magnified money: build a 780 credit score: payment history, utilization, & more!

Click “Show More” to see my Favorite Financial Tools MY FINANCIAL TOOLS SoFi Complete Money Management Checking & Savings - Credit Card - Invest - Budgeting - ---------- Chime Fully Online Banking Sign-Up for Chime HERE: Chime Credit Builder HERE: ---------- Favorite Credit Cards Chase Sapphire - Capital One Venture X - Chase Ink Business - Amex Green - Amex Platinum - Amex Business Gold - ---------- Wealthfront Automated Investing First $5,000 Managed for FREE - ---------- Current Card Current | Modern Banking App - ---------- MY CAMERA GEAR My Camera: My Microphone: My Lights: 1. On-Time Payment History (35%) So the first and most important measure used to calculate your credit score is your on-time payment history which accounts for 35% of your score. Now obviously paying your card or loan off on time is crucial if you want to avoid paying ridiculous interest rates and late fees but it's also necessary if you want to build an excellent credit score. So credit bureaus and lenders view your payment history as a percentage and they calculate this by taking your number of on-time payments / the total payments that were due. For example, let's say you had one credit card for three years meaning that you had 36 payments due over the life of this card. If you only made 35 of these payments on time then 35/36 would give you an on-time payment percentage of 97.2%. 2. Credit Utilization Percentage (30%) The second most important measure used to calculate your credit score is your credit utilization which accounts for 30% of your overall score. This is one of the most commonly overlooked factors that most people are completely unaware of. Your credit utilization is essentially a measure of how much of your available credit are you actually using on a regular basis. So let's say you had a $5,000 credit limit and you spent $3,000 of that. 3000 is 60% of 5000 meaning that you have a utilization rate of 60%. Again some of you may think that this isn't that bad but a utilization rate of 60% is absolutely horrible and will put you well into the red category. In fact, it is recommended that you keep your utilization below 5% in order to have a healthy credit utilization rate. 3. Average Age of Credit (15%) The length or age of your credit history is extremely important if you want a good credit score and that's why it is so important to start as soon as you can. Starting your credit history now means that in a few years when you do need to apply for a loan, not only will you be approved but you also be able to get the lowest interest rate possible. 4. Number of Lines of Credit (10%) The 4th measure for calculating your credit is the number of credit lines that you have open. Now I talked about this earlier but the number of credit lines really enhances the factors that we already discussed in this video. For example, by having more lines of credit, you will increase your utilization rate since the total amount of credit available to you is greater. If you only have one card that has a $1,000 limit then the total credit available to you is just $1,000 meaning that if you spend $100 in this card then your utilization rate is 10% which as we talked about earlier is not good. 5. Number of Hard Inquiries (10%) So the fifth and final factor used to calculate your credit is the total number of hard inquiries. So if you aren't familiar with this term, a hard inquiry is essentially a marking that shows up on your credit report when you apply for a new line of credit. For example, if you open a new credit card or apply for a car loan then this will temporarily show up on your credit report as a hard inquiry. Magnified Money may receive compensation for sending traffic to partnered sites. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired.