Hey guys, it's Suzanne with Arvabelle. In this video we're going to go over
what a credit score is, the five things that affect your credit score, and how you can get around the catch-22 of
establishing credit. Because you won't have a credit score without having a credit card
But it's a little bit hard to get a credit card without having a credit score. So
That's fun
but what even is a credit score? A credit score is a number between 300 and
850 that lets banks, credit card companies, and lenders know how likely you are to pay them back.
They're looking at your credit score to determine how much of a risk they're taking by letting you borrow their money. Any score above
740 - 750 is considered really good. The higher your credit score the lower
your interest rates will be
but the lower your credit score the higher your interest rates will be and the more likely you are to be denied a loan or
a line of credit. And your credit score is very important because it applies to more than just
credit cards. In the future if you ever plan on taking out a loan for car, a house,
college - having a low interest rate will save you thousands if not tens of thousands of dollars over the course of that loan.
So what are the five things that affect this score? Number one is history length.
This is just how long you've had a credit card, or how long you've had lines of credit open.
And this is why people say not to close down old credit card accounts. When you close a card,
it also closes all of the credit history that was associated with that card.
If you don't like an old card that you have,
just make a small purchase on it once every year or six months or whatever
they require to keep the account open. If you're closing it because you don't want to pay the fees anymore on the card just
call the credit card company and see if they can downgrade you to a card without maintenance fees.
Number two is credit mix. They want to see that you have different types of credit cards, that you've taken out different types of loans,
and they want to see that you have built up large amounts of credit that are available to you. The more money
that you have available to you in your credit mix, the higher your score. Number three
is inquiries for new credit.
This is how often you apply for new lines of credit. Every time you go and apply for a loan or
apply for a credit card it's
marked, and generally they don't like to see more than one application per six months.
It looks suspicious if you're trying to apply for five lines of credit in a month.
They look at that and they go, "why is this person trying to access all of this money at once?"
"They're probably not going to pay us back." It is a very common myth that checking
your own credit score will hurt it. It will not. It will only hurt when you're applying to a bunch of different lines of credit and
they're pulling your credit score for the application. So you can go and use credit karma all you want and it won't hurt.
Number four is payment history and on-time payments.
Always pay your credit card bill on
time and in full. If you're worried about paying on time go into your settings and select
automated pay and it will do it for you. You won't even have to worry about it.
It is also a really common myth that you need to carry over a balance and pay interest in order to build your credit score.
You do not. Pay it off on time
and in full every
single month - and you will be good. Credit card companies are not going to penalize you for paying them.
Number five is your utilization rate. This is how much of the credit available to you
you're actually using. And companies like to see a really low
utilization rate. The lower your utilization rate, the higher your credit score.
Companies usually like to see you using less than 30 percent of what's available to you
so on your first credit card
if you have, say, a $1000 line of credit try not to go over $300. And now we will go into
establishing credit to get a credit card to get credit.
first open a checking or savings
account with a bank that also offers credit cards. That way you can establish a good banking history with them, and
it'll be more likely that you'll be eligible for their credit cards. For your very first credit card
you will probably need to start with a secured card.
They'll give you a credit card in exchange for a deposit of usually a few hundred dollars. That's a safety net for them.
So if you don't pay it back
they'll have that security deposit to pay themselves back essentially. Then after about 6 months you can apply for an
unsecured card.
This is pretty much just a normal credit card, where you have a set limit of credit available to you. To increase that limit you'll
need to put a small charge on the card and pay it off - in full! In full. Every single month.
You'll probably start out with a pretty small line of credit
So you'll want to put a small subscription on there that you can pay off every single month.
So like your phone bill, Netflix, whatever you subscribe to. Then after about a year
you can try to apply for a charge card which has no limit, and it doesn't impact your
utilization rate because there's no limit.
There's also a really easy way to start building your credit that I don't really hear people
talking about. And it's to become an authorized user on someone else's account.
So if you have a parent or an older sibling or a spouse that has a good credit score, you can essentially
piggyback off of their account and boost your own credit score.
I'm pretty sure that most credit card companies will let you become an authorized user when you're 16.
So you could go out and buy your gas on the card every week and pay your parents back.
But asking someone to become an authorized user on their account is not really a small thing to ask, so you shouldn't expect
your parents or your siblings to do that for you. Especially if you're not really responsible with your money.
Just remember that a credit card is not free money.
You still have to pay it back. And you should pay it back. On time. And in full. Every
single month. Just use it like a debit card and don't spend money that you don't have. That's really it. Thanks for watching
I hope this video was informative
Be sure to drop a like, subscribe, check out our blog Arvabelle.com, do all the social media things,
be responsible with your credit cards and I will see you next week