Netflix Method for Building Credit

Sticking to a budget is easier when you know how much you are going to pay each month.  That’s why subscription services are so great, you don’t have to budget in the number of times you use the service.

Just like the Gas Method of building credit, my completely un-patented and unoriginal “Netflix Method of building credit” is a way to keep credit card usage consistent. Putting a subscription service on your credit card could be a good way to budget your credit usage, but like all credit tips, it can come with its potential risks.

How to do it?

1.) Set your payment method for Netflix (or any other subscription service) on auto-pay with your credit card

2.) Use Netflix (as we all do)

3.) Remember to pay it off every month!

The 3rd step is the real kicker. If you forget that you paid for Netflix on your credit card, the payments could add up and gain interest! Thankfully, a Netflix subscription is cheaper than a tank of gas a month, so forgetting it isn’t going to blow your credit if you only forget once. But forgetting for a year or more could easily begin to put you hundreds of dollars in debt.

Is this right for me?

If you like having a steady, consistent budget and have a good memory then I think this is a great budgeting technique. But, I do know it’s already easy to forget about auto-renewing payments and having one on a separate card than your regular account does make it hard to remember. Someone on a tighter budget may not find it worth the hassle of remembering.

Hard vs. Soft Credit Inquiry

Creating an accurate credit score is a very complicated process. Many things decide your credit score, including those unrelated to making payments.  One thing credit card companies don’t want to seeis  someone gaining too much credit too quickly.

Quickly trying to open many lines of credit could be a sign that someone is heading into financial trouble or may be taking too many risks.  In order to track how often people are checking or changing their credit,  credit bureaus classify it as either a hard or a soft credit inquiry.

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A hard inquiry affects your credit score negatively.  It tells the credit card company that you are trying to increase your lines of credit.  Hard inquiries appear if you open up a new credit card, try to get approval for a loan, apply for a mortage, etc. Generally, you will have to approve a hard inquiry, but that is not always the case.  Luckily, hard inquiries have a small effect on your credit score, and the effect lessens over time.  If you find yourself having too many hard inquiries, the best option is to wait them out and keep your credit payments up to date.

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Soft Inquiries have no affect on your credit score.  Soft inquiries occur when you track your credit or sometimes when a company asks to check your credit score.  Some credit bureaus do keep track of the soft inquiries into your credit, but they do not affect your credit score and should only be visible to you.

How to know if someone will perform a soft or hard inquiry?

If the company asks your permission, it is likely a hard inquiry.  Don’t fret however, because a single hard inquiry will have a very small effect on your credit score.

 

First Credit Card Mistakes To Avoid

Getting your first credit card can be a scary experience. Credit card debt can grow exponentially if you’re not careful and can affect your ability to buy a car, a house, or even get a job. Ideally, spending money you don’t own is never a good idea, but it’s not always practical.  Whether for building credit, or making end of month payments, here’s the most common credit card mistakes new credit card users make.

1.) Carrying a balance month to month.

I’m not sure what started this myth, but it is NOT TRUE. Carrying a small balance from one month to the next does not help increase your credit score.  For the best results, pay off each balance in full at the end of the month.

3.) Ignoring your credit utilization rate.

Even if you pay off every cent each month, you may still be hurting your credit score.  Credit companies also like to track that you are not using too much of your available credit.  Although this has less of an impact on your score compared to other things, lenders want to see that although you have credit available, you are not in a position to be using too much too often. If your credit utilization is above 30%, call your bank and ask for a raise in your available credit. This way, you can keep your spending the same and reduce your credit utilization. However, raising your available credit may result in a hard inquiry.

4.) Too many hard inquiries.

If you apply for a new credit card, increase your available credit, or apply for a loan, you will likely have a hard inquiry reported on your credit report.  A hard inquiry negatively affects your score because it shows that you are gaining too much credit too fast.  Don’t worry, because a hard inquiry is only reported for about 2 years.  Checking your credit score for non-lending purposes (like if you are using an app such as CreditKarma), is a soft inquiry and will not affect your credit score.

5.) Not tracking your credit.

In this day and age, there is absolutely no excuse for not knowing your credit score. Tracking your credit score is the best way for you to learn how changes in your spending affect your credit.  It is also important because the credit bureau might make a mistake in your credit that could go undetected until you need to take out an important loan.  You can dispute errors on your credit card, but only if you find them.

6.) Overvaluing the rewards.

Almost every credit card company offers rewards based on how much or where you decide to spend your money.  Any program that encourages you to spend money in order to make money should make you very nervous. Credit card companies offer rewards because they know it encourages most consumers to spend more money than they initially would.  A 3% cash back rewards may sound like a lot, but often times you will spend more than 3% in anticipation of rewards.

 

What’s been your biggest credit card mistake? What helps you stay on track of your credit?