Credit and Credit Scores EXPLAINED

Published on February 6, 2023

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In this video I’ll discuss every aspect of your credit and credit scores. Here are the highlights…

OK, so, let’s talk about credit, and get a few terms out of the way first. Your credit is of course your ability to borrow money or buy goods or services, with the understanding that you will repay the debt at a later date.

The terms credit rating, credit score, or creditworthiness all refer to essentially the same thing. They are all simply judgments regarding how you handled debt in the past, your ability to repay debt in the present, and how much of a lending risk you would be in the future.

Revolving credit is your typical credit card debt. It is called ‘revolving’ because the amount owed constantly fluctuates up and down as you pay off the card, charge more on it, or interest is added on. Revolving credit requires a minimum monthly payment up to the full amount owed.

The next thing to discuss are the credit bureaus, also known as the credit reporting agencies or CRAs. There are three main agencies to know about: Experian, TransUnion, and Equifax. Their job is to collect, maintain, and sell consumer credit information.

There are two credit scores in use: FICO and VantageScore. FICO stands for the Fair Isaac Corporation, the company that created this scoring system. It is the more common system in use, and has a score range from 300 to 850.

The first category is your payment history, which carries a 35% weight, and it refers to your history of paying your revolving and installment debt on-time. Your credit report will show if you are 30, 60, or 90 or more days late, and that is immediately reflected in the FICO score. This category does not account for the actual amounts owed, only the on-time payments.

The second category is your accounts owed, which carries a 30% weight, and it refers to the actual amount of debt owed in each revolving or installment account. For revolving accounts such as credit cards, what is important is not so much the total amount but the ratio of that amount to the total available credit. That is called the credit utilization ratio, and this is going to be a big factor when we talk about fixing your credit score. To show a simple example, if your credit limit is $10K, and you have $5K on your credit card, your credit utilization is 50%.

The third category is your length of credit history, which carries a 15% weight, and it refers to how long the longest account has been open, as well as the age of the newest account. Obviously, having a longer track record of good credit is preferable and will raise your score in this category.

The fourth category is your credit mix, which carries a 10% weight, and it refers to the different type of credit you have, or have had, in the past. This demonstrates the ability to handle multiple types of obligations such as mortgage, auto, credit card, or retail, and the more varied the mix, the better.

The fifth category is your new credit, which carries a 10% weight, and it refers to recently opened accounts, with numerous accounts being opened in a short time-frame considered a red flag because creditors think you are desperately trying to obtain credit.

580 and below is considered poor credit.
580 to 669 is considered fair credit.
670 to 739 is considered good credit.
740 to 799 is considered very good credit. .
And finally, 800 to 850 is considered excellent credit.

There are four items when it comes to managing your credit: establishing, maintaining, monitoring, and protecting credit.

The only authorized website to check your credit for free being AnnualCreditReport.com.

DISCLAIMER
This video was created for informational and educational purposes only, and should not be construed as a source of specific investing, financial, accounting, or legal advice. This video should never be used as the sole source of information, without consulting with a financial or legal professional to determine what may be best for your individual needs. The creator of this video, Elliot J. Gindis, does not make any guarantee or other promise as to any results that may be obtained from using the information in the video. To the maximum extent permitted by law, the creator of this video disclaims any and all liability in the event that any information, commentary, analysis, opinions, advice, and/or recommendations contained in this video prove to be inaccurate, incomplete, or unreliable, or result in any financial or other losses.

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Oprah compared Americas over-spending routines to our comparable over-eating habits. Therefore a credit line is defined for you. Excuses are how we manage every year, doing the very same things and getting no place.

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You can likewise make double payments to decrease the payment quantity. It truly is reliant on how we handle the debt. Some might consider a “quick-fix” in the kind of combination.

Waking in financial obligation is not something that any person desires. Owning money to companies that won’t stop hassling you with call at all hours of the day is enough to make anyone tear their hair out. However as a debtor, you have lots of options to go about abolishing your debt permanently. You’ve probably seen all of the ads and sites online that will tell you they can clean your debt clean for simply a number of pennies. While these sites overemphasize excessively, there are methods you can bring your interest rate down and make your debt more manageable.

Secured Debt debt consolidation loan can be taken providing any of your properties. The property can be your cars and truck, home, property documents and many more. The amount you pick can be utilized to consolidate your debts that may be your charge card debts, personal debts, company debts and lots of more.

Many times, debt can get away from us. This is the time to swing into action and try to get a plan that can assist you lastly escape the debt cycle that has the possible to bankrupt many American Households.

When it comes to your objectives in life, make resign Debt Free priority one. Numerous professionals will tell you to list your financial obligations by rates of interest with the greatest rate of interest at the top. This does not work for the majority of. You need to list all financial obligations from tiniest to largest and pay them because order. Each time you pay one off you will have the motivation to continue pursuing ending up being Debt Free.

What remains in your debt basket? All financial obligation is not developed equivalent and 10% of your rating is based upon your credit mix. Banks will take a look at how much of your debt is in Revolving Debt (charge card) and how much remains in installation debt (auto loan etc) A Revolving Debt (charge card debt) never goes away for this reason the name revolving however installment financial obligation e.g. vehicle loan have an end in sight. So in order to enhance your FICO rating you wish to pay your credit card financial obligation first.

When you put your plan into action and follow phase I and stage ii of this new strategy, you will start to accomplish real financial independence in a reasonably short time.

The truth is you are paying more monthly to each revolving debt as you pay one off in full. This enables you to pay the debts of in a timely way without defaulting on one financial obligation. , if you are hesitant about the procedure try it for six months and see if it works for you..

Taking a look at what your next-door neighbor has and wanting the same for yourself. Remember, the objective here is Debt Free in 5 years, not 5 minutes. This might take this quantity out in simply a number of months.

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