How to Dramatically Increase Your Credit Score in 2021

Summary

In this video, Sebastian from Ask Sabby discusses practical strategies to rapidly boost your credit score in 2021. He breaks down the key factors influencing credit scores, including payment history, credit utilization, and credit mix. He shares tips on avoiding common pitfalls like accumulating unnecessary debt products and emphasizes the importance of managing credit responsibly. The video also highlights tools like spreadsheets for tracking progress and provides actionable insights on how to improve scores quickly. Viewers are encouraged to engage with the community for accountability and support in achieving their credit goals.

Takeaways

• 😀 Credit is built over time but can be ruined instantly, so managing it carefully is essential.
• 😀 A credit score is important for various life decisions, such as renting, getting loans, and even job opportunities in some industries.
• 😀 The average credit score in the U.S. is 711, and if your score is below that, it can limit your opportunities, especially in competitive areas.
• 😀 Your credit score is determined by factors like payment history (35%), amount owed (30%), credit history (15%), new credit inquiries (10%), and credit mix (10%).
• 😀 Payment history is the most impactful factor, so consistently making on-time payments is crucial.
• 😀 Credit inquiries, especially early on, might lower your score, but their impact becomes negligible over time (after one year, they stop affecting your score).
• 😀 Credit mix can be a trap; you don’t need every type of debt product to improve your score. For example, getting an auto loan just to improve your score might not make sense.
• 😀 Using credit cards effectively is one of the best ways to improve your score, as they allow you to build credit without paying interest if used wisely.
• 😀 Keeping your oldest credit accounts open helps improve your score, and downgrading cards instead of canceling them can be beneficial for maintaining account age.
• 😀 Utilization is a key factor in your score, and maintaining a low utilization rate (below 30%) is ideal. You should also aim for low utilization on each individual card as well as across all cards.
• 😀 Small payments on multiple cards can boost your credit score by increasing the number of on-time payments, which positively impacts your score over time.

Q & A

Why is credit important, and how does it impact your life?

Credit is important because it reflects your ability to manage debt responsibly. A good credit score can help you secure loans with better interest rates, rent a home in competitive areas, and even qualify for jobs that require security clearances. Poor credit can limit your options and lead to higher costs.

What is the average credit score in America as of 2021?

The average credit score in the United States in 2021 is 711. A score below this might indicate potential challenges in accessing favorable financial terms or opportunities.

What are the five main factors that determine your credit score?

The five main factors are: 35% payment history, 30% amount owed (utilization), 15% credit history length, 10% new credit inquiries, and 10% credit mix.

How can applying for new credit cards affect your credit score?

When you apply for new credit, it leads to a hard inquiry, which may reduce your score temporarily. However, this impact is usually small, and after one year, the inquiry stops affecting your score.

What is the concept of credit utilization and how does it impact your score?

Credit utilization refers to the ratio of your credit card balances to your credit limits. Lower utilization (below 30%) is better for your credit score. A high utilization rate signals potential financial strain and can lower your score.

What is the difference between payment history and credit utilization?

Payment history accounts for 35% of your score, reflecting how reliably you make payments on time. Credit utilization, which makes up 30%, focuses on how much of your available credit you’re using. Both are crucial to maintaining a healthy credit score.

Why is it important to manage credit mix, and what is a trap associated with it?

Credit mix involves the types of credit products you use, such as credit cards, mortgages, and auto loans. The trap is that you might feel pressured to take on unnecessary debt products to improve your credit score, but this can lead to managing debt you don't actually need.

How can derogatory marks affect your credit score?

Derogatory marks, such as missed payments, collections, or foreclosures, have a significant negative impact on your credit score. These marks can stay on your report for years, making it harder to improve your score.

What role does the average age of your credit accounts play in your score?

The average age of your credit accounts accounts for 15% of your credit score. Older accounts demonstrate your ability to manage long-term credit responsibly, which is favorable. Keeping older accounts open helps maintain a good average age.

What are some tips to improve your credit score quickly?

Some tips include making on-time payments, reducing credit utilization, keeping old accounts open, and avoiding excessive credit inquiries. Also, using small transactions on multiple cards and paying them off can help improve your score faster.