How to IMPROVE Your Credit Score 800 (SECRETS/STEPS for PERFECT Credit)

How to IMPROVE Your Credit Score 800 (SECRETS/STEPS for PERFECT Credit)
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    I'm confused when you want to get credit to use they tell you you need credit but how are you supposed to get credit if no one will actually give you credit does that sound familiar we'll keep watching because I'm gonna share with you everything you need to know about how to really get good credit and to keep it for life I run into so many people who know very little about their credit they're even afraid to look at their credit score and it's and you know it's understandable there's so much folklore and misunderstanding about credit and most of it most of it coming from parents and grandparents gonna think about it when most of your parents or say grand parents were growing up credit was not immediately available to most people they live in a cash world and if you didn't have cash you put it on layaway until you had the cash to get it out or you didn't buy it until you had the cash if it was hopefully still around I remember my mother surprised me for my 15th birthday with a yellow ten-speed bike from Sears that she had on layaway for several months parents and grandparents concern over credit is understandable for most of their lives I grew up without easy access to credit and as you learn in this video it's easy it's not always better our goal with this video is to really dispel the myths. surrounding credit and to give you a simple bullet proof plan to successfully obtain and manage and maintain the type of credit score that unlocks the world you thought was never available to you here are 7 questions answered in this video number 1 what is credit number 2 why do I need it number 3 what is what is it credit score right and then number 4 what are the three main credit scoring systems number 5 what does FICO actually mean how do you establish credit number 6 and number 7 how do I maintain a good credit history okay so those are what we're gonna talk about so what is credit well buying it by definition credit is simply the ability to borrow money to purchase goods and services credit is a financial instrument unlike any instrument or tool if used responsibly can build an empire or misuse can quickly dismantle an empire despite what you've heard you don't need perfect credit or a perfect credit score to get access to thousands not millions of dollars within the financial world what you need is simply good credit we'll explain the difference in this video the distinction is important so keep watching why do I need good credit well because well good credit unlocks the next level like quality for you this obviously has to be contented with you know the money to pay for the items that you're gonna buy but that should go without saying but assuming you do have the money with good credit you can rent a better apartment than you could with bad credit buy a better home gain access to higher paying jobs get better insurance rates get a lower rate on credit cards and car loans well you're probably asking why do I get better rates on these things when I can actually just pay cash for these items and why does it matter it's because companies use your credit report to determine if you were a responsible player and they determine this by requesting and reviewing your credit score so that tells them a lot about who you are so what is a credit score it's a three-digit number known as a FICO score that dictates your access to a whole world of financial possibilities it's used to measure your financial responsibility that's how well you've managed the credit you've been extended this far and summarizes to a credit grantor if you're worthy credit risk credit score is one of those things where the credit grantor believes your past behavior is a great indication of your future behavior regarding your credit use and responsibilities and in the case of a FICO score a higher score is better than a lower score in general now you've heard the term cycle but what does it actually mean it stands for Fair Isaac corporation the best known of the several companies that provide software for calculating a person's credit score third Isaac corporation also known as FICO was the first company to offer a credit risk model with a score so what are the three credit scoring systems well there's TransUnion Equifax and Experian so these systems independently track record score and report your use of credit so what is a FICO score range in general without getting in the weeds here and splitting hairs for most consumers to score for each of these scoring systems arranged between 300 to 850 and general higher is often better than lower scores between 725 and 800 are considered really good but score alone is not the only factor as you'll see in this video it's possible that someone with a 725 score gets better terms and a lower rate than someone with an 800 credit score so it's not all score one of the things I hear some people talk about is a FICO middle score and let me explain this a FICO middle score as it's explained by a lot of people right it talks about three scores so each of the credit girls will give you a score and what you do is you'll have the high score a middle score and a low score so you kick out the high kick out the low and you're left with the middle score that middle score is your middle score or somebody some people might even call it a median score so that's what that is and it shows you what that that middle score is so in this scenario your median score would be 713 because you drop the high in the low this is very similar to to some degree to a vantage score understand your middle score is just an estimate not a complete picture it's a bit more complicated than that let me see if I can explain without losing you michael has versions of the scoring system the latest version is FICO score nine and that was introduced in 2014 despite the new version release most lending institutions still used a prior version which is FICO score eight and their decision making process because although it's a little bit more sensitive to high credit card utilization it is also more forgiving of isolated late payments than FICO score nine so although the middle score is an estimate we still think it's a good tool and serves as a pretty decent indicator of the area your credit score is position without having the FICO secret formula which honestly no one has now that we've provided a good foundation of understanding of what credit is why you need it what a credit score is what the three credit scoring systems are what FICO is what it represents we can now move on to how to establish good credit but before we do that let's clear some definitions before we before we actually start reviewing the five components that make up a credit score so you know their meaning and where they apply first definition is revolving credit if it's plastic in swipeable its revolving credit so just think credit cards our second definition is installment loans these are usually auto loans mortgages in student loans another term is hard inquiry or hard credit inquiry sometimes called a hard pull of your credit happens when a financial institution or credit grantor pulls your credit to make a lending decision it will actually lower your credit score and can remain on your credit report for up to two years a soft inquiry however or soft pulls usually used for background checks typically used by employers insurance companies banks landlords or you yourself requesting your own credit report so contrary to what most people think soft inquiries will not lower your credit score but may or may not show up on your credit report depending on the credit bureau reporting here are five components that make up your credit score number one the first component and most important is payment history it makes up 35% of your credit score make up lenders want to know do you pay your bills on time when it comes to credit your past performance is an indicator of your future behavior number two is credit utilization or balance to limit ratio which is a measure of the percentage of available credit that you have to borrow it has been recommended by some that you should not exceed more than 30 percent of your total available credit per credit card or installment loan this thirty percent number is not a hard and fast rule however but a general guideline that got circulated there is actually no benchmark credit utilization ratio above zero that will maximize your credit score because every credit card is different in their reporting some of the highest FICO scores are people with an average credit utilization of less than 6% what's being measured here is your overall capacity this is about how much installment debt is outstanding this is what it's reported to the credit bureau not the balance you're paying interest charges on every month and what net so in what matters for the credit girl's calculation of your credit utilization so as an example you have a credit card that has a thousand dollar limit let's say you have a $700 balance outstanding simply divide the $700 outstanding balance by the thousand dollar credit limit and you arrive at a 70% credit utilization for that credit card and to get an idea of your total credit utilization you would add up all your credit balances and all your credit limits and divide the total of your balances by the total of your credit limits the power of the credit utilization is having access to more the right credit without having to use it all as you can see from the first two components we've talked about so far 65% of your credit score is dependent on payment history and credit utilization paying your debts on time and not carrying large outstanding balances is critical if you focus on nothing else that I've talked about so far but these two you can drastically change your credit score within the next six to twelve months the three remaining components is about fine-tuning your score but remember as I said in second in this section what is the FICO score range score is not everything two people can have the exact same score and receive a different interest rate call from the same Bank based on how the remaining components are aligned to put yourself in the best position to optimize your credit score with any lender you'll need to integrate all five components let's talk about the other three components that impact your score number three and level of importance is your length of credit history this makes up 15% of your total credit score and is based on the length of time of each that each account has been open so you'll want to think about this pretty critical is 15% and number four your credit variety it makes up 10% of your total credit score this is a mix of revolving and install and credit like having credit cards auto loans mortgages and even consistent utility bills credit variety is very helpful to your credit score but has to be done over a longer period of time instead of all at once remember component one number five any new credit this is about recent credit activity and makes up 10% of your credit score in this scoring component the credit bureaus are looking at how recently meaning the last three or six months you've applied for new credit how you've paid on existing accounts if you've taken on more debt during that three to six month period now be extremely careful with this one it's this again it's the skillful combination of all five components that will help you unlock larger credit limits on credit cards and loans let's talk about how to build credit there are three methods for building your credit you can use a secured credit card unsecured credit card or use an authorized user' you can apply for a secured credit card which is a great way to initiate or start developing your credit now how it works is you put a refundable deposit in the bank usually ranging from anywhere from $50 to $500 and the bank issues you a credit card up to 500 or whatever the limit is and this prevents you from overspending credit unions are often a great place to apply it for a secured credit card because they don't typically charge fees and there's no overdraft or interest charges since you can only spend what you have deposited after all it's your money I started building my credit initially years ago when I was young using this method and my wife and I taught each of our kids to do the same it usually takes about 9 to 12 months to demonstrate responsibility using this method and it'll show up on your credit report right about that time right about that 12 month range the second method is using unsecured credit card this is one you'll need to actually obtain some credit to actually get this is the most common type of credit card they're called unsecured credit cards because they're not collateral based meaning it's not attached to any real property like a house or car that a bank concedes if you fail to pay so if you don't have established credit well the secured credit card is is a better option for establishing initial credit the third way is you can use you can use this what's called an authorized user and that is you can be authorized on an existing account of another person and that's an account that's been held in good standing ok so this allows you to inherit the the great credit profile of that account as if you were actually them this doesn't mean your parent or relative will give you a credit card and access to their great account they've worked hard and long for that great account they're not about to jeopardize that account so the purpose of this method however is that it may make it easier for you to apply for a new personal unsecured credit card account on your own actually watch our one of our recent videos about credit cards and which ones are the best that might work out for you there are some limits of this because banks have gotten smart a lot smarter about dealing with this loophole and if you're able to use it it may make it a little bit easier to establish a better credit profile a lot sooner you could also expect the credit that you are extended to be relatively small using this method but it could be a quicker way to get started I call this the nuclear option and it's one I've actually never used for my kids we taught our kids to make money save money and then open a secured credit card account and build their own credit using a secured card and once they've establish themselves apply for an unsecured card and manage it responsibly I don't cosign for my kids we teach them correct financial principles and let them govern their own finances nor do I recommend any parent do it if you want them to learn and apply financial responsibility early if you do want to use the nuclear option these are some criteria that the credit holder of the account must meet and they and they are the account should be at least ten years old or more the account cannot have any late payments and the credit card is at no more than ten percent credit utilization we talked about credit utilization earlier in this video so if you need to go back and watch if the credit card doesn't fit this criteria it will pull your credit down further than it was before being added as an authorized user so be careful with this it will do more damage to you if it's done the wrong way remember good credit can take some time to develop but it can be lost in a blink of an eye so make sure as you get it protect it now that you know what makes up the five components of a credit score and you know several ways to begin building credit let's talk about what it takes to maintain your good credit one of the things you'll want to do is you want to pull your personal credit report at least once per year when you do this get the paid credit report the free ones are okay but the paid ones are better because you want all three it will be one of the best dollars invested for wealth for the well-being of your financial future this allows you to review changes to your credit report and catch any inaccurate reporting that could lower your score and go on notice you can use the free services but they don't give you all three so again you want to see all three reports if you have some negative items on your credit report you want to immediately go to work and have them removed if possible now to do this I highly recommend a well written and organized credit dispute letter a credit dispute letter or 609 dispute letter or sometimes called a debt validation letter they're all the same it helps you professionally address inaccuracies found on your credit report and request they be validated and if they can't be validated request a removal from your your credit report it has proven it's been proven very effective in helping and remove erroneous tax liens repossessions collections bankruptcies derogatory accounts or closed accounts or charge offs or late payments and even hard inquiries and effectively if you use it right effectively raise your score and 45 days I like letters for this removal process because although it may take longer it provides a better paper trail of your efforts as you move through this process now we've attached a copy of a 609 letter at least a link to it for your free you so it's a free copy be sure to go to our show notes below for that for that link and where that is it's called a 609 letter after section 609 of the Fair Credit Reporting Act so where did the name 609 come from well it's called the 609 letter after section 609 of the Fair Credit Reporting Act or fcra dealing with consumer disclosures that provide some basic protection to consumers against false and erroneous reporting well in plain English section 609 places the burden directly on the credit bureau and the creditor to prove an account is actually your account to do this the creditor must give the credit bureau a copy of the original credit the creditors documentation that's what you filled out and sign to actually open the counsel they have to deliver that to the credit bureau to prove here are some helpful tips to getting the best results with your 609 letters use a template and follow its instructions dispute no more than a maximum of 20 items and one letter also make sure each credit bureau gets their own individual letter addressed to them spaces 609 dispute letters four to five days apart as you send them to each credit bureau this can be helpful in potentially getting items removed after sending each credit bureau one letter Meli's letter by certified mail whether with a return receipt requested if you haven't heard of anything from the credit bureaus after about 30 days you may need to basically rinse and repeat this process with each credit bureau multiple times to get items removed be persistent it's your credit report if you're still not getting the responses you need you can contact the Better Business Bureau or the Consumer Financial Protection Bureau or CFPB as are known to file an official complaint now some finer tuning methods pay on time keep your balance to limit ratios low that's your credit utilization we talked about that before try to keep it between 10 and 30% if you can try to pay your credit card account to 30% or less one to three days before the statement date which is usually the same every month because it's the balance that credit card or loan that gets reported to the credit bureaus when you pay up your entire balance before the statement date you eliminate paying interest and your credit utilization will be seen as zero by the credit girls at times you may take several it may actually take several payment cycles before the interest charges to actually clear but they will if saving on interest charges isn't important and you need to hold on to more cash at the time pay the minimum because it doesn't matter to the credit bureaus whether you're paying on the minimum or not paying on time is much more important to establish yourself as risk worthy by the credit bureaus I caution you on this though don't make Payne the minimum I have it because it will keep you poor work to maintain a good credit variety of revolving and installment loans this kit this can actually be done in a few short months this takes several years to obtain so this is more about being The Tortoise and not the hare try to reduce the number of hard inquiries per year which sometimes occurs when people get into financial get into a financial pinch and are basically living on credit for some helpful strategies with us be sure to watch our video how to pay off debt super fast and how to manage your money properly understand that 70 percent of your credit score is derived from what you've done in the last two years don't allow any of your credit accounts to go into collection live and spend like you expect the worst to happen this will help you keep your buying appetite in control remember every dollar you spend on credit that you can't pay off in 30 days it's like selling a part of your financial future it's not how much you know that matters but what you do consistently with what you know that does now take this information and change your financial future and please share it with family and friends because they don't teach this in school so if you like this video give us a thumbs up and obviously please subscribe hit the notification button to be notified of our upcoming video we'll see you next time
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