Obtaining a good credit score is key in not only establishing a money management system, where you are efficiently managing your money, and also managing different types of lines of credit. But it also allows you to obtain favorable interest rates on various types of loans, saving you money both in the short term and the longer term. And these are skills that the wealthy use to leverage money while paying the least amount of money, and obtaining the greatest amount of Return on their Investments.
In this video "How To Get A Perfect Credit Score For Free | Credit Mastery 101 // 10X Academy", I will discuss different tips and techniques you can use to obtain a perfect credit score, for free. These are things you can start doing right away, while not costing you a dime.
Your credit score is comprised of the following categories:
1 - Payment History - 35%
The first things credit card agencies and lenders look for, is if your payments are on time, each and every month. No late payments or partial payments. Ideally you want to pay your balance in full and on time, so that you are not accruing any interest or debt.
Payment history is calculated by taking the total number of months payments were made on time, and dividing that by the total number of payments that were due. If all the payments were made in time, then you have a 100% payment history rating. This is also why, having more credit cards and/or credit history matters because you have a bigger pool of data of payments made so that your score doesn’t suffer if you miss one payment. After a year of making payments in time, you should see a huge bump in your credit score from this alone!
2 - Credit Utilization - 30%
Credit card agencies and lenders want to make sure you are not over leveraging your total credit availability, and only using a small percentage of your total credit. Ideally you want to be spending less than 10% of your total credit limit available to you.
In general, whatever purchases you make, you want to pay it off immediately when the bill is due. This will result in a 0% credit limit utilization, allowing you to achieve the highest credit score possible in this category. Also having more credit cards allows for more credit card limit amounts, which will lower your overall credit utilization if you need to make a $10K purchase for example.
3 - Credit History - 15%
Credit card agencies and lenders want to see that you have lengthy credit card history. Build your credit card history consistently and as soon as possible
Credit history is calculated as the average of your credit card history length, divided by the number of credit cards you have.
So be careful in opening too many credit cards at once, because this will lower your overall credit history. Instead stagger the credit cards, once every year so your credit history doesn’t take a significant hit.
4 - Total Credit Lines - 10%
Credit card agencies and lenders want to see that you have credit lines, but not too many of them. The key is to have a number of credit lines to allow you to have more credit limits, which lowers credit utilization (if you are making payments on time and barely using any credit), and a mix of types of credit.
Just having one type of credit can actually hurt you, especially if you are over-leveraged on that type of credit. Ideally credit agencies want to see that you have at least (21) different credit lines.
5 - Total Credit Inquiries - 10%
Credit agencies and lenders want to see that you don’t have too many credit inquiries. The more inquiries you have, the more riskier you are seen in the eyes of credit agencies - since you are asking for all this credit at one short amount of time, meaning that you are mismanaging your money and need to borrow larger sums of money because you are out of money. Credit inquiries stay on your credit report for up to 2 years, and only impact your score for 1 year.
Be sure to check up on your credit history once every few months to make sure your are on the correct path to building a healthy line of credit and increasing your credit score. Keeping your score above 760 will put you in a favorable position when shopping for loans for homes or vehicles, bank loans, or any other types of credit lines. This will keep the loan interest rates as low as possible, saving you money both in the short term and the long term.
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility.
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