Don’t Overspend on a Fancy Car (Nobody Cares)!

In today's video, I will teach you how to get a perfect credit score for free. My credit score is 837. It's not perfect, but it's still pretty good. Just so you know, you don't need to be perfect. I'm not perfect. I just want to make sure you know how this works and how to improve your credit score. First, I want you to take a look at where you stand. If your credit score is in the 300 to 579 range, then unfortunately you have bad credit. If you're here, don't worry because we can fix this. If you're in the 580 to 669 range, your credit score is fair, but I can show you how to improve this. From 670 to 799, your credit score is good. And in a lot of cases, you receive the same benefits as a person with a perfect credit score. From 800 to 850, you are considered excellent. And I will show you what you have to do in order to maintain this status. So here's what you must know. Regarding your credit score, there are three main categories. You're either subprime, prime, or superprime. If you're superprime, then you're going to receive the special treatment. You're going to get all the perks. We're talking about lower interest rates, less rejection, and life is great. If you're subprime, it's the opposite. You get looked down upon. You basically get treated like someone that was coughing during the pandemic. It's like, ah, get away from me. I don't want to do business with you. So I want to show you how much easier life can be if you're superprime. So you're superprime if your credit score is 720 or higher and you'll be treated much better. As superprime, you are less likely to get rejected. When you're applying for a credit card, look at the approval rates. This is coming from the Consumer Financial Protection Bureau. If you're superprime, you have an 84% chance of getting approved. If you're subprime, 19%. Another common example is when you're trying to rent an apartment. If you're superprime, the leasing office, they're going to be so nice to you. They're going to give you a warm reception. If you're subprime, they're going to treat you like a delinquent and they're going to make you take extra steps. We're talking about you need a cosigner, you need a higher security deposit, etc. And I'll tell you this because I'm trying to keep it real. Even in the dating market, even in your personal life, a low credit score will lead to more rejection. So it's the truth. If you don't believe me, then I dare you to post on your Tinder profile or whatever dating app that you have that you have a credit score of 380. Interests include fine dining, traveling, you love animals, credit score of 380. So give it a shot and see how that works out for you. A low credit score is not something that you want to advertise to anyone. Society is judgmental. It's just the world that we live in. A low credit score is a universal turnoff. Now when you are superprime, you are deemed to be a responsible and trustworthy human being. Your reputation precedes you and not only will you face less rejection, but you'll receive better interest rates on your mortgage, auto loan, credit cards, personal loans, and a lower interest rate will save you a lot of money on your monthly payments. So this is why your credit score is so important and that's why I want to see you have the best credit score possible. I just want to see you become the best version of you. Now let me tell you what you need to do to improve and maintain your credit score. So I want you to understand the fundamentals. I want you to understand how this works. So your credit score tells third parties how likely you are to pay what you owe. So your credit score is based on your credit reports. Your credit report includes your activity and history based on information from financial institutions, credit card companies, and lenders. So your financial activity is compiled into a report and a formula is used to create your credit score. And this formula is based on five factors. Your payment history makes up 35% of your credit score, amounts of debts or utilization 30%, length of credit history 15%, credit mix 10%, and new credit 10%. Now let me give you tips on how to boost your score on each one of these categories. Your payment history makes up 35% of your credit score. So this is the most influential factor. To become and maintain super prime status, you need to build a history of on-time payments. Just think about it from the perspective of the lender. If you are asking to borrow money to buy a vehicle or to buy a home, then the lender wants to see that you have a strong track record of making timely payments. Your payment history includes activity from your credit cards, auto loans, mortgage loans, and delinquent accounts. Your payment history is also going to be affected by activities in collections and bankruptcies. So listen, if you're late on a bill, that's going to stay on your credit report for seven years and that's going to significantly lower your credit score. But if you make your payments on time, then your credit score will begin to recover gradually. After seven years, a late payment will completely fall off your report. Here's a general guideline about your payment history. You are considered excellent if you make 100% of your payments on time. 98% to 99% on time is good. 90% to 97% is considered average. Less than 90% on time is below average. Now I'm going to give you advice in each one of these sections, but here it's very straightforward. You need to pay your bills on time. If you have a late payment, then yes, it's going to hurt your credit score. It's definitely not good, but it's not going to be the end of the world. So personally, I've made late payments in my life. It happens for whatever reason, but just don't make it a habit and you'll recover. So it's happened to me, but now my credit score is super prime. So please make it a priority to pay your bills on time. Now moving on, the amount of debt that you owe is the second most influential factor. This makes up 30% of your credit score. This is also known as your credit utilization. Credit utilization is how much of your available credits that you are using. The lower your utilization, the better. If you are using a high percentage of your available credits, then this may indicate that you are overextended and lenders will perceive you as a person that is at a higher risk of defaulting. So a higher utilization will hurt your credit score. Just think about it from the lender's perspective and I want to say this. I want to give you this analogy because this is this is 30% of your score and that's a big amount. So let's just say that you have two friends and they both want to borrow money from you and you know their finances, you know their credit utilization. Friend number one is asking you for money and you know that this friend has a credit card with a $20,000 limit but he's in credit card debts of $19,000 on that card. Friend number two is asking you for money as well and you know that friend number two has a credit card limit of $20,000 as well and he's in credit card debts of only $1,000. So the question is which friend should you lend money to? So just think about it. Take a second. The correct answer is neither. You should be financially responsible and not expose yourself to unnecessary risk like that and also you should not jeopardize a friendship. But if you had to choose between the two friends just by looking at the numbers, which friend would you prefer to lend to? So it's probably going to be friend number two. That's because his credit utilization is lower. Friend number one is carrying a big debt load and maybe he has more debts than he can handle. If he could handle that debt then you know why isn't he paying it down? Why is he utilizing 95% of his total available credit? It seems very risky. So that's how the lenders see it. A higher credit utilization lowers your credit score. A lower credit utilization increases your credit score. So here's a general guideline of credit utilization. You are considered excellent if you're using 0% to 10% of your total available credits. Good is 11% to 30% utilization. Average is 31% to 60%. Below average 61% to 100%. And here are my tips regarding utilization. Tip number one. Pay down your credit card more frequently. So let's say that you pay down your credit card in full each month. And you think that on your credit report it's going to show that you have a zero balance due. But that's not how it works. Your credit card company will report to the credit bureau your balance due on a specific day. So for example, true story, this happened to me. I made a bigger one-time purchase to fix something in my home and I charged it to my credit card. And I thought that okay I have the money to pay this but my credit card bill it's not due for another 20 days so I'll just make the payments later. But before I made the payments my credit card company submitted my activity to the credit bureau and it showed that I have a big balance outstanding. And that hurt my credit score because my utilization percentage was higher. And I thought that that was unfair because I paid my credit card bill on time and in full. But they submitted my information before I made the payments and then it dropped my credit score. So after that unpleasant experience I made credit card payments on my app multiple times every month. So I understand that not everybody has that luxury but if you can that is one solution to this problem. My tip number two is do not close down unused credit cards. Keep your credit cards open even if you're not using them. That's because you will have more credit available and your credit utilization will be lower and this is going to boost your credit score. So please be aware that some credit cards will cancel your card for inactivity. But to solve that problem I would just say use the card occasionally or hook up one of your monthly subscriptions to that card. Moving on to the third most influential factor in your credit score is your length of credit history which makes up 15 percent of your credit score. This refers to how long you've had credits and the average age of your accounts. A longer credit history is good for your credit score because this shows that you have more experience using credit. Here are the factors for determining the length of your credit history. Age of your oldest account. Age of your newest accounts. Average age of all of your accounts. And here's a general guideline of the length of your credit history. Your history is considered excellent if you've established 25 years of history or more. 8 to 24 years is considered good. 3 to 7 years is average. 0 to 2 years is below average. So of course if you're younger you're going to be automatically dinged in this section for not having a longer history. But as time goes on this section of your credit score will improve as you build your history. That's why it's so important to start building your credit history as soon as possible. The next factor that will impact your credit score is your credit mix. Your credit score will take into consideration what types of credit accounts that you have, which include credit cards, mortgage loans, auto loans, installment loans, retail accounts, etc. Having a mix boosts your credit score. That's because it demonstrates your ability to successfully manage different types of credit. But honestly don't worry about this. In order to be super prime it is not necessary for you to have each one of these loan types. Therefore do not go applying for different types of credits just to boost your credit score. Because remember that this only makes up 10% of your credit score and the cost benefit is just not worth it. And the last factor that impacts your credit score is new credits. So this is very important for you to understand because you will run into this situation multiple times in your life. When you apply for a loan they will perform a hard inquiry and this will hurt your credit score. An inquiry is when your credit report or your credit score is requested and the credit bureaus keep track of these inquiries. If you have a lot of inquiries then it's a bad look because it looks like you are struggling financially because you're frequently looking to borrow money from multiple sources. So I want you to understand this. There is a hard inquiry and there is a soft inquiry. A hard inquiry will damage your credit score and it's going to stay on your credit report for two years. A soft inquiry does not damage your credit score. So here's the difference. A soft inquiry is when you check your own credit reports, a lender checks your credit for pre-approval, your credit is reviewed for screening purposes, we're talking about an employer, a landlord, an insurance company. So in a soft inquiry your credit is checked for informational purposes and it's not going to affect your credit score. A hard inquiry is when your credit is checked for a lending decision. So this is going to affect your credit score. Hard inquiry examples include loan applications for mortgages, for auto loans, for credit cards, and collection agency procedures. You must authorize a hard inquiry. It cannot be done without your permission and if you're not certain whether they're going to run a hard inquiry or a soft inquiry on you, just ask them to confirm because it's important for your credit score. And it's very important that you understand this, especially if you're looking for a loan. If you have multiple hard inquiries in a short period of time, those multiple hard inquiries will count as a single inquiry. The time frame allowance is about two weeks. So here's my tip. If you're going to shop around for the best interest rates with hard inquiries, do it strategically in a short period of time. That way all of those hard inquiries will count as a single inquiry. If you spread out the inquiries over a longer period of time, then you will have multiple hard inquiries on your credit reports and it's going to lower your credit score. Another tip is be careful how many hard inquiries that you incur in a two-year time span. Because again, a hard inquiry stays on your credit report for two years. After that, it disappears from your reports. So here's a general guideline of hard inquiries. If you have zero hard inquiries in the past two years, that is considered excellent. One to two is considered good. Three to five is average. Six or more is below average. And I want to give you this tip. When there's a moment in your life when you don't need a perfect credit score, that's going to be the best time to get an additional credit card. So I want to explain this. So let's say that you recently bought a home or moved into a new apartment or you just got an auto loan. When you do these activities, you will need to show your credit score. And having a high credit score, that's going to be very important to you at that time. But let's say that you do those things and then in the near future, nobody's going to be checking your credit score for at least a year or two. Because you just got an auto loan, you moved into your new place, and that is going to be the perfect time to get an additional credit card. That's because when you apply for a new credit card, they're going to run a hard inquiry on you, and that's going to lower your credit score. And if you get a new credit card, then the age of your newest account is going to be recent, and that it's going to hurt your credit score as well. But honestly, in that situation, who cares? Because nobody's going to be looking at your credit score anytime soon. And then in the future, those factors will swing in your favor and it's going to boost your credit score. Because the hard inquiry is going to fall off your record. Your newest account, it's not going to be so new anymore, it's just going to get older. Your available credits will go up, your utilization will go down, and those are all good for your credit score. So if you're going to apply for a credit card and your credit score is going to take damage in the short term, then the best time to do that is when nobody's going to be looking at your credit score. So I'll give you a disclaimer though. If you have a serious spending problem or if you have trouble managing debt, then don't take this advice because I don't want you to end up with more credit card debts and dig a deeper hole for yourself. But this is just my advice to you if you are responsible with this and you want to optimize your credit score. So for example, right now I do not need a perfect credit score because nobody's going to be checking my credit score anytime soon. Not that I'm aware of. And there's a credit card with perks that I really want. So you know what? Right now is the perfect time for me to get it. My credit score is going to take a dip, but honestly I don't care because I don't expect to show my credit score to a lender in the near future. After two years, those hard inquiries, it's going to fall off my reports and then I'm going to have more available credits and I'll also get the credit card with the perks that I want. So if you can, please try to plan things out just strategically. And my last tip for you is to check your credit reports regularly. You can request free copies of your credit report from the major credit bureaus. So these are Equifax, Experian, and TransUnion. But personally, I just check through my credit card apps, which is sourced from those credit bureaus. And if you see any errors or if you see any fraud that is hurting your credit score, you can dispute them. So you can have them corrected and it can dramatically improve your credit score. So I've personally gone through that process because of fraudulent charges. Honestly, it was easier. It was easier than I thought to resolve and my credit score jumped by about 100 points when I did that, when I got it corrected. Okay, so you made it to the end and I just want to say thank you so much for all the support. I appreciate it very much. If you found this information helpful, if you enjoy this content, please give it a like. Please subscribe. Again, thank you so much and I wish you a very nice day. Take care.