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How to improve your credit score?

Welcome to how to improve your credit score seminar?

The following content is the script of “How to improve your credit score?” seminar. It is posted here for your convenience if you prepare to read instead of listing to the seminar.

Hello and welcome to How to improve your credit score seminar.

We at Debt Free Living believe your credit is the heart beat of your financial life and future. Life is easier with good credit, but very hard and expensive with bad credit. We believe that your credit can be fixed if it is already challenged. But a word of caution, there is no quick fix. Anyone that promises a quick fix for your challenged credit, he or she isn’t telling the truth and will fail to deliver on their promise.
Credit can be fixed, but it takes time, knowledge of how credit scoring works, and a change in behavior with money and credit management.

 

 

Slide #2 – Objectives

Let us run through the objectives of this seminar.
I would like to begin by defining what is a credit score? We’ll also discuss the root cause of why people end up having bad credit, and the cost of a bad credit.
We’ll review the anatomy of a credit score and discuss at a high level the reasons why people have bad credit.
Next, I’ll discuss a few strategies to improve bad credit and why should you care about fixing your credit

Slide #4 – Root causes of why people end up having bad credit

Let us run through a few root causes of people ending up with bad credit.
Determining a Credit score is a complex formula but there are well defined rules. These rules are unknown to most ordinary people. And there are some people who know the rules but end up ignoring them due to difficult financial times.
The predominant rules are:

  • do not spend more than 50% of the allowed limit;
  • Pay your bills on time also known as “never miss a payment”;
  • And refrain from obtaining more credit than you absolutely need.

We live in a consumer society that puts pressure on us to compete with family members and friends. This can result in an over extension of credit.
It’s basic human nature to feel “I must have it now”. We often purchase things we cannot afford. We buy these things under the excuse that “hey, I can afford the minimum payment, — no problem”.
Other people may have unstable low paying jobs. Or find themselves faced with a lay off and be unable to find suitable full time employment.
All these situations will contribute to having bad credit. Getting out of this situation becomes a mission.

Slide #5 – Cost of bad credit

Having bad or challenged credit will make everything you buy more expensive and sometimes extremely difficult to obtain.
Wherever an individual with challenged credit seeks financing for a mortgage, home equity line of credit, car loan, credit cards, house insurance, etc… That individual is viewed as a high risk and many times he or she is declined for new credit.
Not every lender will consider extending credit to challenged credit individuals, but those who do will charge higher interest for the privilege of extending them credit. Higher rates translate into higher monthly payments.
Conversely; the better your credit score is, the lower the interest rate that you pay on borrowed money and therefore, the lower your monthly payments.

Slide #6 – The factors that affect your credit score

There are five critical factors that the credit score system put a huge emphasis. Below are the five factors and their weight they put on the individual credit score:

  • Payment History factor represents 35% of your credit score;
  • The Amount Owed factor represents 30% of your credit score;
  • The New Credit factor represents 10% of your credit score;
  • The length of credit history factor represents 15% of your credit score;
  • The type of credit used factor represents 10% of your credit score.

Slide #7 – Payment History is 35% of credit score

What distinguishes good credit from bad credit?

The payment History factor represents 35% of your credit score. Your payment history tells lenders how you have been paying your bills. One or more late payments, any collections, any past due accounts, and public records such as bankruptcies can seriously cripple your credit score.
To illustrate the impact of payment history on your credit score; Let say you fail to pay one single bill for more than 30 days. The one 30-day late can lower you credit score by 50-75 points. Late payments are a killer to your credit score.
The good news is that your current history matters more than the past. The newer the late payment the more damaging to your credit score. Late payments that happened two years ago have less impact than a late payment that happened a month ago.
Late payments tell the lender that you will not pay your bills on time, thus the lender may decline your application for new credit or charge you a higher interest rate.
Side #8 – Amounts Owed is 30% of credit score

The Amount Owed factor represents 30% of your credit score. This factor takes into account how much you owe on all your accounts, how many accounts you have that carry a balance, and what percentage of your available credit are you using.
In other words, let’s say that you have two credit cards – one Visa and one MasterCard – and a line of credit. The limit on your visa is $10,000 and your outstanding balance is $9,800. You are using 98% of your available balance. Similarly you are carrying a similar balance and high percentage of your available credit on your MasterCard and line of credit.
Using high percentage of your available credit, tells the lenders that you are tight with you money and you are using credit to support your lifestyle.
Combine a high amount owing and late payment history and you end up with a challenged or less than perfect credit score.

Your payment history and the amount owing combined represent 65% of your credit score.

To maintain a good or better than average credit score, you must keep credit card balances under 50% of the available limit at all times.

Slide #9 – New Credit is 10% of credit score

The New Credit factor represents 10% of your credit score. This factor focuses on the changes in your credit pattern. It includes the number of recently opened accounts, the number of credit inquiries, and the time since each account was opened and how often you apply for credit.
Too many new credit inquiries, tells the lenders that you are looking for credit and may have more credit approvals than is shown.
Lenders like to lend to stable creditworthy clients who represent a good risk. It is important to refrain from taking additional credit that’s not needed. In fact; you should decline offers for new credit unless you intend to use it.

Slide #10 – Length of Credit History is 15% of your credit

The length of credit history factor represents 15% of your credit score. This factor looks at:

  • how long you have had credit;
  • the time since you opened an account;
  • and the time since the last account activity.

The older your account, the stronger is your history especially with a good payment record. Many people have lots of open accounts but with no recent account activities.
Closing an older account could hurt your credit score. Closing older accounts makes your credit history younger, thus reducing your score.

Slide #11 – Types of Credit Used 10% of your credit score

The type of credit used factor represents 10% of your credit score. This factor looks at the type of credit mix you carry in your wallet.
A mix of credit instruments is the best way to develop a good score and keep it. The most important consideration is to be picky about the type of credit you apply for because that will really help your score. The scoring system favors brand name credit cards e.g., Visa, American Express, and MasterCard.
The scoring system does not favor third party financed credit cards such as department store credit cards from Sears, Canadian Tire, Home Depot, the Brick, etc. This type of credit is considered to be particularly low quality credit as the holder of such cards can appear desperate for credit.

Slide #12 – 18 reasons why your credit score is not as high as it could be!

The following are 18 reasons why people credit score is not as high as it should be!

  • Amount owed on accounts is too high
  • Delinquency on accounts
  • Too few bank revolving accounts
  • Account payment history too new to rate
  • Too many recent inquiries in the last 12 months
  • Too many accounts opened in the last 12 months
  • Proportion of balances to credit limits is too high on revolving accounts
  • Amount owed on revolving accounts is too high
  • Length of revolving credit history is too short
  • Time since delinquency is too recent or unknown
  • Number of accounts with delinquency
  • Too many derogatory public record or collection
  • Amount past due on accounts
  • Serious delinquency, derogatory public record, or collection
  • Lack of recent installment loan information
  • The Date of the last inquiry too recent
  • Number of bank revolving or other revolving accounts
  • Too few accounts with recent payment information

Slide #13 – Strategies to Improve Bad Credit

Fixing your credit requires knowledge how the credit scoring system works and commitment to do what is right. The following slides give strategies to help you take actions on all the credit scoring factors simultaneously.
Improving a bad credit is like going on diet. It takes time to see substantial result.

Slide #14 – Improving the Payment History Factor – (35%)

Since payment history factor represents 35% of your credit score, one must do everything to improve on their payment history. The following are a few strategies you could implement to improve your credit score.

  • Pay your bills on time preferably in full if you have the capacity, if not pay the minimum – but on time;
  • If you have missed payments, get current and stay current’;
  • Be aware that paying off an existing balance and closing the account will not help your credit score;
  • Keep credit card and other revolving credit balances low. The ideal is to keep balances around 30%, and not to exceed 50%;
  • Don’t close unsecured credit card accounts;
  • Don’t open new credit card accounts that you do not need in order to increase your available credit.

Slide #15 – Improving the Amount Owed factor (30%)

Since the amount owed factor represents 30% of your credit score, one must do everything to keep the ratio of balance to credit limit in the range of 30-50% on revolving accounts. The following are a few strategies you could implement to improve your credit score.

  • Bring your balance to below 50% of the credit limit if possible;
  • When preparing to make a large purchase, bring those balances down to under 30% at least 3 months before applying for the loan;
  • Balance the amount owed on various credit cards and line of credit.

Slide #16 – Improving Length of credit history factor (15%)

The length of credit history factor represents 15% of your credit score.
The following are a few strategies you could implement to improve your credit score.

  • Do not be in a hurry to open new accounts, because opening new accounts makes your credit history younger;
  • Do not close existing accounts; closing existing accounts also makes your history younger;
  • If you must close existing accounts, close the most recent accounts. This strategy sometimes may work in your favor, since it actually will make your credit history older.

Slide #17 – Improving Length of credit history factor (15%)

The length of credit history factor represents 10% of your credit score. The following are a few strategies you could implement to improve your credit score.

  • Confine rate shopping to a minimum when you are looking for a mortgage or a car loan from your credit report;
  • Do not close an account in an attempt to eliminate it;
  • If you have no credit or have challenged credit, its ok to apply for a secure credit to re-establish your credit;
  • Remember to check your own credit report and your own score once or twice a year. Doing it yourself, it does not affect your credit score.

Slide #19 – Improving the Type of credit used Factor – (10%)

The Type of credit used factor represents 10% of your credit score. The following are a few strategies you could implement to improve your credit score.

  • Maintain a healthy credit mix: of credit cards, and installment loans. Do not apply for department store credit cards, this type of credit card makes you sound like you are desperate for any credit;
  • Only apply for and open new credit accounts when needed;
  • If you have credit cards, handle them responsibly;
  • Do not close an account in an attempt to eliminate them from your credit report,

Slide #20 – Why Should you care?

Your credit score is one of the most important tools creditors use to determine whether or not you are a good candidate for a loan. Your credit score tells the lenders your payment history, and the risk you represent to the lender.
Bad credit prevents you from buying a house, getting a car loan or applying for the convenience of credit. If you find a lender that is willing to lend you money, you will pay higher interest for the privilege of borrowing money.
Life is cheaper with a good credit score and it is easier to obtain credit when you need it.

Slide #21 – The Answer to fixing your credit score is….

The answer to fixing your credit score is to:

  • Stop borrowing money;
  • Develop, implement and monitor a budget;
  • Find $5-10 dollars in extra savings, use the saving to pay down your debt;
  • Keep your outstanding balance below 50% of your credit limit on each line of credit or credit card.
  • There is no magic fix. Fixing your credit is possible but takes time and commitment to do the right thing.

Slide #22 – Why do we offer this Insight?

We at Debt free Living believe in educating you about money management principles and how to get more from your money.
Countless numbers of people are challenged financially. We want to empower you to:

  • Get a budget in your life that helps you achieve your goals. Having a budget helps you reduce or stop relying on more debt;
  • Eliminate your debt. Debt elimination is not debt consolidation.
  • We want to see you go from debt to wealth. We want you to lead a happy, secure and prosperous life.

We at Debt Free Living want to give you the gift of becoming debt free on $10 per day. We wrote the book on how to do it successfully. We would love to personalize a debt elimination plan for you so you can become secure about your financial future.

Click here to request my free book and your summary debt elimination plan.

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