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In this episode of Ask Ralph, we explore the topic of raising your credit score by 200 points in less than five years. Host Ralph Estep Jr. breaks down the importance of credit scores and shares valuable insights on achieving this goal to improve your...
In this episode of Ask Ralph, we explore the topic of raising your credit score by 200 points in less than five years. Host Ralph Estep Jr. breaks down the importance of credit scores and shares valuable insights on achieving this goal to improve your credit score.
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Summary
The transcript summarizes a financial advice podcast from host Ralph Estep Jr. He outlines 7 steps to raise your credit score 200 points in under 5 years: 1) Learn credit basics 2) Pay bills on time 3) Pay down credit card debt 4) Avoid closing cards to maintain credit limits 5) Keep old accounts open to preserve credit history length 6) Limit new credit applications 7) Manage different types of credit like auto loans responsibly. Key themes include understanding 35% of score based on payment history, 30% from credit utilization, 15% from average account age, and mix of installment loans. Regular payments, minimizing card balances below 30% of limit, keeping old unused cards open, selective new credit, and responsibly handling larger loans like mortgages and autos over time can significantly boost scores.
Chapters
Introducing Ask Ralph Podcast and Host
The host Ralph Estep Jr. welcomes listeners back to the Ask Ralph podcast which answers financial questions submitted by the audience. Today's episode will cover 7 steps to raise your credit score 200 points in under 5 years.
Overview of Credit Score Basics
Credit scores range 300-850 calculated based on individual credit reports using the FICO model. Key buckets are: below 580 (poor), 580-669 (fair), 670-739 (good), 740-799 (very good), 800+ (exceptional). Scores play a crucial role in financial lives impacting loan access.
7 Tactics to Boost Credit Score Significantly
1) Learn credit basics 2) Pay all bills on time 3) Pay down credit card balances 4) Avoid closing cards to maintain available credit 5) Keep old accounts open to preserve credit history length 6) Limit new credit card applications 7) Manage different types of installment loans like mortgages responsibly over time.
Understanding Credit Score Composition
35% of score based on payment history, 30% reflects amount owed or credit utilization, 15% depends on average age of credit accounts, 10% related to types of new credit, and mix of installment loans also impacts ratings.
Closing Remarks
Building credit takes patience and discipline but these 7 steps will significantly boost scores in under 5 years. Listeners encouraged to submit questions and success stories as well as share and rate the podcast.
Hello and welcome back to another episode of Ask Ralph, the show where we answer all your burning financial questions. I'm host Ralph Estep, Jr. Today we have an important topic to discuss. Seven ways to raise your credit score by 200 points in less than five years. Join us today and we, as we put together, a solid plan to increase your credit score.
Welcome to the Ask Ralph podcast. Where listening to an experienced financial professional can help you make sense of confusing questions current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. As Ralph makes the complex simple by sharing his real world knowledge with all things financial. Now here's your host, Ralph Estep, Jr.
You know the truth is credit scores play a crucial role in our financial lives.
I talked about this on other podcasts. They can range anywhere from 300 to 850 and are calculated using data from your credit report. The most used credit scoring model is what's called a FICO, F-I-C-O, created by the Fair Isaac Corporation.
It's considered the industry standard for determining an individual's credit risk. Well, let's talk about what these credit scores look like. According to FICO, if your credit score is less than 580, you're considered to have poor credit.
It makes it difficult to get loans. If you have between 580 and 669, you're considered to have fair credit. From 670 to 739 is good. And from 749 to 799 is very good. And it tops out at 800 for those who have exceptional credit.
So, if you find yourself with a poor or fair credit score and want to raise it by a whopping 200 points in less than 5 years, it's definitely doable. However, it's going to require some effort on your part.
Raising your credit score requires vigilance and discipline. Can't stress that enough. So let's dive into 7 ways we suggest for raising your credit score by those coveted 200 points. Number one. Learn how your credit works and how to use it.
It's simple. No brainer here, isn't it? Understanding how credit works is essential if you want to improve your credit score effectively. There are plenty of free resources available online like YouTube videos and articles that provide great tips on utilizing your credit wisely.
We have a whole list of podcasts where we talk about credit scores and how to manage your credit effectively. Use those resources, do some studying, do some research, and find ways to understand how credit works.
Unfortunately, we don't teach our children and young adults this in school. It's not something that's talked about. In fact, I have a neighbor who lives across the street from us, and I gave her a copy of my book, Mastering Your Finances.
And I, you know, I talked about that a little bit earlier in this podcast, but it's something that her and I talked about. I said, you know, this is something we really should teach kids in school, but it seems like it's not taught.
So that was number one. Number two. Always pay your bills on time. Well, this is sort of a no-brainer, isn't it? You need to pay your bills on time. Payment history makes up a significant portion. It's estimated 35% of your credit score is based on paying your bills on time.
We cannot stress more important, paying your existing bills on time. We recommend setting up automatic payments for at least a minimum amount due and making separate payments to pay down debt. So if you've got a credit card and they offer, which I think all credit cards and accounts offer automatic payments, set your automatic payment to be at least equal to the minimum payment so that you're never going to incur a late situation.
I'm not saying that's all you should pay, but at least from the credit score point, you're not gonna be late. Let's move on to number three. Pay down credit card debt. The amount you owe contribute 30% to your FICO credit score.
So, what I say a few minutes ago, 35% is your payment history. A full 30% is the amount that you owe. Once you've set up recurring payments or reminders, we advise focusing on paying down existing credit card debt.
Aim to keep your credit utilization ratio. Well, what is that Ralph you might ask? The amount of credit used compared to the limit below 30%. So, there's a lot of 30’s there. So, 30% of your FICO score is based on what you owe.
But more importantly, the key is to keep your credit card utilization. You know, that's the amount you have charged on your credit card below 30%. Let's move on to number four. Avoid closing credit cards because it will lower available credit.
We just talked about that utilization. Closing a credit card can increase your credit utilization, which is worth 30% of your score. We advise against closing accounts even if they are not frequently used.
Keeping older accounts open can help maintain a higher available credit limit. You know, you might not be using it, but pay attention to it, get the statements, keep an eye on it, but those things aren't going to negatively impact your score.
Number five, avoid closing credit cards because it can reduce the average age of your credit. So, we talked about the utilization amount, lowering your available credit, but also it can reduce the average age of your credit.
If you've got, like when I was a young person, I think as we were at the shopping mall one day and my dad said, you really should get a JC Penney's credit card. And I'm like, okay, that sounds good.
I think they gave me a whopping $200 credit limit, but it's something that I've kept open. In fact, I haven’t used it in forever. Maybe it's not open, but you know, it's something you keep open because it's a credit history thing, the average age, the age of your credit history matters too, according, accounting for 15% of your score.
So, think about this, folks. 35% payments on time. 30% how much you owe and now another 15% on the average age of your credit. Number six, avoid opening additional credit lines unless necessary. Opening multiple new lines of credit within a short period can negatively affect your score, especially if you already have a relatively short credit history. New credit makes up 10% of your overall score So be selective about applying for new lines unless necessary. When I used to work in the credit union field, this is one of the things I keyed my loan officers in on. Do we have a situation where someone is running up their credit very quickly?
So, we see somebody that comes in that just opened a bunch of new credit lines. It could be that they're having a significant financial issue and they're looking for every way possible to fund a lifestyle or something like that. Number seven aim to handle different types of credit. Managing different types of credit has a positive impact on your overall score. Again, this is a 10% value having an auto loan or mortgage and handling it responsibly so you can successfully pay up large balances over time.
Another thing, when I was in the lending area, I would say to my loan officers, you know, what does this person have? Do they have five credit cards? Maybe not a good risk but, if they've got a mortgage and then a car loan and then a personal loan maybe a credit card. It's a good balance. So that's the different kinds of credit things that we're talking about. All these things will help you build your credit score and increase it again It doesn't happen overnight remember that building stronger credit takes time and patience. Following these seven steps will put you on the right track towards raising those crucial points in less than five years.
It really doesn't but you have to start somewhere. That's all we have for today's episode I hope you found these tips helpful in your journey to improve improve your credit score. If you had any questions or want to share your success stories, don't hesitate to reach out.
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For all your accounting needs, visit our website at www.askralphpodcast.com. Well, thank you for tuning in today. Until next time, stay financially savvy and work on that credit. Thank you for joining us on the Ask Ralph podcast.
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