Credit Scores and Reports 101 (Credit Card and Loan Basics 2/3) — Transcript

Full transcript

1. 0:02Meet Jasmine.
2. 0:04Jasmine is a college student attending State University.
3. 0:07Like many college students, Jasmine has seen a lot of her friends and family use credit,
4. 0:12whether it's through a mortgage, a private student loan, or simply a credit card.
5. 0:16However, Jasmine has always been too afraid to use credit herself, leaving left her with
6. 0:20no credit history and a non-existent credit score.
7. 0:24What should Jasmine do?
8. 0:25Well, beyond watching our two other introductory videos centered around credit, “Credit Cards
9. 0:30101” and “Loans 101”, her next step is simple: understand her credit report and
10. 0:35score.
11. 0:36A credit report is straightforward.
12. 0:39It’s essentially a detailed history of your credit, covering everything from your payment
13. 0:42history to the age and status of your accounts, as recorded by the three major credit bureaus
14. 0:47in the United States: Transunion, Experian, and Equifax.
15. 0:52As you imagine, this is quite a lot of information for anyone to process, so one company actually
16. 0:58created a simple way to summarize this information called a FICO credit score.
17. 1:03This is a calculated number between 300 and 850 that summarizes your credit report.
18. 1:09The higher your score, the lower the interest rates and the better the rewards you’ll
19. 1:12get from banks, plus a high credit score is also vital for a number of other things, like
20. 1:18getting affordable insurance, finding an apartment, or even qualifying for a cell phone plan.
21. 1:23Ironically, for such an important number, getting your credit score actually used to
22. 1:27be quite difficult, and expensive, but now we recommend several websites that make it
23. 1:32free and easy for you to get your credit score and report online.
24. 1:36This is great for Jasmine, but she’s still confused about one last thing.
25. 1:40What exactly makes up a credit score?
26. 1:43Well, a credit score is actually made up of five parts, and from understanding each one,
27. 1:48you can derive the four major ways to improve your credit score.
28. 1:51Part 1: Payment history, 35% of your score.
29. 1:55Because this is such a large number, it reveals the importance of paying every bill on time,
30. 2:00even if it’s just the minimum.
31. 2:02If you’re struggling with this, we highly recommend setting up automatic payments for
32. 2:05everything, especially your credit card.
33. 2:08Part 2: Credit Utilization, 30% of your score.
34. 2:12To avoid damaging this, we recommend not exceeding more than 30% of your maximum credit line
35. 2:17both total, and for each individual account.
36. 2:20If you’re struggling with this, try paying off your balance early a few times a month,
37. 2:24or asking your bank for a credit line increase.
38. 2:28Part 3: Length of Credit History, 15% of your score.
39. 2:32The existence of this component means, rather counterintuitively, that you shouldn’t close
40. 2:36out your old credit accounts unless you absolutely have to, as otherwise you’ll hurt your credit
41. 2:41score.
42. 2:42Part 4: Recent Inquiries for Credit, 10% of your score.
43. 2:46This one’s simple.
44. 2:47Don’t apply for new credit cards and loans unless necessary, as each credit inquiry will
45. 2:52slightly lower your credit score by a few points the next twelve months.
46. 2:56Finally, Part 5: Types of Credit Used, 10% of your score.
47. 3:02Unfortunately, we don’t have a rule for this one, as we just don’t recommend applying
48. 3:05for multiple types of credit just to boost your score.
49. 3:08Finally, before we conclude, we just have two things for Jasmine to keep in mind.
50. 3:14One: To build a credit history, and thus a credit score, you’ll need to use credit,
51. 3:19and easiest way to this is open a credit card, like a student or secured credit card, that
52. 3:24is designed specifically for people with no credit history.
53. 3:27And don’t worry, we teach you everything you need to know in our two videos “Credit
54. 3:31Cards 101” and “How to Rebuild Your Credit”.
55. 3:33Two and Finally: Be sure to check your actual credit report for mistakes at least once a
56. 3:38year, as these errors can dramatically affect your credit score.
57. 3:41Should you find one, be sure to contact the credit bureau as soon as possible.
58. 3:46Hopefully you and Jasmine now better understand how credit scores and reports work.
59. 3:50Be sure to check our next two videos, which cover common mistakes and best practices for
60. 3:54credit cards and loans, and be sure to check out our website, where you can find more educational
61. 3:59content, your free credit score, and great credit card recommendations.