Hi, guys.
It's Chelsea from The Financial Diet.
And this week's video is sponsored by FICO.
And as you can see, I am back home, back in my element.
Bless, bless, bless, bless.
As I'm filming this, it is mid-September.
The weather is just beginning to get crispy here in New York.
We are in full on sweater weather.
I've got my dog.
I've got my home.
Mark was unexpectedly able to come back and spend
a little time here in the US with me.
Things are great.
Happy to be back.
And today, I wanted to talk about something
that I mention a good amount on the channel
but I rarely go into a deep dive about, which
is raising my credit score from a comically
bad 470-something to a very respectable 70-60 something
and growing depending on which score
you pull because they do vary.
Having terrible credit was actually one of the things
that most held me back in my young adult life.
And honestly, looking back, it is
incredibly shocking to me both how little
I knew about the entire credit system
and how easy it was to get myself into terrible trouble
before I even really knew what I was doing.
But I've learned over the years that rehabilitating or building
from 0 one's credit score is actually a pretty
straightforward process.
And having a bad score doesn't mean
you are totally screwed or beyond repair.
Quite frankly, taking myself as the example,
if I could do it from where I was, anyone can do it.
So without further ado, join me on this journey
of first destroying then rebuilding my credit
with these five things I learned while raising my credit
score 300 points.
Number one, it's easier to overextend your credit
than you might think.
So I came into adulthood just before the crash of 2008.
I was born in 1989, so therefore I
turned 18 in 2007 when it was still the credit bonanza.
And anyone in my high school could literally just
get a credit card handed to them by the bank, which
literally had booths set up in our lunchrooms.
So disturbing looking back.
But I'll never forget I got a Hello Kitty-branded Visa credit
card from Bank of America with a $500 credit limit.
Shout out to Hello Kitty.
Shout out to Visa.
Shout out to Bank of America.
And I did what any 18-year-old who
had no concept of her future self
and a deeply problematic relationship with shopping
and money and shame and class, which is to say I
bought a bunch of completely useless bull [BLEEP]
with that credit card.
I don't even literally remember what I bought with it.
But I assume at least one of those things
was a pair of Abercrombie jeans or something
because that's the era we're talking about.
I then literally threw out the credit card
and proceeded to ignore every bill that I got subsequently.
No surprise, the bill eventually went into default,
went to collections.
I was getting hounded.
I was getting all kinds of letters and calls.
I eventually stopped answering my phone
unless I recognized the number because I was almost certain it
was a collections agency.
And almost single handedly, that one act--
because it was the only thing essentially on my credit
history--
ruined my credit score.
I went from having no credit to having exceedingly bad credit
because one of the most important elements
of your credit score i.e. timely payment history was a big, fat,
whopping 0--
0% of payments on time.
And while obviously, anyone who is
familiar with how to responsibly use credit
would know that this is a terrible, terrible thing to do,
as an 18-year-old who knew nothing
about how credit cards or credit scores worked,
it was surprisingly simple.
We're talking a matter of no more than a week or so
that I was making that spending.
And we're talking about just a few bills coming in the mail
before it went to collections.
This is something that is surprisingly easy
to get yourself into.
But the good news is that your score is not a static thing.
It can easily be improved upon.
But more on that later.
Between the ages of roughly 18 and 22, 23-ish
when I started really actively working on rebuilding
my credit, I found myself in a situation
where so many different elements of my life
were being held back because of that score, which brings me
to number two.
Your FICO score is important and used in way
more lending decisions than you think.
This means that when you apply for something like a mortgage
or a car loan, lenders, in fact, over 90% of top lenders,
will likely be looking at your FICO score
to determine whether or not you qualify, and if so,
for what rate.
And it's not just lenders.
When applying for all kinds of things like rental units or car
leases or phone services, your credit score
can come into play.
The last thing you want is to be held back from a major life
moment like getting your own home
or buying your first car simply because you
didn't have great credit.
And it doesn't matter what your major life goals are
or what timeline you're on to achieve them.
Monitoring your FICO score can help
you stay on top of your credit and put you
in the best position to achieve what's most important to you.
And it's easier than you think to access your FICO
score for free.
We've linked to a list in this video's description
that allows you to see if your bank is
one of the hundreds of lenders offering the ability to check
your FICO score for free.
This is also important because knowing the actual score that
will be used by a lender for anything from a credit card
to a car loan will help you avoid any confusion when
it comes to your score.
Your FICO score can provide potential lenders
with an object measure of your credit risk a.k.a.
your reliability as a borrower.
This has made the lending process faster and fairer,
helping millions of people get access
to the credit they deserve.
And now more than ever, FICO believes
in helping empower communities by way of financial education
and is committed to providing consumers with the tools
to better understand their financial health.
When it comes to credit, don't panic.
Click the link in our description or visit
scoreabetterfuture.com to get access
to free educational events on credit
scores and the financial tools you
need to help you achieve your money and life goals.
Number three, a few of the major credit scoring factors
make a big difference in your score.
It can sometimes feel overwhelming to feel
like you have to maintain an absolutely perfected credit
usage, that you have to be using the right cards
for the right amount of time for the right kinds of purchases.
And you have to be constantly worrying
about every single thing that appears on your credit report.
And while you should be very conscientious about how you're
using credit and what appears on your score
and what doesn't, it's important to remember
that when it comes to raising your score in a big way,
there are a few key factors that are going to make
a substantial difference.
For example, I know that many people
know that running a hard check on your credit
can have an impact on your score.
But we're not talking about a big difference.
If you're only talking about one or two hard checks a year,
and you're using those checks responsibly,
we're talking about a pretty negligible dip.
When it comes to things that really
do deserve that attention and effort,
you can really limit your focus to a few key areas
of your credit usage.
Number one is going to be your timely payment history.
That means all your payments that you
owe on things like your credit cards,
your student loans, et cetera, anything
that's going to appear on that report
need to be on time every single month.
Even missing one payment is going to have a huge impact.
And the later that payment is, the worse the impact
is going to be on your score.
But luckily, if you are someone who generally pays back on time
but maybe had a slip-up somewhere,
there are things that can be done about that.
But more on that later.
The second thing you're going to really want to pay attention to
is your credit utilization ratio.
That means how much credit you're using versus
how much is available to you.
So for example, if you have two credit cards that
have a total of $2,000 a month in your monthly limit,
and you are spending up to the maximum amount of that limit
every single month, your credit utilization ratio
is going to be very, very high.
Now if you talk with your banks to raise those credit limits up
to $5,000, and you cut down the amount of spending
that you're doing on those cards to $1,000 a month total,
you suddenly have a very good credit utilization ratio.
Typically speaking, you're going to want to keep
that ratio under the 30% mark.
But as a rule of thumb, the lower the better,
which is a good reason to always be conscientious about not
spending too much on your credit cards even if you can
and to also constantly be looking with your creditors
to see if you can raise that limit.
If you have a good payment history,
if you're a responsible user, you
should be able to raise your limit.
And even if you don't use it, in fact,
especially if you don't use that extra money,
all the more reason to raise the limit.
Lastly, one of the most important things
to be keeping track of is the length of time
you've been building credit.
You could have a very good payment
history with your credit card, but if you've only
had your credit card for nine months,
that doesn't really say a lot about how
you're able to manage these things long term.
Generally speaking, the longer your credit history is,
the better it's going to be.
And this is generally measured by the oldest form of credit
that you have.
For example, I have a rehab credit card from Capital One
that I got when I moved back to America seven years ago, almost
seven years ago.
And I don't use it at all except I
have to pay the annual fee on it for $25.
But I keep it open because it is by far the oldest
thing on my credit history now.
And it has a perfect payment history.
If I were to close it, the second most recent credit card
that I have open is over a year later.
So it's going to automatically shorten that credit history.
By remembering that it's not just how responsible you are
but how long you've been responsible,
you can start to get a good understanding of how
your credit worthiness is really being assessed.
Number four, if you have a ding on your report,
it may be removable.
Now as I mentioned in the last point,
if you are someone who has a good payment history who
has a good standing with your creditor, lender, bank,
et cetera, and you for some reason missed
a payment on your card, which often happens to us--
maybe you didn't have enough money in the automatic transfer
account you were drawing from.
Or it just totally slipped your mind.
Or you had written down the wrong date somewhere.
Whatever the reason, sometimes it
happens to us that we miss a payment.
Do not panic.
And do not think there's nothing you can do about this.
I am living proof.
I have called my bank before being like I am so sorry.
I forgot to set up the automatic transfer,
or I didn't have enough cash in the account.
I totally missed this payment.
But I really need to maintain that perfect payment history.
Can you please take this off my report?
Now of course, every situation is going to be different.
But more than once in my personal experience, my bank
or credit card provider has worked with me
to literally take that ding off of my report.
Now two things to remember here--
of course, this is assuming that you're also now paying
the overdrafted bill.
You can't just not pay it and expect them
to take it off your report.
But also, it can take a little while for this
to come off of your report.
In my experience, it took around 30 days for that
to show up on my report.
But in the end, on multiple occasions, it was removed.
Because generally speaking, the bank or lender
wants to keep your business.
And if you have a good standing with them,
they're going to be willing to work with you.
Remember that it is in the power of these creditors
to make that change if necessary.
And it is always worth checking in
to see if that small mistake can be erased.
Because as I mentioned earlier, that payment history
is one of the most important elements of your credit score.
So having a totally perfect payment history
versus a payment history with a big missed payment on it
can make a huge difference.
It might take you a few extra minutes to call your bank
or to literally walk in and speak to someone.
But I can promise you if it would
mean a huge difference in your credit score
for almost nothing, it's totally worth it.
Remember, guys, this is just my personal experience.
If you do miss a payment, the recommended thing to do
is to call your bank or creditor before they report
your account as delinquent to credit bureaus
so that you never have a missed payment show up in your credit
history in the first place.
Lastly, number five is that you need to check your score often
to stay on top of it, now as I mentioned earlier,
a lot of people are wary of running too many hard checks
on their credit because it can negatively affect their score.
But it's important to understand that while this is true,
it's really not as big of a problem as other things
with your credit score.
But also there is a big difference between a hard check
and a soft check.
The most simple way to think about it is a hard check
is when someone like a potential lender
is looking into your credit score with your permission
in order to judge your worthiness of that, let's say,
for example, loan.
Basically, it is someone in an official capacity using
your credit score to evaluate you
for a potential application.
So let's say you're going to get a car loan.
And the person gets your permission
to run a check on your credit score
to see what you would qualify for.
That's a hard check.
That means someone is looking into your credit
with the specific purpose of extending credit.
However, a soft check is looking at your credit
without that intention to lend, for example,
you yourself looking at your credit
score on an ongoing basis to monitor and improve it.
This means you're just looking at it.
You're understanding it.
You're learning about it.
You're not specifically pulling that number up
in order to extend credit.
And soft checks can happen as much as you want.
For example, many of you might use a specific website or app
to learn about your credit and to make sure
that your report is looking good.
That you can do literally every day if you want to,
and it has no impact.
I myself don't check it every day anymore.
But I check my credit score at least once a week.
And I'm always going through my report
to find things that I could potentially
improve or dispute or talk to my bank
about or any number of things because I'm still
all these years later on my journey
of rebuilding my credit.
I would like to have a credit score well into the 800s one
day.
And that ain't going to happen by itself.
If you've ever had a problem with credit,
you probably know the feeling of wanting
to avoid that number because you know nothing good is waiting
for you there.
But the worst thing you can do with your credit
is to refuse to look at it or learn
about how you can improve it.
Because whether or not you're taking
control over your credit, someone
is going to be using that number.
And you're going to want to get out ahead of it.
By avoiding the problem, you are robbing yourself
of the ability to actually do something about it.
I used to be hyper-avoidant when it comes to credit.
And now I check it all the time.
And you can do the same without having
to worry that it will negatively impact the score.
So all of that to say start taking
control of your credit score today
and drop your fear of a bad one.
Because even if you have a bad one,
that is not the end of the world.
I am the living proof.
And don't forget to click the link in our description
or to visit scoreabetterfuture.com
to help get access to free educational events on credit
scores and the financial tools you need to help you achieve
your money and life goals.
As always, guys, thank you for watching.
And don't forget to hit the Subscribe button
and to come back every Monday, Tuesday, and Thursday
for new and awesome videos.
Goodbye.