Money Rehab with Nicole Lapin - Don’t Get Screwed by Bad Credit: Five Ways to Boost Your Credit Score (2022 Vision)

Episode Date: December 28, 2021

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Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. It was the week before New Year's and you looked around. You're just not all impressed with the things that you found. Your apartment is smelly. It's falling apart. Your bills are past due

and your car just won't start. You think it'd be nice to get out of here, but checking your credit score is something you fear. You're ready to change. You just don't know how. But Nicole's got you covered

to get started now. As you may have heard in yesterday's episode, this week we're throwing it back to the five money rehab episodes that will be most helpful to you as you revamp your finances in the new year. Today we're tackling your financial report card and serving up episode 23 called Don't Get Screwed by Bad Credit. Five ways to boost your credit score. Let's get into it. Hey guys, are you ready for some money rehab? Wall Street has been completely upended by an unlikely player, GameStop. And should I have a 401k? you don't do it no i know you think the whole world revolves around you and your money well it doesn't

charge for wasting our time i will take a check you recognize her from anchoring on cnn cnbc and Bloomberg. The only financial expert you don't need a dictionary to understand. The Cole Lappin. So here's the deal. On Money Rehab, we are looking at ourselves financially naked. The good, the bad, and the ugly. Your credit report is like not only looking at yourself naked, but also doing it under fluorescent lighting.

It is absolutely in-freaking-sane to me that we don't learn this stuff in school, but that's why I'm here. And today I'll be your teacher, the one you never had, but always needed. So if your credit report is your financial report card, then your credit score is the actual grade. And maybe your grades weren't all that important once you got out of school, but in the money world, your financial transcript is very, very important. So if you're flunking your credit report, you're going to pay higher interest rates across the board on your credit card. When you're buying a home, it's going to screw up your mortgage rate and probably your closing costs and even the chance of getting a

mortgage at all. If you need to take out a loan for something important, it's going to up your interest rate. Banks look at your credit score to approve you or not. And not everyone has the same interest rate. Like, check your friends, credit card, APR. It is not the same as yours. Your credit report is basically supposed to tell people who are looking at it, a la a lender, just how trustworthy you are and how likely you are to pay them back. But you are in luck. Unlike a transcript with your final end of year grades, there's no final credit report. You can always change and improve your credit score if you put in the work.

So money rehabbers, how do we get to a point where we are looking at ourselves under fluorescent lighting and actually like what we see? Tanisha wants to know the naked truth. She asks. Hey, Nicole, I've been in a debt relief program to pay off old debt. It's going very well, and I feel like I'm finally back on track, but the downside is it's a major hit to my credit score. Everything should be settled by the end of next year, but I'm just scared just thinking about what my credit score is going to look like by then. So when I get there, what's the best way to rebuild credit? The first step to boosting your credit score is understanding it. So raise your hand if you know what your credit score actually is. I'll wait.

Anyone? Okay, I got you. Your credit score is graded on a scale between 300 and 850, with 300 being the worst and 850 being the best. So assume an A average in school is kind of analogous to a 750 credit score. In general, those with scores higher than roughly 750 and above tend to qualify for whatever access to credit they want. If you don't have that, you're not doomed. You just might want to know exactly how the class is graded so you can do better in it. So what exactly does your score score? Well, I will tell you. Here are the five major factors contributing to your credit score and how much each factor contributes-ish to your score. The first one is payment history, and it accounts for 35% of your score. The second is debt load, and that

accounts for 30% of your score. Credit history, 15% of your score. Number of times you've checked your credit, 10% of your score. And the mix of credit you have is the other 10%. Now, the good news is the two major factors, payment history and debt load, which is how much debt you're carrying, are totally in your control right now. And that's 65% of your score. The last three factors may haunt you from some of your past bad habits, and that is what it is, at least for now. But you can change that last 35% too by just being more mindful of those factors moving forward. So class, for extra credit, here are five ways to boost your credit score. Number one, pay your bills on time. I don't want to sound patronizing at all or Pollyanna-ish,

but it is worth repeating. Pay your bills on time. And one more time for the kids in the back. Pay your bills on time. It's the best way to get your credit score up to where you want it. You may be rolling your eyes at me because you already know this and okay, fine, but are you already doing this? If you missed a couple of deadlines, consider enrolling in auto pay or set a monthly reminder on your phone to pay those

bills. Number two, don't cut up those unused credit cards. Yep, you heard me right. Don't cut them up. This might be a little surprising, but bear with me. Let's say you have some random gas cards or department store cards that you never use. Maybe you open the store card to take advantage of that extra discount you got when you were making a purchase that day and then never used it again. It's happened to the best of us. A credit score misconception is that you should just cancel those cards if you want to improve your score. That's wrong. You want a record of being able to pay your credit card bills, not being a serial card opener and canceler. The

best way to keep up steady payments that you can sustain over long periods of time is to put one regular bill, like cable or utilities, on each card. You know you're going to pay them. Set the bill to auto pay on your credit card so you're technically using your card, but you're not thinking much about it while also racking up some good payment points. Number three, build a credit history. Okay, funny story. Before I went to my own money rehab, I used to keep cash in a safe under my sink. True story. I'll tell you about it another time in another episode. But as you can imagine, my credit score was crap because of it.

It took me a few years of disciplined use of plastic to get it to somewhere respectable. It was all well and good to try and use cash or a debit card until I started thinking about the idea of buying a house. Because my credit history wasn't as strong as it could have been, getting a mortgage was a challenge. It's not necessarily fair. It's just the way it is. I don't make the rules. I make the rules work for you. Number four, don't max out your credit cards. Keep your balance at no more than 20% of your limit. So if your limit is $5,000, try not to spend more than $1,000 on that card. It's your utilization score. It's a fancy way of just saying keep your purchases to a low percent of what your overall credit is and never reject a credit increase. A big factor in determining your

credit score is the ratio between what you're borrowing and your access to credit. If a bank thinks you owe more than you can pay back, your score is going to feel the backlash. Number five, limit how often your credit is checked. Anytime you look for a loan, which includes applying for a credit card, a credit check is done on you. So what, right? Well, not so much. Every time your credit is checked by someone else, not by you, you can do it as much as you want, your score is going to go down. Why is that? Because the perception of having too many accounts or trying to borrow too much, over-leveraging in other words,

can really work against you. This piggybacks on my rationale for number two. If you've done it a bunch already, fine. It's done. It happened. You can't undo the credit check they ran on you. But stop the cycle of impulsively opening cards and then having credit remorse. Your score won't improve by taking it out on your past mistakes by impulsively snipping up old cards. Even if it feels great to do it, that snip snip will not help. Your score will only improve by your being mindful of what you're doing from here on out. You don't have to, nor should you,

accept every credit card offer that comes your way. Open only the accounts you need and your credit score will actually show you love in return. For today's tip, you can take straight to the bank. Never reject a credit limit increase. I don't want you to use more of that credit, but I want you to take it and try to keep your spending to a minimum. Get that utilization score in check. Always say yes to a credit increase. Just don't max that out. Try some of these things today and DM me at moneyrehabshow.

Let me know how it goes. That's all for today. Class is dismissed. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikader and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself

so that you can get it together and get it all. You spend the money, money, money, money, money, money. You spend the money, money, money.