Hey Don’t do This!
Because it will ruin your credit score!”
If you’ve ever talked about buying a place or
get a new credit card with your friends and family
then it’s likely credit score
has come up in the conversation.
But what exactly is a credit score?
So In this video,
you’ll learn all about your credit score and
what you can do to improve it so when it
comes time to take out a mortgage or a loan,
you’ll be in a good position
to get approved and a lower rate.
Hey, welcome back! This is Thomas!
A credit score seems to be one of those things
that everybody has heard about,
but nobody really knows how it works.
A credit score is generally
a three-digit number assigned to you.
It is used by credit lenders such as banks,
credit card companies, and car dealerships
to determine how much of a risk you are and
whether you will likely pay back your loan on time.
There are different credit score ranges,
but the three most popular models
use a score between 300 and 850.
how are credit scores calculated?
Credit scores are calculated using
information in your credit reports,
including your payment history,
the amount of debt you have,
and the length of your credit history.
Some credit scores also use other data
such as income and type of credit you are using.
Higher scores mean you have demonstrated
responsible credit behaviour in the past,
which may make potential lenders and creditors
more confident when evaluating a request for credit.
Credit bureaus have different methods of rating
your credit but this is generally the range.
300-579 is considered a poor rating
and you should actively try to improve it.
580-669 is okay while 670-740 is considered good.
Anything from 740-799 is very good,
and 800-850 is excellent
So why should anybody care about
getting a higher credit score?
Simply put, those with higher credit scores
generally receive more favourable credit terms,
which may translate into lower interest rates.
Because the bank believes
you will less likely to skip a payment.
And if your credit score is poor then you
may not be able to get a loan at all or
the bank might not give you a mortgage
or one with terrible interest rate.
Remember, though, that everyone’s
financial and credit situation is different.
Different lenders may also have different
criteria when it comes to granting credit.
And the types of credit scores used by lenders
and creditors may vary based on their industry.
For example, if you’re buying a car,
an auto lender might use a credit score that
places more emphasis on your payment history
when it comes to auto loans.
Or a bank will look more closely at
your income and income potential.
There are pretty two main credit bureaus:
Equifax, TransUnion.
There are plenty of other credit bureaus
like borrowwell but almost all credit scores
are based on the 2 agencies.
I usually like to use borrow well first,
because it’s free and usually
it gives me the information that I want.
But if there is something I am not sure of.
Then I will pay for equitfax and
I can call to make a change.
so I suggest
if you never check your credit score before,
I recommend just pay a small fee and
get to know yourself alittle more.
Or just use borrow well to get one.
And because this is a soft check and
you don’t check it frequently.
It will not hurt your credit score.
This doesn’t only allow you to see
if your score needs improvement,
but will catch any fraud sooner,
in case somebody has stolen your identity,
and lastly, it can help you catch any errors.
Errors are rare but they do happened and
if there are mistakes on your credit score
you can be turned down for loans or a mortgage.
Couple years ago, I met with a client
he said he pay everything on time,
never skip a payment.
But he always said he has a low credit score.
Like he checked borrow well,
and shows 580… so when we further investigate,
We realize what the problem is.
Somehow his middle name is mixed
with his brother who is little a more
“careless” on debt payment..
So therefore,
my client have to called equitfax to fix it.
so next question is
how to obatain the report from the agenices.
It’s quite simple actually
but you might need a few things handy
Nowadays you go online.
Take equitfax for example.
You punch in a few information.
You’ll just need to answer a couple
of questions to confirm your identity.
For example,
what’s your previous cell phone number
Or 4 years ago,
you have a line of credit with which bank.
To me it’s more like a memory test.
It’s also important to note that the law
limits who has access to your credit score.
Not just anybody can access your credit score.
Most of the time you have to grant permission
for institutions to access your credit score.
However, it’s important to note that
it’s not always explicitly obvious when
you are granting an organization permission
to view your credit data.
For example,
the terms and conditions of a credit card offer
will include language that authorizes the
credit card company to pull your credit reports
not only in conjunction with
making an approval decision,
but also on an ongoing basis for the
length of your tenure as a customer.
When you submit a credit card application,
you are effectively agreeing to these stipulations
whether you notice them ahead of time or not.
So how can you increase it
to give you more favourable rates?
Well, you are in luck because
I’m going to give you a step-by-step approach
to help you improve your credit score.
The first step is an obvious one but also important.
Don’t miss payments.
Your payment history is one of the most important
factors in determining your credit scores.
If you have a long history of on-time payments
can help you achieve excellent credit scores.
To do this,
you'll need to make sure you don't miss
loan or credit card payments by more than 29 days.
Payments that are at least 30 days late
can be reported to the credit bureaus
and hurt your credit scores.
Now it can be easy to forget or miss the notice,
especially with everything digital these days.
The easiest way to avoid late payments is
to set up automatic payments.
And please
don’t set up the minimium payment option.
Otherwise you will have to pay
20% interest rate on the bill.
If you're having trouble affording a bill,
reach out to your credit card company or
debt specialist right away
to try and discuss hardship options.
The next step is also pretty straight forward
and that is to catch up on any past due payments.
While a late payment can remain
on your credit report for up to seven years,
having all your accounts current
can be good for your scores.
Additionally, it stops further late payments
from being added to your credit history
as well as additional late fees.
The next step is to build your credit file.
A credit file is the records that
credit bureaus keep on you.
When you open new credit accounts
such as a new bank account, credit card,
line of credit and so on,
they will be reported to the major credit bureaus.
Having access to credit is an important
first step in building your credit file.
You can’t start building good track record
until you have credit in your name.
Remember to always pay back what you owe on time.
This shows you are responsible with your
credit and as such you will likely get a higher score.
However, a word of warning.
The credit bureaus don’t like it when you
apply for too much credit all at once.
I know I said you need for credit but as a general rule,
you should only have one of each type of credit.
So one credit card, one personal loan,
and one line of credit for example.
If you apply for three new credit cards in a
short period of time then it will likely raise some flags.
One exception is when you're rate shopping
for certain types of loans,
such as a car loan or mortgage.
Credit scoring models recognize that rate shopping
isn't risky behavior and may ignore some inquiries
if they occur within the span of a couple of weeks.
Now if you’re watching this and
you feel like you have a bad credit score,
don’t worry.
You can rebuild your credit score over time.
How long it takes to increase your credit scores
depends on what's hurting your credit
and the steps you're taking to rebuild it.
For instance, if your score takes a hit
after a single missed payment,
it might not take too long to rebuild it
by bringing your account current and
continuing to make on-time payments.
However, if you miss payments on
multiple accounts and you fall over
90 days behind before catching up,
it will likely take longer to recover.
This effect can be even more exaggerated if
your late payments result in repossession,
foreclosure.
Or even file for bankruptcy.
It will take years to recover.
Lastly,
there are two usual misconception that I see.
One being, the credit score it self,
it’s just a number.
More importantly,
how it combine with the credit history.
For example.
An 18 year old who just finish school can easily have
a 800 credit score because
they never owe anything in their life.
So compare to a 40 year old person with
a lower credit score like 680
but has 10 years of credit history.
The bank is more in favour.
The other misconception is a lot of people thought
as long as they don’t max out their credit card.
They should have a good rating.
However, it also depends on your card limit usuage.
Credit experts recommend the
credit utilization rate below 30% to 50%.
In general,
if you spend $5000 on a
1 single credit card of $10,000 limit,
it looks way to better than you spend
$5000 on 5 different credit cards with $1000 limit.
So the take home message for you is to
Pay your bills on time,
Avoid those shopper’s credit cards
And check your credit scores at least once every 2 years.
Let me know if you have any questions about
your credit score in the comment section below.
Hey Thanks for watching!
This is Thomas,
And I will see you in the next video!