So what in the world is this FICO credit score thing everyone and every lender
is talking about. How is it used, why do I even care?
And why in the world is John Jones, the 42 to his name,
the fifth grandfather of the Duke Heir to the Grand Canyon islands in the Newest
Hampshire of the district California make less money than I do,
live in the same cookie cutter house, yet pays $300 less? In this video,
I will go over exactly what a FICO credit score is, how it is determined,
and how this might be the most important financial video you've ever watched in
your life. Coming up.
What's going on Fam, Justin Houser here, and welcome to my channel.
Where I go over everything from personal finance to business to
entrepreneurship. So if you'd like to make that money, keep that money,
invest that money and then spend that money,
you must help that YouTube algorithm below and Smash that LIKE BUTTON,
Subscribe to my channel,
and hit that Notification bell so you will not miss any of my future videos.
Also feel free to check the description below for show notes,
links to recommended products,
and anything that I might've forgot to mention in this video.
So let's get into what is a FICO credit score,
how do they determine it and why I should even care?
A fico credit score is the most common credit score and factor that's commonly
used by lenders here in the United States of America.
Every minute hundreds of lenders are using this score,
a single number between 300-850 to better understand the credit risk of someone.
So they can make a better informed decision on whether to loan out that money,
and if so, at what terms?
Basically a FICO credit score tells the lender the likelihood of you actually
paying your bills on time, based on your credit history.
A good analogy of this is the NFL, or the National Football League.
The NFL is by far the most popular sport in America and it is also very
lucrative. In 2018 alone,
the NFL generated $15 billion in revenue and is planning on boosting that up to
25 billion by 2027 in fact,
the average NFL team is valued at more than two and a half billion dollars.
As you can imagine, there's a lot of factors that go into valuing a team.
One of the highest factors is winning.
If you were to look at the top 2 most valued teams right now in the NFL ,
it's the Dallas Cowboys and the New England Patriots.
They have a long history of winning. Well, kind of, sorry,
Cowboys fans.
I need to rephrase that......You do have a long history of winning,
just not recently. In order to win in the NFL,
you need to have great coaches and great players. How is this done?
Through credit checks and see what the FICO credit score is, right?
Not entirely true, but you can correlate the two. So let me explain.
The US lenders are the NFL football teams and you,
the person trying to get the loan,
is an NFL player or a college player right now.
A college player's goal is to not only get drafted,
or get approved for the loan, but they get drafted first,
or to get the best rate possible on this loan.
So the players who get drafted first, always have the best performance history,
or credit history, than the competing players.
They're proven stars in their particular position. If they're the best,
they get drafted early, or get the best loan rates.
If they are good but not great, they'll still get drafted,
or still get approved for the loan, just later on in the draft,
or get an average loan rate.
If they did not have a good history and their performance is lackluster,
they will not get drafted, or not even approved for the loan.
I hope this analogy helps you understand what it is and if you did,
could you drop a comment below telling me and just confirming of how bad the
Cowboys really are and who your favorite football team is?
They can't win and every year you get like this? I CAN'T TAKE THIS.
I don't understand why you still a Dallas Cowboys fan anyway.
So remember a FICO credit score is a number between 300-850 that determines the
likelihood that you'll pay your bills back on time.
It's kind of like an SAT score, the higher the better.
The credit score is determined by your credit information and a few other
factors such as salary and age. It's housed at 3 main credit bureaus:
Equifax, Experian, and TransUnion.
So how is the FICO number determined?
There are 5 factors that will ultimately determine what your FICO credit score
is. Payment History, Amounts Owed, Length of Credit History,
New Credit, and Types of Credit.
The first one that we're going to go over is payment history.
This makes up 35% of your score and is the biggest factor.
How reliable are you?Tommy Lee, a
principal scientist at FICO said "Fico scores consider the frequency,
recency and severity of reported miss payments." So in other words,
simply pay your bills consistently and on time.
The second biggest factor and also making up 30% of your score is amounts owed.
This is the percentage of available credit that has been borrowed.
This is also referred to as credit utilization.
Let's say that you have a credit card with a $10,000 limit and you've got a
balance of $3,000. This means that you have a credit utilization rate of 30%.
There's not a benchmark on what FICO considers good or bad,
but a lot of researchers have pinpointed to say that you should stay under 30%.
But just like a golf score, the lower the better.
The third factor that makes up 15% of your score is the length of credit
history.
This refers to the length of time that an account has been opened and also the
length that the accounts most recent action.
How can I improve this if I'm just starting and have no credit?
A credit card is always a great way to start, but please listen to this please,
please, please pay it off full before the end of the billing cycle.
It makes absolutely no sense to pay 25% interest,
30% interest, 15% interest on your most recent Starbucks or Supreme purchase.
Number four, new credit.
This makes up 10% of your FICO score.
This is not mean to go to Macy's, to Amazon, to Apple, Best Buy, Microsoft.
Just open up a whole bunch of store cards as this could actually hurt you
tremendously as it could suggest that you are in financial trouble by needing
such access to credit.
Open up accounts only as needed and again,
make your payments on time and consistently. And,
the fifth factor that helps determine your FICO credit score is types of credit.
This accounts for 10% of your score and this is determined by your credit mix.
Your mix should include a variety of revolving loans, such as credit cards,
and installment loans, such as an auto loan.
It is extremely easy to check your credit history and score. In fact,
by law, you are allowed to obtain your credit history for free once per year at
www.annualcreditreport.com So why is it important to have such a high FICO
credit score?
It could save you thousands if not hundreds of thousands of dollars in the near
future. How? By having a higher credit score,
it tells the lender that you are more trustworthy to pay back thhat money.
But Justin, I don't need a loan of any short. I'm fine. I'm good.
I don't need it. It's okay.
What about in three years, in five years, in 10 years?
What about a new car, a new house,
or medical injury that sidelined you from working?
If you remember at the beginning of the video I said that I not only want to
make you financially stable, but rich. THE RICH PLAN BEFORE THEY NEED TO PLAN."
Let me say that one more time because when I first heard this,
it took me a few times to fully grasp what this sentence is saying.
"THE RICH PLAN BEFORE THEY NEED TO PLAN."
Listen to this stat, in a recent survey in 2018,
the Chicago Tribune reported that almost 40% of Americans have less than $1,000
in an emergency fund. And what's even more crazy,
this survey also reported that a staggering 23% of these Americans have less
than $100 saved for car repair or medical expense.
How good of a loan do you think that you'll get if you can not even come up with
the recommended minimum 20% down payment for a house or even a car.
To more emphasize on the importance of having a high fico credit score,
look at the following graph.
Look at the difference you will pay for a $300,000 30-year mortgage in interest
alone based on your credit score. With lower end score of 620-639,
you would have to pay over $638,377
for this $300,000 house. However, with a higher end score of 760-850,
you would pay $533,130 for this house.
This is a savings of over $105,000 saved in interest alone.
So there it is. What a FICO credit score is,
how it is determined and why I should even care. Look,
I hope you really enjoyed this video, and if you did,
could you smash that like button and Subscribe below.
Time for the question of the day.
What was your biggest takeaway from today's video,
outside of how bad the Cowboys are in football?
Answer below in the comments,
and let me know as I would love to connect with each and every one of you.
Be on the lookout for the upcoming videos as I will be discussing in detail,
HOW TO BEAT THE CREDIT CARD COMPANIES AT THEIR OWN GAME."
Thank you for being part of the community. I'll see you on the next video.