are helping build this portfolio of stocks by using my referral link to sign up for Robinhood.

If you sign up using my link, you will get 1 free stock and I will get 1 free stock as well. So if you use my link you will be contributing to the Penny Portfolio and we will all be building this up to provide an amazing future to the cutest kid I know.

I’ve been very blessed to get a number of free stocks on Robinhood this year. I made a video sharing some of the free stocks I received on Robinhood during that week:

I like to share what free stocks I’m getting from Robinhood for a few reasons:

• to show you what free stocks Robinhood is giving out these days
• to show you what free stocks you might get for signing up with Robinhood
• to be transparent about the fact that I am receiving stocks from referral signups (thanks guys!)

Every single week since I’ve started I have received a few free stocks and I’m thrilled people are getting interested in investing!

Since this portfolio is 100% focused on dividend investing I’ve sold any stocks that did not pay out dividends and used that money to buy more dividend stocks of our choosing.

Why Dividend Stock Investing?

I wanted to share this little dividend stock portfolio project I started in order to let you know why there was a $10 Robinhood line item in our budget for those who were curious.

February 2020 was the first month for this account and several months later in June 2020 I hit $1,000 invested in my dividend portfolio.

Now that we have $1,000 in the dividend portfolio in Robinhood we will now work toward hitting $5,000 invested. The ultimate goal will be much higher than this in order to create a steady stream of income from the dividends.

The companies we are investing in through this portfolio are all companies that we love, trust, and actually use in some way. We’ve chosen to invest in companies that we actually use on a regular basis. This includes:

• Disney
• Microsoft
• Apple
• Starbucks

And others! We’ve also bought some shares of a Vanguard ETF that more broadly covers the markets and helps diversify our account overall.

I’m excited to continue increasing this account and growing it so that we can eventually use the dividends as an income stream!

This is the perfect time for a reminder that I am not an expert at all and this is just me sharing my personal experience. This is not financial advice, this is just entertainment and me sharing my experience. My stock picks are personal and never a suggestion that you should pick the same. Do your own research!