- Having a good credit score
in the United States is one
of the most important things
that you can do financially.
Today we're gonna talk about
how you can maximize it.
(upbeat music)
Your credit score's comprised
of five different parts,
and your score is weighted based on how
the credit agencies see
those different parts
and how important they
think that they are.
Now let's start building this pie chart.
The first and most important part
of your credit score is
your payment history.
Your payment history makes
up 35% of your credit score.
So it's really important
that you pay on time,
you don't have a lot of late payments.
And you might say, "Oh man,
I was 10 or 15 days late."
Most of the time that doesn't go on
as a late payment on your credit file.
That's just late payments
at your credit card company.
But make sure you're paying them on time.
Put it on auto pay for at
least the minimum amount.
Obviously you wanna pay 'em off
or you can pay more if you want,
but make sure that at
least the minimum amount
is being paid on all of
your outstanding credit.
The second most important
part of your credit score
is how much you owe, otherwise
known as credit usage.
Now, it's important to keep
your total credit usage down.
There's a 30% rule that a
lot of people talk about,
but if we look at the people
that have perfect scores,
it's actually closer to five percent
is where you wanna keep it at.
And this credit usage makes up about 30%
of your total credit score,
so you wanna make sure that you're not
overusing those credit cards
or those lines of credits
if you can help it.
So we've already made up
65% of your credit score
just with the first two things.
The third one is the length
of your credit history.
And this may be hard for some
you control if you're younger.
Obviously you haven't
had credit that long,
so this is something that will built up,
but luckily it only represents 15%
of your total credit score.
So it's definitely something
that you can overcome
even if you're a younger borrower.
The last 20% is comprised
of two different things.
Number one is new credit,
and you might have heard that you don't
wanna check your credit too often
or you don't wanna have a pull too often,
the checking the credit's actually a myth.
You an check your credit as long as
as many times as you want.
It's considered what's called a soft pull,
but a hard pull is where you go to
a bank or a car company and
you're trying to get a loan
and they actually do a
hard pull on your credit.
So you wanna make sure you limit that
'cause that can affect your score.
The other part of that 20% is also
made up from your credit mix.
So if all of your credit are credit cards,
that's not a great mix,
but if you have credit cards
and you have car loans,
and you have a home loan,
and even some student loans
which we're not crazy about,
but it's still part of the credit mix,
and they're all in good order,
then that will actually increase
your credit score as well.
So there's your five factors on how
to improve your credit score.
And you might think,
"Why do I need credit?"
Well in the US economy it's important,
what if you wanna buy a house,
what if you wanna get a new car,
if you don't have good credit,
the banks will end up
charging you a lot more
because they consider you
more of a risky investor.
So over your lifetime, having good credit
will end up saving you
thousands, tens of thousands,
maybe even hundreds of
thousands of dollars
that you don't have to pay in interest
to banks because they trust that you
are a serious and a good
borrower of the money.
Thank you so much for watching our video.
If financial literacy and education
is something that you're passionate about
or you wanna learn about,
please consider subscribing.
We're not here to sell you anything
or even give advice.
We're just here to educate and try to make
everyone a little bit better
through financial literacy.
