How to Improve Your Credit Score Made Easy, brought to you by Ketzbook.
In this video, I am going to help you understand what a credit score is and how it’s calculated,
show you how to improve your credit score and keep it high, AND I’m going to give
you THREE tricks that can quickly boost your credit score.
So, first of all, your credit score is basically a number that tells banks or other institutions
how good you are at paying your bills and how likely you are to pay back a loan (on time).
FICO credit scores range from 300 to 850, the higher the better.
Having a good credit score enables you to buy expensive things like a house or a car
or something for your business, and pay for it gradually.
It enables you to get the best available credit cards, which will pay you to use them.
I make almost $1,000 a year just by using credit cards for all my purchases.
A good credit score also will help you to get lower interest rates when borrowing,
and it can even lower the cost of your insurance.
Generally, you need a score of at least 760 to get the best possible interest rates on a loan.
That interest rate can make a big difference in what kind of home you can buy.
Suppose you can only afford to pay $1200/mo after a 20% down payment.
If you increased your credit score from 630 to 760, you would be able to buy a house costing
$50,000 more and still have the same monthly payments.
However, if your credit score is less than 500, you won’t be able to get any loan.
The first step to improve your credit score is to understand how it is calculated.
There are four main factors that can influence it:
The first and most important factor is whether or not you pay your bills on time.
This accounts for 35% of your credit score.
There are no ways around this one.
You simply have to pay all your bills on time, and the easiest way to do this is to set up
automatic payments for all your bills.
If, however, you have an overdue bill or derogatory mark on your account,
pay the most recent ones off first.
Older derogatory marks do not hurt your score as much as recent derogatory marks.
Furthermore, don’t just pay an overdue bill by mailing a check; pick up your phone and
call the company.
Explain why you missed the deadline.
Use your nice guy voice.
Ask them to please remove it from your credit report and remove any late fees.
Offer to pay the full amount due.
Remember, they just want you to pay your bills, and they have the ability to remove any penalties.
Okay, before we go any further, have you ever seen your own credit report?
Not just your score, but the full report.
You need to read your credit report so that you can figure out what is hurting your credit score.
Maybe there’s a bill you forgot about, maybe there's a mistake,
or maybe someone stole your identity.
You won’t know unless you read your credit report, which you should be able to get for
free from any of the three major credit bureaus, Experian, TransUnion, or Equifax.
All of them will try to get you to sign up for some paid service, but you don’t need that.
Just get the free credit report.
I personally use Experian, but the others should work fine too.
After you read the credit report, what do you do if you find out that there is a mistake
or possibly fraud?
Or, what do you do if your debt has already gone to a collection agency?
As far as your credit report goes, I suggest the same response, which is my first trick.
Send a 609 letter to the credit bureaus.
Write something like the following:
I’m exercising my right under the Fair Credit Reporting Act, Section 609.
Please send me the original sources of information reported including, but not limited to, the
original contract with my signature for the following account(s):
(here you should list the account names and numbers)
If you can’t provide me with this information, please remove the account(s) immediately.
Be sure to sign the letter, and write your name, address, phone number, date of birth,
and social security number.
This should help to remove any mistakes on your credit report.
In addition, collection agencies often do not have the original documents,
which are required by law.
This won’t stop the collection agencies from bothering you, but it could remove them
from your credit report and help your credit score.
Keep in mind that this won’t work if the collection agency has the original documents.
The second factor that determines your FICO score is the amount of credit you are currently using,
which accounts for 30% of your credit score.
This is simply a ratio of the amount you have borrowed using your credit cards divided by
your total credit limit.
Ideally, this should be less than 10%, or at the very least less than 30%.
Anything more than that will hurt your credit score.
This can be improved two ways: decreasing the amount you owe on your credit card accounts
or increasing your total credit limit.
So, if you can, every month you should autopay your entire statement balance for every account you have.
Unless you are experiencing some financial crisis at the moment, it is ludicrous to EVER
carry a balance on a credit card.
Carrying a balance hurts your credit score and costs a lot in interest.
In addition, there is a little trick that can help improve your credit score even more.
Pay your account balance BEFORE your statement is generated.
This will bring your credit usage down to nearly 0% and give your FICO score an extra boost.
Alternatively, you can increase your total credit limit by getting more credit cards
with no annual fees.
This will hurt your credit score a little at first, but after about a year it will help
your long term credit score.
At the very least, never cancel a credit card unless it has an annual fee.
Even if you don’t use it at all, it helps your credit score by boosting your total credit limit.
Lastly, and perhaps the easiest thing that you can do today to improve your credit score
is to request a credit limit increase for all your credit cards.
You can probably do this online, although it might work better to ask over the phone.
The third factor that determines your FICO score is the length of your credit history,
which accounts for 25% of your score.
Generally, this is going to take years to improve.
It’s good to start by getting credit cards as young as you can responsibly use them.
Also, keep in mind that any hard credit inquiry will hurt your credit score for a year.
This includes applying for a credit card or loan, so try to spread out credit card and loan applications.
There is actually one way to quickly build credit history without waiting,
and that is my third trick.
Find a relative or friend with really good and long credit history.
And ask them to add you as an authorized user on one or more of their old credit card accounts.
Make sure they have never missed a payment and they have low utilization.
You do need to use your social security number, but they do not need to give you a credit card.
The beauty of this trick is that you will adopt some of their good credit,
but they cannot be hurt by your bad credit.
This is NOT cosigning.
As long as they don’t give you a card, there is no risk for them at all.
The fourth and last factor that determines your FICO score is the variety of credit you
have used, which only counts for 10% of your credit score.
So, you can improve your long term credit score by having a variety of accounts.
In addition to credit cards, this can be helped by having store cards, bank cards, student
loans, car loans, mortgages, and personal loans.
The more accounts you have the better, and a perfect score can only be achieved by maintaining
more than 20 accounts.
However, this has only a small effect on your credit score, and it is always a bad idea
to get a high-interest loan.
All right, thanks for watching, and good luck with your credit score!
Please share your own experience below in the comment section, and check me out at ketzbook.com.
Have a wonderful day!