Video Transcript Below:

What’s up everyone is Derek Vogel with Credit Absolute. So this is going to be the first part of the credit knowledge and information I’m going to share with you on how the credit scores are broken down.

So the number one component of our credit score that has the biggest impact is payment history. Okay so let me show you this chart here. Alright, so what we’re looking at here is thirty-five percent, thirty percent, fifteen, ten, ten. Okay and as I told you our total score is based on five hundred fifty points. Alright, so when we break down thirty-five percent into five fifty you can then see what the total value of points is that impact our score. So payment history is 192.5. Credit cards are 165. Age of credit is 82.5. You got the proper mix of credit which is 55 points and then new credit line inquiries is 55 points which add up to the 550.

Let’s first talk about payment history I’m gonna go ahead and put this board down but a payment history alone is one of the key factors in our credibility on how we are credible and/or irresponsible enough to pay our bills on time. Now, one 30-day late payment can actually impact your score over 100 points. Okay, because it’s worth 192.5 and so whatever you do and whatever situation that you get in no matter what if you can at all possible always make the minimum payment. Okay, it’s critical because if you get a 30-day late it’s going to impact the scores dramatically and, more importantly, it takes nine months to recover from one thirty day late payment and these are on credit card accounts.

Now if it’s a mortgage late there is a little bit of longer recovery time. They say one 30-day late can take up to two years to completely recover from. Okay and then if you get multiple lates you’re talking, you know, three to five Years. Okay and then if it goes 90 days pretty much what happens is you go into what’s called T key derogatory and it takes seven years to recover from that. So it’s almost like a charge off for collection which is brutal.

Now you could have heard in the past you know just make your payments on time and your scores will be fine. Well your scores could be fine but I just want to share with you making your payments on time is not everything that you can do to have perfect credit and what I mean by that is I see quite a few of my clients that come to me that have perfect payment history, have never missed a payment and they have a low credit score like in the low 600s. Okay, the reason why is because the other 65% of the score that we talked about makes up the total 550 and it’s extremely important that that is managed properly.

All right so you can have perfect payment history again but if you have high balances, if you don’t have the proper mix of credit, if you have a young credit history, all of those things are going to factor into what I think is really cool and important which I’m going to cover a little bit more on the proper mix of credit but if you have a few accounts and not multiple then your scores will be damaged more excessively or harder because you have less credit reporting. So it’s going to have a heavier impact.

So let’s say that you have ten accounts and all those accounts have two years of perfect payment history and let’s say one of those accounts you end up getting a 30-day late payment well they’re gonna take everything and look at that and say “look well we had nine accounts with positive payment history and this one account it’s still going to have a negative impact very heavily but still it’s gonna be less of an impact because you do have credibility with those other accounts.

Now let’s use that same example let’s say that you only had three accounts and you had two of them that have a perfect payment history and you have that one get two late payments. Well obviously because you have less documentation and data that’s going to allow you to show that you’re more responsible or credible you’re going to get hit much harder if you only have those three accounts. So just know what payment history is, it’s pretty straightforward.

Okay, whatever you do try to make your payments on time and one important thing to understand is that you are not allowed to have a 30-day late report to your credit report unless you’re actually 31 days late.

Okay so on that, on that thirtieth day there are some definite things to be aware of. So like on the report it says fifty thirty-one to like sixty and so they couldn’t report a sixty day late unless you were 61 days late so it’s just you know it’s just important obviously you never want to get to that point anyways but if let’s say that you’re 15 days late you’d get a late fee but if you made the payment and it wasn’t 30 days late they can’t report a 30 day late against you so it is a big violation that we see quite a bit but with the payment history.

Again I hope this helps a little bit, helps you understand that payment history alone like I said it was 35% of the score which calculates to 192.5 but as long as you can manage your payments on a monthly basis it’s going to be one huge component to keeping your scores at the top and then part two actually we’re going to get into the credit cards which is my favorite so I’m looking forward to talking to you about that again.

Again, guys, it’s Derek with Credit Absolute and I hope this helped you today. Thank you.

 

 

Secured credit cards are an amazing tool used to rebuild or establish credit for those who are looking to set themselves up for a healthy financial future. Here is what we will quickly discuss about secured credit cards to make sure you are educated when you walk into your bank and the over-eager banker behind the desk, hands you a packet of credit card options that they know are just perfect for you.

• What is a secured credit card?
• What kind of deposit is required on a secured credit card?
• How will a secured credit card help my credit in the future?

What is a Secured Credit Card?

To begin, a secured credit card is just that, secured. This means it is a type of debt that is secured or held by money that the borrower (you) has put down. This typically looks like a small deposit that you put down upfront that becomes your new credit limit.

For example, when applying for a traditional (unsecured) credit card, the institution runs your credit and determines they will give you a $1000 limit on your card. You do not provide them with this $1000, but it is yours to borrow up to each month as your spending limit on your card. With a secured card, however, you typically will provide this money upfront, and the institution then uses this as your limit.

This puts the lender (the bank or institution) in a more secure position. If you don’t pay your bill, for example, then they would keep that deposit, and it provides much less risk to them. This is why secured cards are used for people with no credit or “bad” credit, as an alternative to a traditional credit card.

Deposit Needed to Open a Secured Card

So, you may be wondering, what kind of deposit would be required on a secured credit card? The short answer is, that it varies greatly by institution. However, a few of the most popular cards, namely Capital One, Discover, and First Progress range from $49-$2000.

Sometimes lenders will allow you to choose your deposit, others will give you a range and allow you to pick within that range. Typically they are around $200. It is important to remember, however, that these deposits do become your credit limit on the card. So, while choosing a very low limit at first may sound very enticing, it isn’t beneficial to choose a low limit only to spend 100% of your limit every single month you have the card.

How a Secured Card Can Help Improve Your Credit

The best part is, now that you know what a secured credit card is, and what kind of deposit is typical, you can start to see some benefits on that good old credit report. We all know that building or rebuilding credit is not something that happens overnight, but with a few small steps, you can get on the right track to setting yourself and your credit up for future success.

By paying off your secured credit card in full each month as well as making only a few small purchases on the card each month- you will start to see a boost in your credit in as little as one year.  At this point, you would be able to consider the options of applying for an unsecured credit card with a higher limit, and of course, continuing to build your credit over time.

Secured credit cards are the perfect option for people who are just starting to build or rebuild credit. Think of them as a credit card with training wheels. It provides you with a practice credit card with a lower limit, to get the hang of paying a credit card bill, spending within your limit, and checking your credit score. By establishing these habits, paying the card in full each month, and spending below your limit- you will be able to get approved for an unsecured credit card in no time.

Have questions about your credit score or need help building your credit?

Contact Credit Absolute for a free consultation!