The Personal Finance Podcast - 7 Habits of People With Excellent Credit Scores

Starting point is 00:00:00 Local news is in decline across Canada, and this is bad news for all of us. With less local news, noise, rumors, and misinformation fill the void, and it gets harder to separate truth from fiction. That's why CBC News is putting more journalists in more places across Canada, reporting on the ground from where you live, telling the stories that matter to all of us, because local news is big news. Choose news, not noise.

Starting point is 00:00:27 CBC News. Okay, when I sell my business, I want the best tax and investment advice. I want to help my kids, and I want to give back to the community. Ooh, then it's the vacation of a lifetime. I wonder if my head of office has a forever setting. An IG Private Wealth Advisor creates the clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center.

Starting point is 00:00:56 Find your advisor at IG Private Wealth.com. On this episode of the personal finance podcast, we're going to talk about the seven habits of people with excellent credit scores. What's up, everybody, and welcome to podcasts. I'm your host Andrew Fowager of mastermone.com. And today we're going to be talking about the seven habits of people with excellent credit scores. If you have any questions about this episode, hit me up on Instagram at Master Money Co. and follow us on Spotify, Apple Podcast, or whatever podcast player you love listening to this podcast to. And if you want to help out the show, leave a five-star rating and review on Apple Podcasts. It truly does help out the show, and we truly appreciate each and every one of you that

Starting point is 00:02:02 have taken the time to do that. So today, we're going to talk about the seven habits of people with excellent credit scores because I've been getting a ton of questions as of late from people asking about how their credit score is impacted based on different factors. And we've talked about credit scores in the past. We've had an episode about credit scores. But what we want to do today is make sure you have the best habits in place to ensure that your credit score is as high as possible. Now, why do you want your credit score as high as possible? Because the higher your credit score, the more money you're going to save in the long run. Now, what do I mean by that? Think about it this way. If you're going

Starting point is 00:02:40 out to get a mortgage, your credit score is what impacts the interest rate. that you get. And just adjusting an interest rate, say by 1% over a lifetime can impact you tens of thousands of dollars. So just making sure you're implementing these simple habits and putting these habits into place is going to save you up to six figures over the course of your life. Now imagine if you had that additional six figures saved and you can invest that money, it could be up to $1 million if you invest that money over the course of your life. So that's the major impact that your credit score truly has. And a lot of people don't think about it this way.

Starting point is 00:03:18 A lot of people think about it as, hey, I have a credit score. What does it really matter? As long as it's just good enough. Well, sometimes good enough isn't the best possible outcome for you because what you want to do is be able to get the highest possible credit score so that you can have the best rates possible. Now, is having an amazing credit score over 800 or something like that? Is that necessary to build wealth?

Starting point is 00:03:41 Absolutely not. There are extremely wealthy people out there who don't have great credit scores. because they pay for everything with cash. It's not a requirement, but you have to be ultra wealthy if you want to build true wealth and have a lower credit school. So today, we're going to be talking about these seven habits and how you can implement them in your everyday life because each and every one of you can do this,

Starting point is 00:03:59 each and every one of you can implement these habits, and you can turn your credit score around. Now, is it going to take some time? Absolutely, it'll take some time. But can you increase your credit score, say by 100 points within a year? You most definitely can, depending on your situation. So what you have to do is start implementing the right habits and turning your credit score around. And if you have a fringe credit score, maybe you're in the mid sixes or something like that and you want to bump it up over 700, then that would be fantastic as well.

Starting point is 00:04:27 And your credit score is also really important, not just for loans, but other things as well. A lot of landlords now, if you want to rent a property, a lot of landlords look at your credit score and they look at your financial history. Smart landlords do at least. I know I do on all my rental properties. The reason why is that they want to see, are you financially responsible? Because it's an indicator of financial responsibility. So this is why it's so incredibly important to improve your credit score over time, just to ensure that you have the best opportunities to build wealth right in front of you. So before we jump into the seven habits,

Starting point is 00:04:59 I just want to talk about the things that actually impact your credit score because it's truly important to know this. And I'm going to go through it really quick, just so you have an idea, and then we'll go into the habits and maybe go into more detail when we do that. So 35% of your credit score is your payment history. Are you paying your bills on time? That's 35% of your credit score. So if you're getting behind on bills, you're not paying your credit cards on time, you're not paying your mortgage on time, you're not paying your student loans on time,

Starting point is 00:05:29 you're not paying your personal loans on time. That's going to be the biggest impact to your credit score. I think a lot of people know that. I think a lot of people know that if you get behind on paying your bills, then it's going to impact your credit score. The next one, 30% is the amount that you owe. So if you have a really high amount that you owe, say you have really high credit card debt, for example. If you have really high credit card debt, your credit score is going to drop because you're using a large portion of the amount of money that's been given to you. 15% is credit history. So a lot of times you'll hear people say to teenagers or young kids, open up an easy credit card so you can start building credit. And that's great advice

Starting point is 00:06:05 because what you're doing is you're building up credit history. But is it as impactful as the first two, absolutely not. It's only 15% of your credit score. But if you're just starting out, you have no credit, you're young, you've never built up any credit whatsoever, then one thing that you can do is open up an easy credit card or a secured credit card and just put one thing a month on that credit card and pay it off. That'll get your credit history started. The next one, 10% is new credit. If you're opening up for new credit or things like that, that's 10% of your credit score. And then the last 10% is credit mixed. So all of these are impactful, but what you want to focus on the majority of is the first two because payment history and amount owed is 65%

Starting point is 00:06:47 of your credit score. So just two of those items is going to be a major impact on your credit score. And making sure that you have those things under wraps is going to be extremely impactful. But what we're going to talk today about is these seven habits. And when we talk about these seven habits, it will allow you to make sure that all of those bases are covered. Because once you have all of those covered and implementing these habits, then you're going to have no problem. Everything's going to be gravy. You're going to have no issues whatsoever. So if you're into that, let's get into it. The first habit of people with excellent credit scores is that they pay their bills on time. What a surprise, right? But the thing that you have to understand is the most

Starting point is 00:07:27 influential factor in your credit score is your payment history. So staying up to date and on top of your bills is crucial. Now, if you're the type of person who forgets about their bills all the time and you're the type of person who likes to manually pay their bills, we need to switch you up, my friend, because what you need to be doing is automating your bills. If you're manually paying your bills and you're continuously getting behind on your bills, you need to start automating your finances. Now, if the reason why you're manually paying your bills is because you don't make enough money, then increasing your income in addition to automating your finance is going to be truly beneficial to you. And you should really have a budget in place if you do not do that.

Starting point is 00:08:04 If you don't know how to do a budget, I will put a link in the show notes to all of our episodes talking about budgets so that you can have that in place as well. But your payment history is extremely influential. And it's over one third of your credit score. So making sure you're on top of your bills and you're paying your bills on time is the most important thing. Because even if you have one bill overdue by 30 days, it's going to impact your credit score.

Starting point is 00:08:28 It really will have an impact on your credit score. Just one bill. So you really need to automate this so you don't have to think. about it because how many times have you tried to do things manually and all the sudden you forget to pay your bill on time we all forget to do things so automating everything as much as possible so that you have the money in place is extremely important and like i said if you keep getting behind on your bills then putting that budget in place or making sure you have some sort of system to track your income or track how much money you have is extremely important because leaving this up to you and your

Starting point is 00:09:03 memory is just not going to work out. The second habit is they watch their utilization ratio. So if you don't know what credit utilization is, let me break it down in as simple terms as I possibly can. It's just how much of the credit you're allowed to use you're actually using. So for example, let's make the numbers super, super easy. Let's say that you're allowed to use $100,000 in credit. Well, if you use $7,000 on your credit cards and you charge $7,000 and you have $7,000 outstanding, that's a 7% credit utilization ratio. Making sure that this number is lower is what you want to be doing. Let's say, for example, you're allowed to have $10,000 on your credit utilization.

Starting point is 00:09:47 Well, if you're using $7,000 out of $10,000, then you have a problem, my friend, because you're using too much of your credit utilization, and that will take a ding on your credit score. So understanding how much credit is available to you is actually a number that you need to know. But just as a rule of thumb, just remember this. The lower your utilization, the better. How do you keep your credit utilization low? How do you make sure that you're keeping that number low? This is why, and if you've heard me talk about credit cards in the past, we have a credit card episode where I've talked about this, this is the reason why I actually pay my credit cards weekly because what I want to do is reduce my credit utilization and I also want to make sure that

Starting point is 00:10:27 I understand exactly where I am at all times. So every single Friday, my wife and I pay our credit cards weekly. Now we put all of our bills that we possibly can on a credit card. Why? Because we want to get the points and we want to ensure that we can utilize those points to our benefit. But we make sure that we're paying our cards off weekly because we're keeping that credit utilization low and allowing ourselves to increase our credit score at the same time. Your credit utilization is 30% of your credit score. So if you mess this up, if you're using 70, 80, 90% of your credit utilization, then you're dinging your credit score every single month. You have to make sure that you're keeping this under control. In fact, the study was done that FICO high achievers with scores higher

Starting point is 00:11:08 than a 795 use an average of 7% of their credit available to them. That's what they use. So making sure this is low, will definitely impact your credit score in a significant way. And this is one that people truly don't think about. A lot of people just think about paying their bills on time. But this is the second one that is equally important because it's another third of your credit score. So making sure you're frequently paying down your credit card balances, do you have to pay them down every single week? Absolutely not. That's what I do to keep track. That's just what I do for peace of mind. But you don't have to do that. You don't have to make sure that you're paying down your credit cards every single week. Now, how can you find out how much credit utilization you have

Starting point is 00:11:45 available to you, you can use a ton of the free credit report sites or things like that, because all of them will tell you how much credit utilization is available to you that you can actually use, and then you can run the math in your head or however else you want to do it. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy, clothes don't fit anymore, and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in place actually matches the life that we're building. And that's where PolicyGenius comes in. PolicyGenius is an insurance company.

Starting point is 00:12:25 They're an online marketplace that helps you compare life insurance quotes from some of the top insurers in America, all in one place for free. And their licensed team works for you, not the insurance companies. So they help you find the right coverage for your situation without all the guesswork. And they walk you through everything. Answer your questions, handle the paperwork, and help you get the coverage that actually fits your life today and where it's going. So protect your family with a policy that grows with your life. With PolicyGenius, you can see if you can find 20-year life insurance policies starting at just $276 a year for $1 million of coverage. Head to PolicyGenius.com to compare life insurance quotes from top companies and see how much you can save.

Starting point is 00:13:06 That's policygenius.com. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been, there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out and hire faster. Your post jumps up to the top of the page, making sure it reaches the right candidates. And it makes a huge difference. Sponsored jobs on Indeed get 45% more applications than non-sponsored ones. And there's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75

Starting point is 00:13:46 sponsored job credit to get your jobs more visibility at Indeed.com slash personal finance. Just go to Indeed.com slash personal finance right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash personal finance. Terms and conditions apply. Hiring, Indeed is all you need. Amazon presents Jeff versus Taco Truck Salsa.

Starting point is 00:14:11 Whether it's Verde or Roja or the orange one. For Jeff, trying any salsa is like playing Russian roulette with a flamethrower. Luckily, Jeff saved with Amazon and stocked up on antacids, ginger tea, and milk. Habaniero? More like habanier, yes. Save the everyday with Amazon. The ride that steals the spotlight every time it hits the road, that's the Volkswagen Tiguan. Its sleek exterior makes a first impression you can't ignore.

Starting point is 00:14:46 Step inside to find available full leather seats and wood accents. Under the hood, the available 201 turbocharged horse power engine gives it a fun to drive edge. The refined Tiguan, you deserve more style. Visit vw.ca to learn more. SUV, German engineered for all. The third habit is people with excellent credit scores keep their balances low. Now, keeping your balances low specifically on credit cards helps you maintain control over your finances. And this is another reason why I pay off my credit cards every single week. But people with

Starting point is 00:15:20 scores higher than $7.95 owe less than $4,000 on their credit card compared to average balances of $6,000 with scores less than $6.35. So that's a one-third differential there of people with high credit scores. So keeping your balances low and consistently ensuring those balances are low. Now, If you're going to put all your bills on your card, that's fine. Sometimes it's hard to keep your balance truly low. As long as you're paying off your cards monthly and making sure that everything is paid off at all times, then it's extremely important. Now, if you're in debt, you need to go ahead and attack that debt, especially if that debt is a high interest debt, like a credit card debt. Because that is extremely important.

Starting point is 00:15:58 That's a pants on fire emergency is what I call that. So if you have credit card debt, it's a pants on fire emergency, and you need to get rid of that as soon as possible. So just maintain firm control over your spending and only charge what you can afford to pay. If you don't have the cash in the bank, then it should not be going on a credit card, my friends. That's one habit that you need to get into your head right away. If you don't have the cash in the bank, there is no reason for you to be utilizing a credit card to buy something. Because credit cards are not utilized as loans. They're used as a secure way to buy things where you get benefits back in the terms of points.

Starting point is 00:16:32 So making sure you're responsible with cards is one of the biggest things. and keeping those balances extremely low at all times. Number four, people with high credit scores give it time. So like we talked about, having several years of credit under your belt elevates your credit score. And the average age of people who have really high credit scores shows that they have a credit history of about 12 years. Now, for me, I didn't really have a problem getting over an 800 credit score

Starting point is 00:17:00 in just a couple of years. I was in my early 20s when I got a really high credit score. So you can do this earlier. But the studies have shown that a lot of people have 12 years of credit under their belt before they become high credit score earners. Now that could be because of a number of factors. It could be because they just get their finances in order over time. It could be a bunch of different things that skew that.

Starting point is 00:17:20 But if you get a good base up front and you're ensuring that your cards are paid off every single month, you can get an extremely high credit score pretty quickly if you're starting with a clean slate. Now, if you're not starting with a clean slate, then you may be closer to this mean where it's going to take you some time to get there. Now, can you increase your credit score? A hundred points in a year? You absolutely can. We wrote an article on dollar after dollar.

Starting point is 00:17:42 We explain how that can happen. But there's a bunch of things that you have to do to work on that. But setting yourself up for success up front is truly important. So if you're just starting to establish credit history, then it's a good idea to get a card where you just put maybe your groceries and your gas on there and you pay it off every single month. Because once you start doing that and once you're getting that cycle and if you're in a clean slate, you will have a high credit score in just a couple of years.

Starting point is 00:18:04 You'll have an extremely high credit score, which is going to set you up for life to save at least six figures if you're going to go out and buy a house or things like that. So there's so many different factors that come into play. But making sure you set yourself up the right way is extremely important. And implementing these habits is the first step. Number five, they apply for credit sparingly. So every time you apply for credit, maybe you get a mortgage and then you apply for a credit card and then you apply for a different loan.

Starting point is 00:18:31 All every time that you apply for credit, it takes a ding on your credit. score and your credit score is going to get reduced. Now, if it's a one-off thing, if you're applying for credit sparingly, then it's going to be a short-term ding and it's going to bounce right back. But if you're opening up a ton of different credit cards and you're getting a mortgage and then you're getting a car loan and you're doing all these things at the same time, your credit is going to take a hit. That is why when you're going to buy a house, people say, do not open any credit cards, do not buy any cars, do not get any debt. The reason why is you don't want your credit score to take a hit when you're about to apply for a mortgage.

Starting point is 00:19:04 So opening up more credit is going to impact your credit score. And if you do it frequently, then it's going to impact it for the long term. Because each time a potential lender checks your credit, it shows up as an inquiry. And the more inquiries you have, when you stack up those inquiries, it's just going to make your credit score go down. So if you do open up new credit cards, make sure to at least wait six months before you open the next one. I understand people who want to do travel hacking and things like that, then they want to open up multiple credit cards per year.

Starting point is 00:19:34 And I understand that. We'll have an episode about travel hacking and exactly how I do it because it's a way that you can travel the world for free by utilizing credit card points. And part of the strategy is opening up multiple credit cards per year, but waiting at least six months

Starting point is 00:19:47 in between each time is extremely important because it's ensuring that you have enough ample time for your credit score to recover before you open the next card. Number seven, people with excellent credit scores choose the right credit cards. So when you're opening credit cards, you want to look for perks

Starting point is 00:20:03 and you want to look for rewards that fit your spending. Do you want to travel a lot? Then are you incentivized to use your card for travel? Do you want to get cash back? Then you can look for cars with cash back. If you buy a lot of gas, for example, look for a card that pays 5% cash back in gas. Or if you buy a lot of groceries,

Starting point is 00:20:20 look for a card that pays 3 to 4% cash back on groceries. But making sure you have the right card that fits your lifestyle and what you want to do with it is going to motivate you to make sure you get those rewards points by paying off your card. You want to make sure you have the right, rewards triggers in play so that you can utilize your card exactly the way you need to. Now, if you're just bouncing back, you're just getting started with credit, then a secured card

Starting point is 00:20:42 would be perfect for you. And a secured card, all it means is that when you put down, say, $300 bucks on this card, you're going to actually put cash to back up the credit card and you can still build up credit. So essentially what you do is you put down, say, $200, and then when you have cash backing up the card, then you can spend $200 or $300 with the card. and people who have been through bankruptcies and things as well, they can also utilize these cards to try to build their credit back up so that you can prove that you're responsible and build your credit score up. So that's a great option for people who are just getting started

Starting point is 00:21:14 or you're bouncing back from a bad credit score. If you can't open up a card because your credit score is too low, then look at secured credit cards. They're fantastic for people in those specific situation. And then the seventh habit of people with excellent credit scores is that they monitor their scores and credit reports. Now, how often should you monitor your credit? First of all, people who monitor their credit report all the time, it's a waste of time.

Starting point is 00:21:35 You don't have to do it all the time. Unless you just like doing it, then fine. You do you. But for me, I check it once a year. Now, the reason why I only check it once a year is because I know I'm doing the right things and putting the right steps in place to ensure my credit score stays high. But I also want to make sure that I'm checking it regularly enough to make sure there's no identity theft or anything else that was opened up in my name, which has happened in the past.

Starting point is 00:21:57 I'll have an episode on that. but we want to make sure that that doesn't happen to us. So we want to make sure we're at least checking it once a year to ensure that we are on the right track and that no fraud or anything else is on our credit line. Now, if you have a lower credit score, you can check it more frequently, but make sure when you check your credit score,

Starting point is 00:22:16 that it's not a hard inquiry, that you're not checking your credit score and it's actually putting an inquiry on your credit score. What you want to do is make sure it's a soft inquiry, so when you're looking it up, it doesn't actually impact your credit score. So there's a bunch of different places that you can do it from Equifax to Experian to TransUnion to to AnurualcreditReport.com to Credit Karma. There's a million sites out there that'll let you

Starting point is 00:22:36 check your credit score. And in addition, a lot of companies like Chase and Capital One, they have their own systems now where they actually show your credit score pretty close to what it should be. So a lot of places where you open your card, they'll have free tools where you can see your credit score on a daily basis if you want to so that you don't have to pull your credit report every single time. And that's the way I like to do it because I utilize it through Capital One in Chase, where they show me about where my credit score is. They might be 10 to 15 points off at times, but it's a fantastic place to look so that you can actually at least make sure to keep track because if I see a large drop in those numbers,

Starting point is 00:23:10 then I know something's wrong. And these are the seven habits that you have to have in place. So if you're bouncing back and you have a low credit score now and you think things are hopeless, listen, it's absolutely not hopeless. The way you claw yourself out of this, though, is you go get a secured credit card and you start implementing all of these habits. make sure your bills are paid on time. Make sure you're utilizing a low amount of credit.

Starting point is 00:23:31 If you're in a lot of credit card debt, then you're going to have to start paying that down so that utilization ratio will go down to increase your credit score. Make sure that you're actually doing the right things and taking the right steps so that you can increase your credit score. And if you're just getting started, then implementing these steps and utilizing them for life

Starting point is 00:23:48 is going to set you up significantly because the impact with your credit score really is a major impact. And a lot of people don't think about it this way. They think, ah, the credit score doesn't matter that much. Well, it will if you're going to go get a car loan. If you're going to go get a mortgage, if you're going to go ask for different types of loans, then your interest rate matters. And your interest rate differential is what is going to cost you tens of thousands of dollars.

Starting point is 00:24:12 So making sure your credit score is in place and you have a good credit score is how you build a baseline to building true wealth. And that's what we're all about here at the personal finance podcast. We want to teach as many of you as people. possible how to build generational wealth for you and your family and this is one of the basic principles that you have to have in place to ensure that you can do that listen if you guys have any questions at all about this episode hit me up on instagram at master money co that's master money co and follow us on spotify apple podcast or whatever podcast player you love listening to this podcast

Starting point is 00:24:47 to and if you want to help out the show leave a five star rating and review on apple podcast. Thank you guys so much for listening to this episode. We truly appreciate each and every one of you guys and we'll see you on the next episode. Thank you guys so much for listening. And if this is your first time listening, consider subscribing so you never miss an episode. And share this episode with a friend. And don't forget to leave a rating and review on iTunes as well because our goal is to bring as much value to you as possible. And we're trying to spread this message that money can buy freedom. That's what money is there to do is to buy more freedom. So thank you again so much for listening, and I hope you have a great day. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play.

Starting point is 00:27:11 Feel the fun with Play Ojo, the online casino with all the latest slot and live casino games. What you win is yours to keep with no wagering requirements, instant payouts, and no minimum withdraws. Hey, I just won. Woohoo! Feel the fun, play Ojo. Honey, forget about the lasagna. Let's celebrate. 19 plus Ontario only, please play responsibly.

Starting point is 00:27:30 concerned about your gambling or that of someone close to you. Call one-66-531-2,600, or visit connexonterio.ca.

The Personal Finance Podcast - 7 Habits of People With Excellent Credit Scores

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.