How to BOOST Your Credit Score in 30 Days

Sharon Tseung 0:02
This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design their best lives. Hey guys, it’s Sharon Tseung. And today we’re gonna go over how to boost your credit score and 30 days a credit score is basically a summary of your credit history, it helps prove to lenders your ability to repay back the loan. So as an example, if Sally lends you $100, and you never pay her back, he’s probably not going to want to lend you another $100 in the future. So if you have that kind of history where you never repay back your loans, your credit score is probably going to be low and lenders won’t want to lend to you. That’s basically what’s illustrated in this example, there are three major credit bureaus Equifax, Experian, and TransUnion. And they analyze information about consumers to determine their credit worthiness you get three scores, and most lenders will take the average of the middle score to give your rate now it’s important to have a good credit score because it will help determine whether you can get a mortgage car loan or student loan and meanwhile if you have bad credit, it’ll be hard to get a credit card with a low interest rate and it’ll cost more to borrow money or you might even be denied for loans credit scores range from 300 which is poor to 850 which is excellent higher scores mean consistently good credit histories, meaning on time payments, low credit utilization and a long credit history. So here are the ranges excellent is 800 to 850, very good is 740 to 799, good is 670 to 739 Fair is 580 to 669 and poor is 300 to 579. Those with lower scores means borrowers are riskier because of late payments or high credit utilization. Now what makes up a good credit score let’s go over the components now. So the first component is payment history, which makes up 35% of your score. This is how consistently you’re making your payments on time next is amounts you owe which is around 30%. Having a high credit card balance will negatively impact your credit score because of the utilization ratio. Now what is this credit utilization ratio? Well, this number is determined by dividing your total credit that you’re using by the maximum that you’re allowed to take. So utilization ratio above 30% is seen as a negative to creditors. So as an example, if you were allowed to use $10,000 on your credit card and you have $3,000 on it, your credit utilization rate is at 3%. Now next is the length of your credit history which makes up 15%. This is a period of time you’ve had credit accounts open in your name so if you’re using a credit card responsibly, and had it open for a long time, it makes sense to continue using this card and this is why some people recommend adding their kids to a card because it helps them build their credit history by the time they’re 18 Next is new credit you apply for which is around 10%. So whenever you apply for credit it can negatively affect your score each inquiry can stay on your report up to two years it affects most people score by less than five points and lastly types of credit you use makes up 10% It’s not required to have a ton of different types of credit to build a good score for your score can increase if you responsibly use different types of credit as an example different credit cards, mortgages, etc. Now don’t deliberately open lines of credit just to try and boost your score. So now we talked about the different components of a credit score and what it is let’s actually break down the ways to boost your score. So the first tip is to start building your credit history. So if you’re new to building your credit score, you can build your credit history by getting a line of credit but only do this if you can be responsible with it, you can start getting credit cards from a main bank like Chase to build your score for multiple credit card inquiries can hurt your credit score so make sure to not apply to more than two credit cards at once. So what you want to do is treat it like it’s a debit card meaning you always have the money to pay it off and you always pay it off on time and in full The next tip is to get your credit report so if you’re not new to building your credit history, it is important to run your credit report to see what might be pulling your credit score now a credit report summarizes your financial situation and contains information on your credit accounts like payment history and account balance you can pull a free one year lead through annual credit report.com And if you’re signed up with smart credit they also have their smart credit report it can be hard to read credit reports so their smart credit reports do let you understand it a lot easier. Smart credit also offers the three Bureau reports monthly which is included in the membership and if you were to get those three Bureau reports alone by itself elsewhere, it would cost more than what smart credit costs without all the credit tools and features it’s good to check both your FICO and Vantage score credit scores were higher accuracy of your credit report. So lenders generally do prefer FICO as it’s used in over 90% of us lending decision now once you receive the report consider looking for negative remarks including unpaid debts late and miss payments because late payments can impact you for seven years possible accounts in collections and what that actually means is generally when you’re late on a payment for 150 days or more the creditor might write it off as a total loss and sell this debt that’s past due for a lot less with third party collections agency also look for maxed out amounts on your credit report liens, foreclosures and bankruptcies. This is all important so you can help get a better understanding of your credit position. Now the next thing you want to do is check for errors. So now that you have your credit report, you need to check for other errors and according to this article, a third of Americans found errors on their credit reports 29% found personal information errors and 11% found account information errors, so that’s why you want to look out for wrong personal information like misspelled names wrong addresses. You also want to look for incorrect status or delinquencies, incorrect dates on time payments that are not showing which is a big one accounts that do not belong to you incorrect bankruptcies, or foreclosures and duplicate accounts. Now if you do find errors in your credit report, you should correct those mistakes by contacting the credit bureau and the business that reported the inaccurate information. You can explain it in writing on this website, you have information here of where to send the letters or you can also call them or dispute it online. And the credit bureaus have 30 days to investigate the dispute. So don’t expect an immediate response. So notify you in writing with an updated copy of your credit report. This is separate from your free annual credit report. And upon your request, the Bureau may also inform companies who received your wrong credit report in the past six months and let them know about these corrections. All right, now let’s keep going with the tips. So tip number four, you want to pay bills and late payments on time, this is the most important thing you can do to increase your credit score because like I mentioned, your payment history counts for 35% of your score, your ability to keep up with credit card payments, let’s lenders know that you are able to take out and repay back that loan. And this covers everything from your utility to medical bills is not just your credit card. If you miss a payment by 30 days or more. Usually after 30 days, your late payments will show on your credit report. And like mentioned after 150 days, it’s going to be sent to collections. So that’s really bad. The later it gets the worse it impacts your credit score. Don’t just think just because it’s late, there’s no need to do anything anymore, you have to pay that late payment ASAP and you should call the creditor immediately you can try to negotiate for the removal of the late payment and maybe work out a payment plan because most companies would rather get something than nothing and would rather negotiate if you’ve already paid off your debt, see if they can remove your failure to pay from your record as a courtesy but they’re not obligated to do this. Now as a bonus, you just set up automatic payments and automatic payment is basically a recurring payment for your bills. If you’re worried about being organized with it, this is how you would do it. You just keep it on auto pay but you got to make sure you only spend what you actually have the auto pay is so convenient because that way I don’t have to think about the bills and everything like that I just make sure I’m spending what I actually have and I’m organized with it. Number five don’t close old credit card accounts. So keeping an old credit card is actually important to help you with your credit history and utilization ratio. Depending on the age of the card closing it down can hurt your score. So we recommend associating the card with an automatic utility payment so that it doesn’t get closed for inactivity. And then be sure to monitor the card so that it gets paid off in full each month. Tip number six add to your credit mix. This is 10% of your FICO score. So what do I mean by credit mix this is the variety of loans in your file. So having a mixture of loans can be a good sign that you can handle multiple types of loans. This tip is honestly often overlooked by people. But when adding to your credit mix, remember the word balance because this plays an important role in your financial life. It’s not a requirement, so don’t just add to your credit mix just to do it. But having an additional credit account in good standing may help especially if it is a type you don’t already have like auto loans, mortgages, student loans and other types. Tip number seven is to ask for a credit limit increase. So since your utilization ratio is a large contributor to having a good credit score, you want to try to minimize it by increasing your credit limits. So you can call your credit card providers and ask about a credit increase, but you don’t want to just start spending a bunch more when you do that you got to keep your spending the same so that the ratio goes lower. If you’ve been good about paying off your bills on time, you should be able to get this increase without another hard credit inquiry. So as an example, if you had a credit limit of $10,000 and spent $3,000 of it and the utilization ratio is 30%. But if you can increase the limit to 20,000. The ratio is now at 15%. According to bankrate.com. Most Credit Experts advise keeping your credit utilization below 30% Especially if you want to maintain a good credit score. This means if you have $10,000 in available credit, your outstanding balances should never exceed $3,000. And even better, you should normally go no more than 10% of the utilization rate. So if you have cards that give you $40,000 A month limit across all of them, you should try to spend no more than $4,000 a month Alright, so I hope you guys enjoyed these tips on how to boost your credit score. There are many different ways to do it. And a good credit score really helps you out in the future because you’re able to get loans at better rates and you won’t be denied. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.

Transcribed by https://otter.ai