The Ultimate Guide to Building Good Credit

Summary

This video provides a comprehensive guide to building and improving your credit. It covers essential steps like paying off debt, choosing the right financial institutions, opening accounts with Credit Unions, and using secured loans to lay a solid credit foundation. It also emphasizes the importance of using credit cards responsibly, diversifying your credit mix, and managing credit inquiries. By following these steps, viewers can gradually build a strong credit profile, increase credit limits, and effectively boost their credit scores over time.

Takeaways

• 😀 Start building credit early, even if you're in high school or a young adult, to ensure a good financial future.
• 😀 Avoid closing credit card accounts without understanding the impact; closed accounts stay on your credit report for up to 10 years.
• 😀 Do not delete closed accounts from your credit report, as this can erase valuable payment history and harm your score.
• 😀 Step 1 to building good credit: Get your finances in order. Focus on paying off any existing debt before seeking new credit.
• 😀 Stop wasting money on credit repair services—focus on improving your financial stability instead.
• 😀 Choose a credit union over big banks, as they offer better relationships and more opportunities for higher credit limits.
• 😀 After selecting a credit union, open a checking and savings account, and set up a secured loan for at least 24 months to build credit.
• 😀 Always make sure to pay off at least 80% of your secured loan and set the remainder on auto payment for consistent credit growth.
• 😀 Avoid secured credit cards and stick to high-limit credit cards from credit unions to keep your credit profile clean.
• 😀 Build your credit mix wisely—choose credit cards and loans that contribute to a balanced, healthy credit profile (e.g., medical cards, store cards).
• 😀 Use your high-limit credit cards responsibly, making sure to pay them off in full every month to avoid interest and maintain a healthy credit score.
• 😀 Building a good credit score requires patience—allow your credit accounts to age and grow, and avoid applying for too many credit products.

Q & A

What is the main target audience for this credit building guide?

The guide is intended for anyone looking to improve their credit, including high school graduates, people in their 20s, middle-aged individuals, and even those in their 40s and 50s. It's for anyone who needs a structured approach to building or improving their credit profile.

Why shouldn't you close credit card accounts, even if they have bad credit attached to them?

Closing a credit card account can negatively impact your credit score, as it removes the account's age from your credit profile. Even if the account is closed, it will remain on your credit report for up to 10 years, preserving its positive payment history, which is important for your overall credit score.

What are the three key steps to building good credit according to the guide?

The three key steps are: 1) Get your finances in order, 2) Lay the foundation, and 3) Build your credit profile.

Why is credit repair not recommended as the first step for those facing financial hardship?

Credit repair is not the solution for financial hardship. The first step should be to get your finances in order by paying off existing debts. Relying on credit while in debt can lead to more financial trouble, as credit is not meant to save people from poor financial management.

What type of bank should you choose when starting to build credit?

You should choose a credit union over large banks like Bank of America or Wells Fargo. Credit unions offer better terms for building credit and provide a more personalized relationship banking experience.

How does opening a secured loan with a credit union help build your credit?

A secured loan with a credit union helps by creating a positive payment history and contributing to your credit mix. By paying off the loan responsibly, you demonstrate to other lenders that you are a reliable borrower, which positively impacts your credit score.

What is the recommended duration for a secured loan, and why?

The recommended duration for a secured loan is 24 months. Anything shorter, like a 6-month loan, may not have a lasting positive effect, as it can open and close too quickly, possibly damaging your credit.

How does direct deposit to your credit union account benefit credit building?

Direct deposit into your credit union account helps establish a stronger relationship with the bank and provides data points that show consistent income, which can positively impact your credit profile over time.

What is the significance of using only one high-limit credit card when starting to build credit?

Using only one high-limit credit card and paying it off fully each month helps to build your credit profile with minimal risk. It shows lenders that you can manage larger amounts of credit responsibly, which is key to raising your credit score over time.

Why is it important to maintain low credit utilization?

Maintaining a credit utilization rate below 9% is important because it directly impacts 30% of your credit score. High utilization can signal financial instability to lenders, while low utilization shows responsible credit management.