How do I build my credit?

Posted by Erica Steeves on September 19, 2018

How do I build my credit?

 

Your Credit Minute Show Notes:

 
  • 00:00                                   What’s up guys? This is Nik Tsoukales with Credit News Daily. So I got our question of the day, which is, the, actually the number one most searched credit related uh, question on Google uh, this year. Okay? Which is, how do I build my credit? Okay? So you’re either new to this country, you’re 18 years old, you’ve never used credit, or you’ve actually gone through some credit issues and you’re now starting again from scratch. So we need to answer this question, and it’s super duper important. Okay? How do I build my credit? Well, first thing we’re going to do, is we’re going to use a few rules of thumb, okay? Um, the first rule of thumb is, how many accounts do I need? Okay? The number that I like to use, and this is an almost an unofficial number, is the rule of three. Okay? What I like to see from each of my clients is a minimum of three active, healthy things. Okay? And the reason for that is, most banks and lenders, whether it’s a conventional loan, an FHA loan, um, whatever type of home loan eventually that you’re going to look to get, usually the banks and lenders like to see a minimum of three active healthy trade lines. Okay? You don’t necessarily need this for the credit score, but it’s definitely something you’d want to have for getting a home loan.
  • 01:09                                   So we’re going to use this three as well. And we’re gonna imagine that we’re pretending, um, that we are preparing to eventually get a home loan. Okay? Which is probably one of the bigger things that you’re gonna need your credit for. So the rule of three. Now keep in mind about 10% of your credit score is based on something called types of credit in use. So having different types of credit is very important, and you get some bonus points for it. Okay? So, if you’re, if you can’t fill this in with a home loan, what we do want to focus on is a couple of revolving accounts, and one installment account. Okay? So we’re going to put here, R, R, I. Okay? A revolving account is something like a credit card, okay? Or a line of credit. An installment account is gonna be something like a car loan, a personal loan, um, or a savings secured loan, or even a student loan. Okay? Now with the revolving loan, it’s going to be difficult for you to get approved for a credit card right now. Okay? So what I would suggest is something called a secured credit card.
  • 02:10                                   Now these should not be mistaken for a prepaid credit card. A prepaid credit card you put a few hundred bucks in a prepaid debit card. Okay? And you’re using that money. A secured credit card works a little differently. Where you’re gonna put let’s say $500, okay? Into a savings account with the bank. Okay? And the bank is gonna use that as collateral to issue you a credit card typically with a $500 credit limit. Okay? And then what we want you to do is use this card just a little bit. Okay? Now keep in mind 30% of your credit score is debt and how you manage it. So if you do get a small savings secured credit card, okay? And you overuse it, meaning you max out this 500 bucks, this part of your credit score, and we talk about this a lot on many of our videos, is actually going to drop. You’re not going able to get anything, okay? You’re going to have low credit scores instead of healthy credit scores. So my suggestion is, when you get this secured credit card, don’t use more than $50 on it. In fact, use it once a quarter as a maximum. Buy yourself, uh, a lunch or a cup of coffee, pay it off, pay it off the next day, and put it back in your sock, sock drawer. You want to really operate on a cash basis here. Okay?
  • 03:29                                   Um, secured credit cards can be found really everywhere right now. Bankrate.com has a slew of them. Um, your local bank, your local credit union. I’m almost sure 90% of these banks and lenders offer it right now. Um, I like doing business locally. Okay? If I’m late on the bill, I can quickly run over to the bank and pay it. Keep that in mind. We’re always trying to repair our credit. But we want to protect our credit. And we do make mistakes. Okay? So secured credit cards, guys, this is the, this should be number one, and number two on your list. And keep in mind you want to keep the balances super low. The last thing is an installment loan. Now, again, no bank really, when you have brand new credit is going to issue you a personal loan. Okay? Um, so what you can do is something very similar to the secured credit card with an installment loan. And you can get … Let’s actually make a little space here for you. You can get a CD loan.
  • 04:33                                   For all of you that are unaware, a CD is a certificate of deposit. It’s basically a savings account that uh, that you use at a bank. Your money gets locked into that certificate of deposit. You can’t take it out, okay? Um, many banks will allow you to put money into a CD. Again, let’s use this example. $500 into a CD, and then the bank, what they will do, knowing that you have collateral there, is they will allow you to get a $500 personal loan. Personal loan using the CD as collateral. Okay? A lot of banks, a lot of lenders will offer this, they’re really super duper popular at, at, at um, credit unions. Okay? Now, why not just get three revolving accounts? Well, that, that’s fine too. Okay? But again, remember 10% of your credit score is types of credit in use. Okay? So if you can mix it up with a little revolving and installment credit, you get a few little bonus points from that. Okay? Um, once you do this, okay? Let’s actually show you what the results are of this, because it’s pretty cool. Um, keep in mind with the installment loan, you don’t want to pay it off early. Okay? The interest is fairly minimum. Okay?
  • 05:50                                   Let’s say you got a 3% interest rate, or a 3% interest rate that you’re paying back with the CD loan, or the CD is making a little interest as well, that actually offsets the cost. But you don’t want to pay it off early, because the longer you keep these accounts open and active the more credit you get from them. But let’s think about where we’re getting our points from doing this, and how drastically, uh, the score can go up uh, a result of doing this. Okay? So you have 35% of the credit score is based on pay history, right? So the more on time payments you make, the more this is gonna be effective. So, you have three accounts now reporting on time, let’s say for six months, that’s going to affect that 35% pretty drastically, okay? Now, let’s say you take those revolving accounts and you manage them really conservatively. You keep the balances below 10% of the credit limit. Well guess what guys? 30% of your credit score is based on debts, okay? You’re managing these debts in a really conservative fashion. You’re getting bonus points as well here. Okay?
  • 06:54                                   Now check this out. You want to find some more points? 15% of your credit score is length of history. Okay? So by just having these accounts open for a long, long time and not opening and closing things is gonna affect this 15% of what makes up your credit score. So basically the age of your accounts affects your credit score in a positive way as well. Okay? And at least 10% of your credit score is based on types of credit in use. So by having a really nice mix of revolving and installment credit, you’re gonna maximize your points in this little category. So guys, building credit is one of the major ups we talk about at Key Credit Repair. We talk about cleanup, we talk about pay up, getting rid of debts. But we talk about buildup as well. This is huge.
  • 07:42                                   If you have any more questions about how to build up your credit, guys, check us out at keycreditrepair.com/freeconsultation. You can request a free consultation from any one of our advisors, even myself. And we can walk you through this process in detail. Thanks guys. This is your Credit Minute. Have a great day.