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What is a Good FICO Score? [and 3 Steps To Get One Fast!] - YouTube
Channel: Let's Talk Money! with Joseph Hogue, CFA
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A bad credit score will cost you over $70,000
in extra interest payments on a mortgageâŠand
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thatâs if you even get approved.
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But what is a good credit score and how does
that loan officer decide whether to greet
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you with a smile or slam the door in your
face?
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In this video, Iâll not only show you the
difference between a good FICO score and bad
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credit, Iâll show you the average credit
score by age and the score you need to buy
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a house.
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Iâll then reveal three credit score hacks
I guarantee youâve never heard and that
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will increase your FICO fast!
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Weâre talking FICO scores and credit today
on Letâs Talk Money!
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Beat debt.
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Make money.
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Make your money work for you.
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Creating the financial future you deserve.
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Let's Talk Money.
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Joseph Hogue with the Letâs Talk Money channel
here on YouTube.
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I want to send a special shout out to everyone
in the community, thank you for taking a little
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of your time to be here today.
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If youâre not part of the community yet,
just click that little red subscribe button.
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Itâs free and youâll never miss an episode.
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So I just saw a report out of the New York
Fed that as many as 60 million Americans are
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locked out of the financial system, unable
to get access to credit or the money they
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need.
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Now thatâs twice as many people as the Fed
previously thought and it all has to do with
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the banks and their requirements around credit
score.
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So what I wanted to do with this video is
answer one of the most common questions I
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get on the channel, What is a good FICO score
and how to get one.
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Weâll start by looking at the FICO credit
score, what makes a good or bad score.
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Then Iâll show you the average credit score
by age to see where you stand.
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Weâll dig into the numbers to see what kind
of a credit score you need to buy a house
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or a car and then Iâm going to reveal three
hacks to boost your score as much as 100 points
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fast.
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Now your credit score is just a number based
on everything in your credit report.
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The FICO company looks at each of your credit
reports from TransUnion, Experian and Equifax,
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and then scores you based on things like payment
history, how much debt you owe and bad marks
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like late payments, defaults and bankruptcies.
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That FICO score ranges from 300 to 850 with
about half the population up around 700 FICO
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or higher.
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Here Iâve taken data from FICO to show the
percentage of Americans within credit score
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ranges, both for 2015 and the most recent
released 2017.
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You see about 55% have a score of 700 or above
with another one-in-four Americans in the
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middle here with a score between 600 and 700
FICO.
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What really shocked me though was this 20%,
about one-in-five Americans with a credit
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score of 600 or lower.
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While you see credit scores rising from 2015
to 2017 for these people with higher scores,
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those with lower scores are actually seeing
their score fall!
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And a lot of you are probably sitting there
saying, so what.
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I donât plan on borrowing any money, I donât
need a credit score if I donât need a loan.
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Please take this seriously because you never
know when youâre going to need emergency
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cash or a loan.
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The average out-of-pocket for a hospital stay
is over $1,100 according to TransUnion and
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a new transmission for your car will run eight
grand.
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After destroying my credit score in 2009,
I couldnât get a loan to save my life and
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it pushed me into cash advances and payday
loans costing hundreds in fees.
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It didnât end well and I want you to know
what I didnât about your credit score.
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So what I want to do here, to get a feel for
where everyone is at in the community, I want
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to put a question out there.
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What were the times or instances when you
needed credit?
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When do you use your credit cards or what
have been the times youâve used a mortgage,
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student loans or some other loan?
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If youâve never used credit, tell me that
and why.
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So scroll down and share your story in the
comments below.
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But what is a good credit score?
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Whatâs the score that will get you the money
you need without those double-digit interest
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rates that break your budget?
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The rule of thumb is that any score over 670
FICO is good even though rates donât start
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going down much until you get a score of 720
or higher.
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Anything below 600 FICO is getting bad and
we saw how people with bad credit are getting
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shut out, seeing their score fall over the
last few years.
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Thereâs actually a reason for this 670 cutoff
for whatâs considered a good credit score.
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Thatâs the score you need for a loan to
qualify for federal guarantees and other programs.
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Most people donât understand that banks
arenât really in the business of holding
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your loan.
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Banks are in the business of making loans
so what theyâll do is sell the loans to
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investors for the cash to make more loans.
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Now being able to sell those loans is a lot
easier if the loan qualifies for some federal
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program or guarantee so banks donât want
to make loans to borrowers with a credit score
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under 670 FICO.
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But that means nearly four-in-ten people are
shut out of the financial system with a credit
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score below that prime lending cutoff.
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Worse is the one-in-five in that bad credit
score range where you canât even look at
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a loan for less than 30% interest.
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And bad credit isnât always your fault.
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This graphic shows the average credit score
by age group and because a lot of your credit
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score revolves around things like credit history
and account age, millennials are just getting
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screwed.
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The average FICO score is around 630 for people
under 29 years old.
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Thatâs well into that bad credit range where
youâre locked out of the system and way
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below the average of 688 FICO for all Americans.
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Now you know whatâs considered good credit
and bad, but what kind of a credit score do
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you really need for some of lifeâs major
decisions?
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What credit score do you need to buy a house
or a car?
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TransUnion ran the numbers for different credit
scores on a 30-year mortgage for $200,000
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and found a cutoff around 620 FICO for loans.
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Thatâs not all though, itâs not just that
youâll have trouble getting a loan with
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a credit score under 620 but the extra cost
youâll pay if you can get a loan.
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That 620 credit score means you pay a rate
of 5.75%, more than a percent and a half higher
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than someone with a FICO of 760 or higher.
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Youâd also be paying almost $200 more a
month and nearly $70,000 more in interest
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over the life of that loan.
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It gets worse for car loans.
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The rate on a loan for a used car averages
almost 20% if your credit score is below 500
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FICO.
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Thatâs five-times the rate someone pays
on good credit and could mean the difference
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between paying off your car and repossession.
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Now that we know what a good credit score
looks like and the score you need, the question
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is, âHow do you increase your credit score?â
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How do you save that $70,000 on your mortgage
by getting good credit?
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Here I want to share three tricks I guarantee
you havenât heard.
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Weâve all heard that you can get bad marks
knocked off your credit report and that a
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limit increase will increase your score.
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In fact, Iâm linking to a video in the description
below with the five credit tricks I used to
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increase my score from 560 in 2009 to an 805
FICO where it is today.
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These three credit score tips are different
though.
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I had never heard of them until a few months
ago but was shocked at how fast they actually
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worked.
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Our first credit score hack is to get missing
accounts added to your credit reports.
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Most people know that you can write the credit
bureaus to get things removed from your credit
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report that shouldnât be there.
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This is usually like late payments or bad
marks hurting your score.
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But what about the good stuff that isnât
on your reports?
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The bills you pay every month that arenât
on your credit reports and helping your score?
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Now creditors donât have to report your
account to the credit bureaus so sometimes
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they donât.
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Most often, this includes things like your
utility bill, cable TV and rent is another
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really common one.
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Since payment history is as much as 35% of
your credit score, getting these accounts
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and those regular on-time payments added to
your report can be a huge boost.
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Better still, the change is almost immediate
and it can help make your report look better
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if it has a few bad marks.
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So what you want to do here is to contact
all the people youâre paying monthly that
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donât report on your credit.
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If you can get them to start reporting, itâs
an instant win.
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The phone company and cable usually wonât
report but you can get your landlord to start
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reporting rent through sites like PayYourRent
and Rental Kharma which even allows you to
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add past rent history.
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Next here to increase your credit score is
to pay your card balance before itâs reported
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to the credit bureaus.
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Even if youâre paying your credit card balance
in full each month, it might be getting reported
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that you have a balance on your credit report.
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This is because card companies donât always
report balances after your due date for the
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payment.
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In fact, most card companies report balances
to the credit bureaus at the end of the month.
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Itâs after your monthly statement has closed
for that month but before the payment is due.
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For example, Barclays closes my statement
on the 24th of the month but the payment isnât
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due until the 13th of the next month.
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I pay it down to zero every month before itâs
due but was surprised when I looked at my
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credit report and it showed I was carrying
a balance.
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The problem was that Barclays reports balances
to the credit bureaus at the end of the month,
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after my statement closes but before the payment
due date.
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So even though I was paying my card off, it
was still showing a balance on my credit report
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every month and hurting my credit score.
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This oneâs an easy fix though.
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Just call your credit card customer support
and find out what date they report to the
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credit bureaus.
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You can usually get your payment due date
switched to before this date or just make
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it a point to pay off your card before they
report.
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Another credit hack you can try is to pay
off your highest balance cards first.
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Now Iâm one of the biggest proponents of
the debt snowball method.
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Thatâs where you rank your debts by amount
and then make extra payments to the smaller
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ones first.
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Itâs a great motivator because you see those
smaller bills dropping off your list faster.
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The problem is, itâs not the best for your
credit or your checkbook.
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Those bigger debts, especially the credit
card balances, hurt your FICO score more because
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of whatâs called the credit utilization
ratio.
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This is the amount you owe on each debt versus
your credit limit.
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So if you owe $8,000 on a card with a $10,000
limit, your utilization ratio is 80% which
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is really high.
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A higher utilization ratio, so owing up to
the limits on your cards or other revolving
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debt, is a sign of being overextended and
a big warning for creditors.
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Paying down those bigger card balances first
is going to lower your utilization ratio and
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it might save you money as well if those higher
balances happen to be on higher-rate debt.
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Click on the video to the right to see how
I increased my credit score after financial
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disaster.
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The five credit hacks I used to boost my score
and how I now have a score over 800 FICO.
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Donât forget to join the Letâs Talk Money
community by tapping that subscribe button
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