The MOST IMPORTANT Factor in Improving Your CREDIT SCORE

Hey credit warriors, what do you think is the single most important factor that you should focus on in improving your credit score? If you look at the FICO factors of credit, it is payment history, which is 35% of how your credit score is worked out. But I don't really agree that that should be your main focus. Now it is true that if you pay a creditor over 30 days late, it could knock up to 100 points off your credit score if your credit score is already high. If your credit score is lower, it won't knock quite as much off. But the key thing is that a payment has to be 30 days late in order to be reported to the credit bureaus. That is federal law. So if you just miss your credit card payment by a couple of days because you forgot and you get hit with a late payment fee, that's not going to get reported. And you might even be able to get the late payment fee refunded if you phone up the credit card issuer and you say, hey, it's my first ever late payment and I had the money, I just forgot to pay and you sing them a song. No, just kidding. But my point is that for people who are doing OK financially, i.e. they are not worrying about where the money is going to come from to pay their credit card bill each month and they want to build credit instead to get good credit cards that offer good rewards or to qualify for and get the best rates on a mortgage or car loan. Sure, they need to build on time payments each month, but that's more of a sort of set it and forget it kind of thing. I recommend you set all your credit cards to auto pay for at least the minimum payment each month. And that way you'll never get hit with a late fee. And also a missed payment will never be reported to the credit bureaus. And you can focus on what I think is really the most important factor in building your credit. And that is credit utilization. Now, credit utilization, according to FICO, accounts for 30 percent of how your credit score is worked out. But it's a lot more of a sort of interactive factor of credit that you can actually influence each month. So, first of all, how does utilization work? Well, there is overall utilization and also utilization on each card. Let's look at utilization on each card first. Utilization is the percentage of the credit line that you use. So let's say that you have a credit card with a $5,000 limit and you spend $1,000 and you let that balance report to the credit bureaus at the end of the month. Your utilization would be at 20 percent. Then if you're looking at utilization overall, you would simply add together all of your credit lines. So let's say we've got one for $5,000, one that has a $10,000 limit and another one that has a $2,500 limit. That's $17,500 in total. And maybe we owe $1,000 on one, $1,500 on another and $2,000 on another for a total of $4,500. We would be at 27.5 percent utilization overall, even though one card is at 80 percent utilization. The other cards you owe less on help to balance it out. But maxing out even one card can actually hurt your credit score a lot. I took one of my credit cards up to 96 percent utilization, owing $14,333 to test it out and it dropped my credit score by 60 points. So how do you avoid this? Well, first of all, just spend evenly across all your cards. If I had three cards, each with a $15,000 limit and I spread that $14,333 in spending evenly across all three, I'd be at approximately 30 percent utilization on all three of them and also 30 percent utilization overall. And it wouldn't drop my credit score by 60 points. Also, though, if you do have a big purchase one month, you may actually want to put it on one card. And that's because, let's say groceries, for example, you're having a party, you need to buy a load of more groceries than you normally would. But you have a card that offers five percent back cashback on groceries. You're going to want to put all of your groceries shopping on that one card instead of spreading it out across other cards that earn, say, one percent cashback. But what you could do in that situation is that you can always pay off the card before the statement closes and then it won't report that high balance to the credit bureaus. And you can find your statement closing date on your monthly credit card statement. Like this Chase Freedom Flex statement closes on the 8th of each month. You can see it here with chase cards. Also, if you have a high balance on a chase card and you pay it all the way down to zero mid billing cycle, it'll do a one off report to the credit bureaus as a courtesy reporting that zero balance. So that's a little hack for chase cards. If you have reported a high balance on a chase card to the credit bureaus and you have the money sitting there to pay it off, you can pay it down to zero and you can get an updated report and it'll probably improve your credit score. But anyway, assuming you have no missed payments and all your other credit factors are good. What percentage should you keep your utilization at to have a good credit score? Well, I'm going to show you that in just a moment. And also, I will show you how I improved my scores recently by lowering utilization, which got my scores for a credit card over 800 and my credit scores for a mortgage over that crucial 740 level where you get the best interest rates. But first, let me tell you about Kickoff Credit, the sponsor of today's video. And it is a service that I think anyone building their credit score will find very interesting. Kickoff Credit gives you a revolving credit line that is optimized to maximize the three most important factors of credit payment history, utilization and credit age. Now, this credit line can't be used anywhere to buy things. Instead, you actually buy a 60 dollar annual membership with Kickoff Credit using this credit line, which has a credit limit of seven hundred and fifty dollars, by the way. And then you pay that off in installments of five dollars per month for 12 months. Kickoff will report an on time payment each month to the credit bureaus and your utilization on this revolving credit line will be kept low enough to have a positive impact on your credit score. It's a great way to build credit, especially if you're just starting out. Credit scores below 600 on average see an improvement of 58 points from using Kickoff Credit. But you could also use it to supplement credit cards as just an extra credit line on your report as you build your score to 700 and beyond. And the great thing is there's no hard credit pull to set it up. So if you're interested, do check out Kickoff Credit with my link below and click on Get Started. So how high should your credit utilization be or not be? Well, most credit educators say 30 percent maximum in order to not have an adverse effect on your credit score. And that would go for individual cards and overall. But if you want to join the 800 club or get over 740 to get the best rates on a mortgage, you need to be under 5 percent, maybe even as low as 3 percent. And that would be overall, not on each individual card. Each individual card could report maybe 10 to 20 percent. Now, my credit utilization used to be around the 7, 8, even 9 percent. And my scores in mid 2021 were about in the mid to upper 700s. But over the course of 2022, I've been spending less. I also paid down the balance that I was carrying on one card because a zero percent APR introductory offer ended. So I paid it off. And that has brought my utilization down to 3 percent overall. And my FICO Bank Card 8 scores, which are typically used for credit card applications, are now all over 800. But what is even more exciting is that my FICO 2, 4 and 5 scores, which are used for mortgage applications, have improved a lot, too. In 2021, these scores were in the low 700s and Equifax was even below 700. That particular one seems to be a more sensitive algorithm, but now they've all risen and the median average score is 744, which is over 740, that crucial level for good interest rates on a mortgage or car loan. But if I was to bring that utilization back up, I guarantee you that those scores would drop immediately. So, guys, utilization really is the most important factor that you should be keeping an eye on on a monthly basis on your credit report. Get that utilization down and see those scores rise. Guys, check out Kickoff Credit in the links below. It's a great way to build your credit score if you just got started and also a great supplement to help your score grow faster as you charge towards 700 and beyond. And the best thing is there's no credit pool to set it up. Please subscribe to our channel if you're new for more credit card and personal finance videos almost every day. We'll see you next time. Bye bye.