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Hey, good afternoon, everybody. It is one o’clock on a Monday. And I enjoy starting my weeks off with all of you. Last week we talked about credit history had a great talk. This week, we’re talking about credit utilization as part two of a five part series where we’re going through what makes up your FICO score. So today against credit utilization, let’s get into it.
All right, welcome. Welcome. Welcome. Happy Monday. Hopefully, you had a great weekend, you’re well rested, you’re ready to learn about credit. Credit histories, what we talked about last week, we didn’t have a lot of questions. So if any questions pop up, go ahead and set them up in the comment section. Whether you’re on LinkedIn, whether you’re on YouTube, whether you’re on Facebook, I will get all your questions and comments, at least it’s supposed to, I did see a couple of comments that didn’t come through, I sent stream yard an email asking what is going on. So while I’m thinking about it, I will go in and just pull up those pages. So that I can monitor the screen. And in case I missed something, I don’t want anybody to slip through the cracks. So credit history was last week, credit utilization is this week, those are the top two weighted categories, or your credit, credit history was 35%. As we went over now, credit utilization is 30% of your total score. So it’s very important to understand not only how it works, but as you get ready to pay your bills, it’s very important to know where you’re currently at. Because your credit score can vary month to month. And this is a significant reason. So credit utilization. Just plain and simple is how those words break down as is how you’re utilizing your credit. It gives a good window. On on how you are financially where you’re at in your life, if you had any major purchases that are going to carry over from month to month, it’s letting them know that you’re able to understand compound interest and how your money is working for you. So the credit utilization in itself is a ratio and it refers to the amount of available credit compared to the amount that you’re actually using a credit. A high credit utilization ratio means that you’re really close to maximize or maxing out those credit cards or other forms of credit. And that will lower your credit score. Now, there is several ways that we can lower your credit utilization. Obviously, the most frequently told thing to do is, hey, just pay down your balances. Depending how big of a hole you got yourself into, by just continually swiping and swiping and swiping will determine how easy that is just to pay off. If you’re at 10s of 1000s or hundreds of $1,000 in debt on credit cards, it’s going to take you some time between the interest and your income, being able to just write a check and get that paid down. So some some other ways that you can increase that this portion of your credit score that are not always talked about is you just ask. You’re like No, how does that work? Derek, you can’t just ask for a better credit score, no. But you can call each one of your credit card companies and ask them without doing a hard pull on your credit. If you’ve had a not long enough history of on time payments, and of being a good customer, you can ask them for an increase in your credit limit. Now as long as you go, you do get that increase and you don’t just go spend more money, that automatically is going to increase the or decrease the ratio of your credit use compared to your available credit, which in turn is going to help your score.
So just to further explain this, let’s say that you’ve got a $10,000 credit card, and that’s the limit and you’ve got a $2,500 balance that means you use 25% of your available credit. So that’s your utilization rate. I always tell my customers or clients starting out our goal is to keep it under 30% 30% is a good target number. But once we whittle it down to 30% Then we’re going to keep going further and further, we’ll go down to 25 into 25 into 10. And ultimately, we want to keep it between one and 4%. And the reason for this is, is once you understand compound interest and how interest works, then you’re going to know that you are going to be just padding the pockets of the banks, if you keep your utilization, utilization high. So when you’re thinking about these things, when you’re using your money, I’m never going to say, don’t do this, because it’s your money. But what I am going to say is understand how each decision you make is impacting not just your credit score, but your long term finances and what those goals are. So many times in life, we just make we say, we know we’re making X number of dollars, and we know our bills or X number of dollars in loans we make more than we spend, then I’ve got to be doing good in life. That’s not the way that you need to be running your finances, you need to know what are your long term financial goals? Do you want to buy a house? Do you want to buy a new car do you want to make sure you can afford these things, what goes into that what goes into if you’re buying a car, you’re gonna have to have the your annual fee for your license plate your tags, you’re gonna have to make sure you have auto insurance. So many different points go into being financially responsible for the the bigger things you buy, the more bills that come associated with that, and that’s all tied to your credit. So I’m back really myself back in because I do tend to go out there. Um, if you have any questions, feel free to throw them out there. Um, in the meantime, I’m just going to keep on talking. So credit utilization. Like I said, we want to keep it around 30%. That’s not saying that you can’t use your cards throughout the month. What that saying is, is by the time that you get down to the statement date, that you’re making sure that you’re sending your payments in, and you’re like statement date statement date, why are you talking about a statement date, because my invoices, I’ve got a due date, what’s the difference? So on your credit, on your credit bills, when they send it to you, there’s a statement date. And there’s a due date, it’s important that you understand the difference between these two. And if you don’t know what each of those dates are, you need to call the 800 number, ask them what those dates are. So the statement date is the date in which they close off the period for your balance that they report in, which is exactly exactly what your your your utilization number is that creates that ratio. And then the due date is when your payment is due. Now, the statement date is also the date. And depending on I don’t want to give false information because it’s depending on the counts, but most of the time it’s dependent on that date is when you are going to be charged your interest charges as well. So I always tell my clients right down a list of every open account that you have all the names, then the next column is all the APR interest rates. So we can prioritize which ones to pay off so that we’re paying the least amount of interest possible in a given month. And the next one is your current balance are your credit utilization all the way down. And then the final column is the maximum credit allotted. So that’s if you’ve got a $10,000 card, that’s what goes there. If you’re using 2500 That’s your credit utilization. Once we have all this stuff in front of us now we can start to make some more educated decisions on what is best for you and for your financial future.
So
as we get through this system, and as we’re starting to understand how credit works, you can use your credit card throughout the month, you can use it for almost every single purchase that you want. The important thing is is knowing when to pay it off so that you’re not paying interest on it. Because you have to use credit to build credit. And that’s the other thing that’s really important to understand is credit is not just given to you you have to create it you have to end by creating it you have to use your cards you have to get loans you have to have a bunch of different things which we’re gonna get into in another week when we talk about credit mix but as we go through credit utilization that is a the second highest portion of the FICO calculations the score scoring motor model and Vantage it’s one of the six Vantage has six I don’t really get into Vantage and how that works just because it’s not really used for making financial decisions based on your history. So but credit utilization is on on both of them. So now, as you can see, through all of what we’ve gone over last week with credit history, or payment history Three credit utilization, these two topics make up 65% of your total credit. So if you can just learn about these two and the not even worry about the other three, you’re going to be in the high sixes, high 600 scores. Now credit utilization, we’ve gone over how to boost it. By simply just asking for it, we’ve gone over the other way, which is the more painful way of just writing a check to pay it down. The next thing you need to do is that that worksheet that I described, write down all of your accounts know where your money is going. I can’t count the number of times that I’ve had an initial contact with the client. And the first thing we talk about is money. Can I afford your service? And my question is, can you afford to not have my service, because right now you’re paying high interest rates. Right now you don’t know where your money’s at, but you need to know where your money’s going. And sometimes it’s painful. But pain is what allows us to grow. So, homework one, from this week, pull up your bank statements, your credit card statements over the last 30 days, and see where your money’s going. See what you’re spending your money on. Yes, you may get a Starbucks every once awhile, chalk it up to I just want to I’m not saying don’t enjoy it. I’m not saying stop doing it. I’m just saying know how much you’re spending in a given month. Because if money gets tight, you need to know what you can stop doing to make up for some of the money that you need to be spending in other areas. The second thing is write down the name of each account the interest of each account, the balance of each account, the total available credit for each account. And then we’re adding this to more categories. Write down the statement date for each account. And write down the due date for each account. As you use your credit throughout the month, write a check by the statement date or do it online, I say write a check shows how old I am. But go through and make sure you’re making your payments online or through your app or however you make your payments. But do it the day before your statement date. That way it’s posting on the statement date, you’re minimizing the interest that you’re paying to the banks, you’re minimizing the ratio in which your credit utilization is figured and your credit score is automatically going to go up by just changing that. Now another thing that is very rarely talked about, which I don’t understand why is you have to understand people
want especially in the credit side, Capital One discover, Chase, all these banks, Wells Fargo, they want you to be a good customer for them. They don’t want to have to come after you and try to find their money. They want you to pay on time. And if the the dates that they set for you don’t work for your budgeting schedule, call them and ask, just say, Hey, listen, you have this due on the seventh of each month, I don’t get paid to the 15th. And my paycheck at the beginning of the of my month goes to my car payment, my insurance payment, my mortgage, by the time that I pay all my bills, I’m barely have enough money leftover for eating and all my living expenses, can we move this date to the 18th. And I always say give it two or three days because you never know, when your pay day is gonna have land on a weekend, you never know if it’s gonna land on a holiday. And if you’re gonna get paid early or late, and the last thing you want, again, is to have a late payment. But start making sure that you realize I have the power to simply ask for these things. They want you to succeed, they want you to not be a high risk because the lower risk you are, whether it’s a car loan, home loan, or just a simple credit card. The less they know they’re gonna have to work the less they know they’re gonna have to chase you down for their money or lose money or sell it off to a collections agency. You are only as good as your name. And if you’re proactive about it, you’re going to be way easier to get these these loans and these accounts approved for you. So there’s your there’s your homework for this week. Know what those days are, make them work for your budget by simply just asking for those dates to fit within that range and make sure when you’re asking if you are going to ask for a date change make sure you’re asking for the statement date to land on that day and then they can they can tell you where the due dates going to be. And they don’t care if you say listen, I’m going to pay by the statement date so I need the statement date to be on the 18th they they’ll be probably more impressed than you even know the difference between was due dates. So no and understand what you’re asking for why you’re asking for it. And so when you can, and just like everything else in life, if you have gone through any type of phone call for customer service on any account on any product that you’ve had, you know, and I know this from when I sell on Amazon, if I call into Amazon, because there’s a problem they need to fix. Nine times out of 10, the first three to seven people I talk to are not going to be able to help me, I’m going to be lucky if they understand what my problem is, let alone how to fix it. That doesn’t give you permission to be rude, that doesn’t give you permission to get frustrated, realize, right off the get go that, hey, if I can’t explain it to you properly within the first operator, my first attempt, then maybe that’s on me, I haven’t worded it properly. And I’ll hang up and I’ll call back. Because I guarantee you, if you wait two minutes, and you call back, you’re not going to get the same person that answered the phone that did the first time for you. So when you’re, when you call back again, go through this field go through the exact same thing that you talked about, and then say, Okay, did you understand this, and let them read reply to you, telling you what you said. You’ll find if you’re polite with people, you’re gonna get a lot further. And if they’re not, if they’re not able to help you just thank them for their time and keep calling back. But if you’re simply just trying to change these dates to better fit your budget to better fit your account so that you’re making these payments on time, and that you keep your utilization lower there, they want that. So you just have to find the right customer service agent that’s going to help you attain that moving forward with that account. And do that for each account. Don’t just stop, make sure you’re blocking off time to purposefully grab a hold of your finances, understand your budget, understand what your financial repercussions are going to have in the future, you can have lower auto insurance rates, you can have the lower interest rate on your car, your home, all these things, your bills are going to go down because you’re taking charge and you’re making sure that you know where your money’s going. And you’re not putting all that extra interest into the bank’s hands unnecessarily. So, back to credit utilization, I get going. So if I, if I start going off on a tangent, just say, hey, focused, Eric focus their focus there. So I’m going to focus, let’s get back more towards credit utilization.
There are several places online, you can find some credit utilization calculators or apps. And the reason I suggest that is, is because I use the $10,000. As an example, saying, if you have a $2,500 balance on a $10,000 account, you’re using 25%. That’s easy to figure out. But what happens if it’s a $6,000 limit, and you’re using $1,600? Now, I mean, I’m looking at the screen, that’s telling me that’s 27%. But I’m not instantly going to be able to tell you exactly what it is. And now you add five different accounts with five different limits and five different balances trying to spit out exactly where your utilization is. That’s why it’s so important to write it down. And that’s why it’s important to know where technology is, Google is a powerful thing. YouTube is probably a more powerful search engine than Google, find out what is going to be best for your system, I can’t I can tell you what works for me. But that doesn’t mean it’s going to work for you, you have to start doing a lot of self reflection when it comes to your own personal credit. You have to know where your strengths are, you have to know where your weaknesses are. Okay, so if using a credit card for all of your purchase is going to make you overspend because you’re not thinking about it, then don’t do it. You can set up your your your water bill, you can set up your electric bill, you can set up your gas bill, you we can set you up on a car account for just for gas for your car. Bills, you’re usually paying every single month can be used to build your credit without you having to think you have to spend all this extra money. It’s money you’re already spending, we’re just gonna use it to build your credit. And that’s why utilization is so important. You don’t need to you need to change your mindset to I want to get here I want to buy that house what do I have to do to buy that house, print off a picture of the house you want and put it on your frigerator put it in your bedroom, put it on the mirror in your bathroom, put it in a place where you’re gonna have to see it 2345 times a day so that you know I need to keep my eyes on this goal I need to work towards this goal and what do I have to do it and now what I’m what I’m trying to do is arm you with the information arm you with the knowledge that you don’t have to go change everything about your life. You can keep doing what you’re doing now or just refine it so that your score starts to get up over 620 up over 650 into the seven hundreds So when you go see your lender and you sit down with them, they’re not scratching their head saying, well, now what are we going to do you want to close on this house in 30 days, I can’t make the numbers not match, they have to be, they have all kinds of guidelines they have to meet. So if we can get you to the point where you’re ready, the stress levels can go way down for you. So anyway, go back, watch this, if you have any questions, throw them at me, I’m going to keep going down, I have let me look up YouTube, I’ve been paying attention to Facebook.
And yes, Rick, if you’re
still watching, I know you had to go that one to 4% is, is really where you need to keep it if you want to get yourself into the eight hundreds, if you pay down to 0%, it’s great, you’re not paying any interest. But the credit card companies are only making transaction fees, they’re not making the interest either. So they want to show that they’re making some profits. So in reality, I try to say anything under 5% of your utilization is good, I try to keep at least $10 balance on every account moving forward for the month. So that, again, that’s totally up to you and how you want to do things, but just understand as you are making these financial decisions, how that affects yourself, how that affects your accounts, how it affects your credit, you need to know, I just want you to know, as you are making decisions, how everything is intertwined, because credit is not a one once off thing, where if you do just this, you’re gonna go to here, and if you do this, you’re gonna go to here, and every decision I tell you, you’re gonna do, you’re gonna just get higher and higher. All of these five different categories are going to intertwine with themselves and one account affects all of them. So when someone says, I’m at a 575, how soon can you get me to a 650 I can’t tell you that, because I haven’t seen your credit reports, I need to see those. I need to show you and educate you on these five different areas, as well as a few other things, just so you can start to understand how all my all your decisions are impacting that score. Yes, we’ll get it up there, I have no doubt as long as you listen to me and start making better financial decisions, we can get you up, up up, I my commitment to each client is we’re going to get you into the seven hundreds and I’ll continue graduated, I don’t care if we start at 403 75. No matter how low we start, you’re gonna get to 700 if you’re my client,
but it starts with you.
I can only do so much. That’s why my passion is education. Because the more I educate, the more, the easier my job is more educate clients, the more that they understand how things work, how their finances work, how they have a grasp, they’re in control of their lives, you’re not hiring me to take control of anything, you’re empowering yourself moving forward, that you’re in charge of your finances, this is your life, and you’re not going to continue to pay the man, you’re going to start getting your leg up into society. So. That’s really I mean, we can keep going. I haven’t had any questions yet. For this this week. Last week, we got our questions in a little bit late. And I sent some replies through private messenger.
So I’ll go over
a few things, little tips that you can use to increase your credit utilization utilization ratio. Option number one, obviously, is pay off your balances. If you can pay those balances down, you’re compounding interest is not going to affect you as much. The second one is you can open a credit card or a loan account that is specifically designed for balance transfers. So what that does is you’re going to suck out all about the balances of the cards that may be maxed out or high into one account. And there. So let’s say you have $24,500 worth of credit that is being used right now. So you open up an account, they’re gonna give you a $25,000 account balance, everything goes in there. And you’re like, well, now Derek, I’ve got this utilization ratio is 95%. Yes, but that’s in that one account. Now you still have all your other accounts that are going to tie together, because you just doubled your total available credit without adding anything to it. And now you’ve dropped your utilization ratio. So that is an option that you can do. Just be careful when you do that. Because a lot of those type of accounts have stupid, crazy interest. So just make sure when you’re making these decisions, that you understand the full impact of those decisions. I don’t want you to take an account where you’re getting 17% interest and now you’re at 29 As an interest just to get a better ratio, again, the the easiest one that I urge you to at least start with the worst thing that they’re gonna say is no. But make sure they’re not doing a hard pull on your credit is ask for a credit limit increase. And then lastly would be a new card. That one is something I very rarely talk about, because getting a new card in 90% of situations is going to result in a hard poll, which is going to decrease and it’s not always guaranteed, we do have some programs that can get you a new account, through a secured card or some other different partnerships that I have, without doing that hard pool. But that’s something that’s reserved for my clients. But if you are interested, just send me a private message, I’m not just gonna throw that all out there. The bottom line is that the credit utilization ratio is a major factor in your credit score. So you need to do your best to keep this utilization as low as possible from month to month. And again, know the difference between your statement date and your due date. Find a credit utilization calculator, figure out where you’re at, know where you’re at. So month after month, you’re making decisions to gradually get that utilization lower and lower. Reducing this utilization ratio is one of the fastest ways that you can boost that score. Again, understand, all five of these components are directly correlated with each other. Understand that your credit is different than your spouse’s credit, where you are the decisions you make may not help your spouse depending on how each account is formulated, where they’re at in their lives with past decisions they’ve made 79% of everybody in America has issues or incorrect information on their credit report. So there’s a good chance that you do and that’s fine. That doesn’t define who you are as a person, that doesn’t mean anything more than you are owed and do a Fair and Accurate Credit Report. So that’s what allows us to go in there and change your credit. So in closing, we’ve got a few minutes left, I don’t see any, any questions popping up on the screen. So I am going to talk. So I’m going to talk a little bit more about kind of how I in some of my talks, I was speaking at a nonprofit, for children and their parents this last week. And I think it’s really important for everybody, in general to realize that. Right now, we’re at a point in our lives that we understand now, more than ever, how much your life can change in a short amount of time. You are not this in of us living in the same world that you were 24 months ago, your credit goes back seven to 10 years depending on if you have a bankruptcy or not. So decisions you’re being judged on your credit worthiness on decisions you’ve made for almost a decade prior. Now, let that sink in. Two years ago, before COVID, our lives were totally different than they are today. How much different was your life three months ago, six months ago, five years ago. Just because you’ve made bad decisions in your past does not define who you are today. And that’s why I’m passionate about credit because you deserve when you go to the table to get that car to get that house hack to just open up a new charge account. When you sit down, you shouldn’t be stressed about whether you’re going to get approved, you should know you’re going to get approved. As long as you’re worthy of that based on the decisions you’re making today. But the change starts with you. You have to actively decide, actively take hold and actively realize where you are in your life. And make that decision going forward. I’m going to know where my money is going. I’m going to not continue to pay high interest rates to the bank. I know we’ve all heard of the man keeping us down or the rich get richer and why can’t I just get over that hump? I’m tired of barely getting by. You’re tired of getting by. But what are you doing to change? To do more than that? Are you changing your actions? Are you changing anything about your life? Or are you falling down through the true definition of insanity the same thing over and over and over again, getting the same results and you don’t know why? Well, it’s because your actions haven’t changed. I want to help you. I want to make sure that your actions are a good reflection of who you want to be not just who you are today. So follow me on This series if you have any questions, I will always be here for you. If you have any questions, go ahead and shoot me a message shoot me a private message, comment. I will be doing this every Monday at one o’clock Central. This is part two of a five part series. I don’t see any questions today so if you have any my cell phone numbers very easy to find. Search Scarlett Arrow it pops right up. 316-214-8554 this is Derrick favor. Remember? God loves you. And So DO I