Charles McDonald: 0:04

Hello, I'm your host, Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time. debt reduction to achieve financial freedom takes commitment, confidence, determination. How to build credit, building credit is important for everybody. If you don't have any credit, or if you even worse, have a bad credit score that will hurt your chances of getting on loan and even increase your cost of insurance. Whether it's auto insurance, homeowners insurance, whatever insurance you're trying to get, you're gonna pay more if you have bad credit. And there are four ways your credit impacts you be on borrowing money. Number one, employment screening. When you apply for a job, especially if the position involves managing money. Hearing potential employer may check your credit report, almost a third of employers run a credit check on their job candidates. According to a survey by National Association of Professional Background Screeners. If the employer discovers proof of money mismanagement, it could dig the client to hire you, especially if the job is related to finance, your credit could come into play if you apply for a government job that requires a security clearance. So even if you're applying for a job at the local McDonald's your first time job, maybe you don't have credit because you're young, they could do a credit check on you because if you handle money, they might be suspicious that you may steal, but maybe not. That may be a case that doesn't apply home or apartment rentals. Landlords likely check credit determine the likelihood that you'll make your rent payments on time. If one finds evidence of unpaid bills, or late payments, they require a higher security deposit, or simply choose another applicant over you if they have the choice. New utility accounts if you're applying for a new account, with a wireless carrier, at cable company, or a utility provider, the process may involve a credit check. If you have a history of late payments or unpaid bills to provider could require a security deposit or deny you service. Try living in an apartment you just rent it if you can't get electricity that'd be rough. Auto in homeowners insurance in states where it's allowed 95% of personal insurers use a credit based insurance score to determine your rates. According to Fico. The score is different from scores used for lending, but it's still based on information found and your credit reports. Well, insurers generally can't use a low score as the only reason deny you coverage. It could hurt you if there are other negative factors influencing your premiums, and an insurance company will charge you the most they can for whatever reason. So how you going to build credit. And if you hadn't already run across these problems, it won't be long before you encounter a live situation where someone asks you to check your credit. building credit for a home or car purchase is necessary without having cash on hand for those purchases from buying a new cell phones or getting a mortgage. credit reports and scores are used by businesses to evaluate your credit worthiness and establish your borrowing terms. So what can you do to build credit, the first thing you got to do is make all your payments on time that will help no matter what so you can have a credit card. Depending on your age and where you are in life. You can get yourself a credit card. So if you're a college student, and 90% of your purchases is auto related gas, you know, gas for the car maintenance on the car, then you might consider getting a credit card where you get rewards for buying gasoline. Or the other big expense for a college student would be food and groceries. So get yourself a credit card where you get rewards for what you're spending your money on most often. Which cards you apply for. It should be based on whether you had any credit history. There are credit cards for fair credit, bad credit, good credit, and those that have no credit. If you haven't least some credit history should consider applying for a beginner card, such as a store card that's easier to get approved for. If you have no credit history, you're likely to apply for a secured credit card in order to be approved, which means you put money upfront. And if you have a $500 available credit, you put in 500 bucks, and you would have $500 credit to use on that card. And then then that can go up over time. Once you have your first card used to make small, everyday purchases they can easily afford pay your balance off in full each month to start building up a credit history of on time payments, showing lenders that you're a responsible borrower. Nowadays, your credit cards gonna have an online online account you can sign into, if you have a job where you get paid every week, I recommend making my weekly payment on that every time you get pay, you pay that credit card off, that way you won't get behind. That way you won't overspend more than what you're making. You know, that would still be considered a timely payment you just pay in early and that would be better than paying late. Get a secured credit card. As mentioned, if you have no credit or poor credit, your credit card options will likely be limited. However, you still may be able to qualify secured credit card. This type of card works like a traditional credit card, except that it requires you to pay a security deposit upfront, which the issue then holds as collateral against what you spent. If you're just stopped making payments in the fall on the count, the issuer keeps the deposit to cover the debt. This protects credit card issues financially, and means they're able to prove people was less than stellar credit history. Once you get a secured card used to pay for small everyday items, and pay your bill on time in full each month. Over time is added to your payment history, which can help build your credit score. Again, if you get weekly pay. If you get paid every other week, make it pay off your credit card, every payday that should become a habit.

Unknown: 7:23

Three become

Charles McDonald: 7:24

an authorized user. For people who have trouble qualifying for a credit card on their own. Becoming an authorized user could be helpful situation. As an authorized user, you'd be able to add it to an existing account and given your own card to use the accounts positive payment history is added to your credit report and factor into your credit scores. However, since you're not responsible for managing the account and making payments, the degree to which it will help your credit worthiness is limited. So if you have no credit, and you can't get a credit card on your own, maybe your parents have great credit, and they have a credit card, ask them to become a authorized user and you get your own card, you limit your spending, you can make the payments. That for the money that you spend on if whether you give it directly to your parents, or to the credit card company doesn't really matter. As long as your parents make a timely payment on that credit card. Your credit worthiness will go up but is limited. And maybe you're won't be able to find somebody that will allow you to do that request a credit limit increase. If you already have a credit card, there are ways you can make sure you're getting the most credit benefit out of it. First use it to pay for your bill in full each month. Then after you have that for several months, consider requesting a credit limit increase. Doing so could help improve your credit utilization ratio, which is a ratio of your balance to your credit limits. Your credit utilization is an important credit scoring factor and keeping your balances under 30% of your credit limits can help your scores. And while 30% is a great starting point, the lower your credit utilization, the better it is for your scores. lenders may not approve requests from accounts with large outstanding balances, so it's best to pay down as much as your debt as possible before requesting unlimited increase or applying for new credit. If you're approved for a limited increase, resist the urge to ramp up your credit card spending. Remember the idea of increasing your credit limit is to improve your credit score not so that you can spend more money While all this may be good for improving your credit score, perhaps you're the type of person that likes to pay cash for everything, and you don't have a credit card. So what are you gonna do? Well, you got to pay all your existing loans on time, whatever loans you have, even though you have no credit cards, maybe you have an auto loan, maybe have a personal loan, pay all those loans on time each and every month, and make sure that you

Unknown: 10:35

don't over borrow money.

Charles McDonald: 10:40

installment loans can give yours credit scores a left if you don't have a long credit history. And installment loan, which you pay back through a set monthly payment can help build your score, auto mortgage, personal and student loans are all types of installment credit. That means the loan you may borrow to buy a car or pay your education has an added benefit of helping you build credit. As soon as you make all your payments on time. You shouldn't take out a traditional loan simply to build your credit. But there are credit builder loans that work differently and are intended for precisely for this purpose. Then he got nonprofit lending service which peer to peer lending, I don't really recommend that have your monthly bills added to your credit report. If you make all your utility payments on time, you can add those to your credit report and it's called Experian boost. So after you have had that apartment, your first apartment, you make timely payments on your rent, and you make timely payments on all your utilities, he can go to Experian boost, and add that your utility payments to your credit score in you'll get a boost on your credit. Also, ask your landlord if he's reporting your on time payments for rent, to a credit bureau to rental bureau.

Unknown: 12:11

That's important

Charles McDonald: 12:12

because your rent payments makes up 35% of your credit score. Landlords not reporting it, ask him if he could do so and then look for ways that you can report it on yourself and we're going to cover that in a little bit. So, how credit works revolving credit installment credit revolving credit as a as a credit accounts that sets a limit that you can draw upon, pay back and draw upon again, credit cards in the most popular form of revolving credit follows my line of credit. installment credit is that you borrow and pay back in fixed monthly installments. This includes personal loans, student loans, auto loans and mortgages, service credit service credit that type of account you have with anyone who provides you with a service and bills your monthly utility. And so cell phone bills are example of service credit accounts, these bills can help increase your FICO scores. On the other end of the spectrum, your accounts can be sent to a debt collector if you miss a payment. If a debt collection is opened in your name, you'll appear on your credit report and negatively impact your score. So if you're already have some of your bills, turn over to a debt collector, you might want to contact a provider, make a payment plan directly with the provider before they do that. If you've been having trouble paying your bills, your cell phone bills or whatever bills it is, before they can turn it over to a debt collector, he might want to contact them and set up some type of payment plan again,

Unknown: 13:55

make timely payments, how to get help

Charles McDonald: 13:59

not having a bud this is a good time if you're struggling with a credit score that's bad or no credit history when you're just starting out and you're getting those first couple credit cards and you just get in that apartment for the first time. I know you know your rents due the first of the month and the grace periods may be five days. So the fifth of the month. And you can remember that yes I know but write it on a counter. He can visually see it. It will help you remember to make on time payments. Also include your utilities. If you have to pay for electric put that on your counter if you got natural gas for heat. Put that on if you got a water and sewer bill, put that on the counter. make it visible so you can see it. This is the start of your budget. He can maybe put water do water sewer. How much is gonna be $75 went up due monthly, on the 20th of the month, write that on the calendqr. That's the start o having a budget. So if you kno when your bills are due, you'r gonna be more likely to be abl to pay them on time. All thes articles I'm referring to ar from experian.com. That' probably why they're sayin Experian boosts to includ utility payments. I'm not sur if other credit bureaus have an type of boosts, but I know tha they will pick up bad credi from utility companies if yo don't make timely payments. Ho do build credit? Again, if yo have poor credit might b trouble taking out a credit car running apartment, genuinel life is gonna be harder. If yo have bad credit. Not only is i harder, it's gonna cost yo more. And why do you have ba credit? Well, because you don' make a lot of money. So tha compounding the problem. That' generally what happens whe everybody is first starting ou on their own. You have very lo income and you have a lo expenses, and nobody is willin to give you credit, because the don't know what you history ar on managing your money. Whethe you are dependable, or whethe you're gonna be delinquent, mak your rent and utilities paymen counts. If you want to buil your credit without credi cards, it's time to leverage th power of your other monthl bills. If you rent ask you property management company i it reports your payments t experience drown out rent, bur or any other rental bureau tha reports payments to the credi companies credit bureaus. If i doesn't, he can sign up for rent payment service that work in partnership with the ren Bureau and you can have you rental payment. History reporte there are many ways to repor your rent to credit bureau s try to take advantage of one o them. Sign up for the right typ of credit card. When you'r ready to start building credi with a credit card. Make sur you apply for the right type o credit card. If you're trying t build credit as a colleg student, consider one of the to credit cards for students. I you have a car fuel expenses ar already part of your spendin and gas credit cards help yo with those purchases as foundation for building credit And again, pay him off ever week. If you can't pay him of faster and sooner than tha monthly payment so you don't ge way far behind and unable to pa the balance off. Not only do yo need to make timely payments, h also should be able to pay the off to it's always at zero. Thi will help you stay out o trouble with your credit cards Again, there's talking abou secured credit again, set u automatic credit card payments One of the best way to ensur you always pay your credit car bills on time as a sign up fo automatic credit card payments You can set up an automati minimum payment automaticall pay the full statement or choos a fixed amount the port pu towards your credit cards ever month, you need to make sur there's enough money in you bank account to cover you automatic payments. Of cours bevind get auto pay set up o your credit card bills, you'l be able to reap the benefits o a positive credit paymen history without handlin manually just scheduled payment every month. Good idea. I you're behind on making credi card payments, maybe you get tw or three credit cards that got large balance on them. Larg balance anything over $5,000 an you're having trouble makin payments. One you got to qui using those credit cards as soo as possible to begin to make minimum payment on time ever month. Remember, you need t factor in the delay process. I you're sending a check. It ma take two or three days to get t the lender. So you need to mak sure you check is mailed earl enough that they receive it o time. That's all part abou making a timely payment Nowadays, everybody has onlin checking. You can set it up s that you can pay it directl from your bank to their bank o time on the due date. And that' what I've used 99% of time probably for the last 10 years Open a second credit card onc you have a positive credi history with one credit car It's time to apply for a secon credit card. Having multipl cards on your name increases th amount of credit available fo you. And you can avoid runnin up high balance on your credi cards, you could lower you credit utilization rate, whic represents your current debt a a percentage of your availabl credit and improve your credi score. What's your debt t income ratio that is a factor of adding up all your monthly payments and divided by your gross monthly income. So the gross is the gross before taxes, and anything else is deducted from your paycheck. So if you keep your pay stubs for a month, add up their gross amount and divide your loan payments into it and give you a percentage. And that percentage you want to be as low as possible. If it's less than 43%, you won't have any trouble with that much, but the lower the better. So what they're saying here is if you open a second credit card, now increase your credit limit. If you don't use a whole lot of it, that's gonna look good. So if you have two credit cards each with$1,000 credit limit, instead of having $1,000 limit, which is and you're using $500 Every month, have a $2,000 limit that you use $500 Every month is gonna make your credit score look better. Request said limit increase take out personal loan, how our credit scores calculated what what makes up your credit score. Payment History 35% of your credit scores based on payment records pay your bills on time every month to avoid lowering your newly established

Unknown: 21:59

credit court. credit utilization 30%

Charles McDonald: 22:04

of your score is based on how much of the available credit you're currently using, the less credit utilization is better. If you rack up debt or carry high bounce your credit score will suffer. Some people say use less than 10% of your credit available credit. Others say you gotta use more than 10% and but keep it under 30%. Whatever it is, you need to pay the cards and debt off every month on time, especially credit cards. If it's a installment loan, then you need to make the monthly payment on time. Making extra payments is not gonna help your credit score. Making a larger payment than what's due is not going to help your credit score. It will help you pay the loan off faster and save you interest that you pay. But it may not help your credit score. length of credit history 15% of your score is based on the length of credit history, which includes the age of your oldest credit account, the age of your news account and the average age of all your accounts. That's why it's a good idea to keep all credit cards open. Even when you're no longer using them regularly, that you need to use them from time to time, so they don't automatically get closed. Especially when credit starts getting tighter on the economy. They're gonna be looking Oh, he's not using this card. Let's close it and it can hurt you. If you've had bad credit and carried large balances for a long time, he may run into another problem. When you make a large lump sum payment and you pay say a couple $1,000 off of balance, you think you're making no headway that credit card company may lower your available credit. So if you had a $10,000 available credit, and you had the $9,900 balance on it for the last five years, and all of a sudden you pay $3,000 off of that you got down to $6,0 0 roughly $7,000 They could l wer your available credit dow to 7000. That's happened then hey do that all the time, and hat could hurt your credit, but the longer you have it so when you pay off a credit c rd, especially if you haven't it for a long time carrying a bala ce. Don't close that credit ard because that will hurt our credit score. credit mix 10 of your credit score is base on the types of credit count on your name. Having both revol ing such as credit cards and installments that says Car L ans can give you a credit sco e a bump, he can still b ild maintain a good credit s ore even if he only credit ca ds, reason credit inquiries. 10 of your score comes from new credit. This includes the nu ber of credit inquiries on our account, each heart credit ole lowers your credit s ore slightly slightly. So tr to avoid applying for a lot of new credit over a certain s ort period of time. So if yo're going out to buy a new car, and you go to dealership numbe A, and A you were working a eal with them, they pull your cr dit cards a hard poll, then you say on that you're not doing e a good enough deal and you g to auto dealer B and he does the same thing. That's another t ing on your poll, pull on our credit score, and that's g nna slightly lower your score. But if you do that five or six times, it's going to really urt you. Now, if you do it wi hin one or two days of each ot er, they may consider that as not being too bad because they now and that you're shopping aro nd. And maybe they'll give y

Unknown: 26:07

break. But don't count on it. Pay bills on time.

Charles McDonald: 26:12

Monitor your credit report, keep an eye on all your credit reports, you can check it once a year for free. And make sure there's nothing on your credit report that doesn't belong to you. And if do you need to dispute it. Keep your eye on use use utilization. Bounce, keep below 30% of your available credit. If you have$1,000 credit card, make sure the ending revolving balance before below $300. It's even better if you pay the balance off in full every month. If you pay it off in full every month, you won't be paying interest. If you have a $300 balance that you keep carrying, you're going to pay interest every month. Don't apply for too many new credit counts at once. So don't go out and apply for 10 credit cards, you know over a period of one month because that's going to hurt and avoid an unnecessary credit inquiries. If you concerning a new car trying to not waste credit increase on application that aren't likely to be accepted. Instead for look for credit option designed for people with your credit history and background. Keep old credit accounts open. Try to use each credit card at least once per year to prevent lenders from closing your accounts due to an activity. If you have an old credit card that charges an annual fee, consider downgrading your card to one with no fee. That way you can keep the line of credit open and continue to build your credit history. And I had a line of credit that I had paid off and I discontinued using it. And they were paying me it charged me a yearly fee. And I didn't use it. So I went in. Well, first of all, I had a mortgage that qualified for a for no fee. So when I got the mortgage paid off or down too low, they started charging me a fee on my line of credit had to go in. And I finally just got rid of it, which really didn't hurt my credit score because I've already had a high credit score. And if you're trying to build your credit score, you want to keep those credit cards open. Because the longer the older they are, the better off you're going to be for your credit history.

Unknown: 28:36

So building

Charles McDonald: 28:37

a credit history is important. And having a good credit history is even more important. And I'll be back in one moment was my final final thoughts. If you listen to this podcast, reduce that increase wealth on an Apple device. Scroll through all the episodes towards the bottom. And you can select write a review and leave your comments. And you can rate this podcast. I appreciate all feedback. And I thank you for your time and doing so. building credit. In order to build your credit, you need to have a good credit score. In order to have a good credit score you need to have credit. So you start out by making all your payments on time. Whatever it is you have to pay for your rent, your utilities. A credit card, you got to make timely payments. That is number one. And you got to pay what do what oh, so for your rent, you got to pay 100% of your rent, utilities, all your utilities, whatever you owe, you got to pay it off every month. In order to build your credit, if you got a credit card, you don't want to exceed 30% of your credit limit, because that will hurt your credit score, you want to use it like cash, treat your credit card as if it's Cash Money in Your Pocket. If you don't have the money in your checking account, or your savings account to pay for whatever it is you're putting on that credit card, he cannot buy it. Do not use that credit card for a loan, because it is costly. And if you do it too many times, and you get a too high of a balance that's gonna kill your credit score. We are trying to build your credit score, so you can get more credit later on. That's the purpose of this episode. Why do you need credit later on because maybe you need to make a car payment cars are expensive, but that time you save up enough money to pay cash for a car, it's gonna go up 10 or 20%, you'll never catch up. Same thing with buying your home, you'll never be able to save enough money fast enough in order to afford the rising cost of home ownership. So you need to have credit. Once you have that first credit card for six months to a year, then you can apply for a second credit card, whatever that may be the credit card with a lower balance credit limit. If you have two of them, that's gonna help your overall credit rating, which will help your credit score stay committed. Treat that credit card that's if it's cash in your pocket. Don't use it unless you already have the money and pay it off every month. I recommend paying it off every payday if that's weekly, or every other week or semi monthly. pay it off and quit building credit by carrying a balance on your credit card. Once your credit card if you're struggling with debt and you get your credit card paid down. Don't cancel that credit card. Because if you cancel a credit card, that's gonna hurt your credit rating. stay committed. Stay focus and you'll be better off and happy

Unknown: 32:50

you did