Here’s Why You NEED a Good Credit Score

Hey everybody, welcome back to Whiteboard Finance. My name is Marco, and I'm here to help you master your money and build your wealth. In today's video, we're going to talk about why your credit score is so important. Your credit score is everything. I know it's going to be kind of like common sense, but you're going to see exactly why in this video. So stay tuned. So your credit score is essentially your financial report card, okay? So your report card goes to these three different bureaus, which I'll talk about later in the video, and then they come up with the credit score for you. So your credit history communicates your record as a borrower to different types of people and businesses. I'll explain these one by one. So let's say you're going to a lender or a bank. Lenders can decide whether to loan you money or not, and they can also decide what interest rates they want to charge you based on your credit score. So this is a lender, or let's pretend a bank, for example. So insurance companies, they also factor in credit scores when deciding what rate they want to charge you. This was supposed to be a shield. I probably should have drawn like the traveler's umbrella, but you get the picture. And then also, if you are renting, this can sway a landlord's decision to rent to you or not. This is supposed to be an apartment building. And then also, believe it or not, I've actually had to give my credit score and background check to potential employers, which can also influence their decision on whether they want to hire you or not. So these are all huge factors in your life. Again, you have loans, which we'll talk about a real world example here in a second when it comes to mortgages. We have insurance rates, especially if it's term insurance, it's going to live with you for a very long time. Renting, some people may be renting for years. And then also a job, which dictates your income, which is one of your biggest determinants of wealth. So let's do a little bit of math. Let's say we're buying a house and we're taking out a... Actually let me step back here. Let me see how far I can go. Let's say we're taking out a $300,000 mortgage or loan after our down payment. And this is not going to be including any taxes or fees. So data from credit scoring company FICO shows that the lower your credit score, the more you'll pay for credit. You're obviously a higher risk to the lender with a lower credit score. Again, lower credit score, bad report card, higher risk, higher rates. So here's the average interest rate by credit level for a 30 year fixed rate mortgage of $300,000. If you want, you can pause the screen right now, but in a nutshell, you can see that the difference is right around one and a half percent over the life of 30 years. So let's take a look at what this math is like. Okay. So I'm going to back up a little bit further here. So $300,000 at that table that I just showed you is 9.06%. This gives you a monthly mortgage. Again, this is without taxes, insurance, all that good stuff is just simply the math on the loan. a month with a total interest of $574,900 over the course of this loan. Okay. That's 30 years. If you take that same 300K at the lower rate, which we saw was 7.47 in that table, your monthly payment is going to be $2,091. So that's basically a $330 difference for quick math. And the cost of this mortgage over the course of 30 years, again, you can always refinance, but the point here is to illustrate what just one and a half percent in a rate does over the course of this loan. This comes out to be $452,618 for a difference of $122,282. So you can see here why your credit score is so important. It literally costs you six figures to be, I don't want to say poor, that's the wrong word, but to have a bad credit score. So in this next slide, I'm going to show you some very quick factors of how to build credit and what may affect your credit. And then we'll go into the next section. Obviously my thoughts at the end as always. Okay. How to build credit. Okay. Marco, I get the picture, you know, having a good credit score is important. So how do I actually build good credit? So you generally build good credit anytime you borrow money. That's the whole point. It's the, remember it's the report card on if you can repay back your loans or not. So my mom actually made me a co-signer on a credit card when I was five years old. So I've been building credit for literally 30 years at this point. So that's probably why I've been an 800 plus credit score of my entire life. So here's some actions that can affect your credit score. So obviously spending on your credit card and paying that monthly bill. So this is a monthly bill right here. This obviously sounds like common sense, which it should be, but I don't advise you to go out and get a credit card if you know you can't handle it. If you're going to be in debt forever paying, you know, 17 to 25% interest rates every month, well then that's on you. Number two is making or missing student loan payments. This is supposed to be the graduation cap with the tassel right here with the smiley face. Maybe it should be, maybe it should be a frown face with a tear depending on what your, what your degree is in and if it has any ROI whatsoever. But remember, most things are tied to your social security number. So whether it's your student loans or bills, whether you pay those off or not, that's going to determine your credit score. So paying back your student loan payments is no different than spending on your credit card and paying off that monthly bill on time. You also need to make sure you're making payments on other types of debt. Like say for example, medical debt, that's the cross, auto debt, you have bills and utilities that's supposed to be, um, uh, the electricity sign. I don't know. I'm a terrible artist, but make sure that no bills go unpaid. And then also anything that goes into collections or having bank overdrafts, that's also going to negatively affect your credit score. Okay. So how is your credit score tracked? So up until this point, I've shown you the math right here on a mortgage, for example, on why having a good credit score is important. And I've also shown you how to build credit and maintain credit, um, at least a good score, but you know, who is even creating the score and how is it tracked, right? So we're, you have lenders, banks, insurance companies, your job, you have different bills, you have different obligations. You can see that the mortgage is, you know, super important to get a low interest rate there fixed, but who's even tracking this. So there's three big companies that are called credit bureaus that keep track of your credit history. Uh, so these are Experian, Equifax and TransUnion. So when I used to sell cars, we would pull credit reports all the time. I've seen every credit score imaginable from terrible, uh, towards like, how are you even this low of a credit score? You have to try and be this low. You have to pay some stuff and not pay the others all the way to, you know, rockstar 800, you know, 30, 840 credit scores. So I also used to work at a publicly traded bank and I would have access to individuals credit scores with every single obligation listed out right in front of me. Uh, so I'd be able to see if they missed payments or made payments on time. The credit bureaus can see and report all of this as well. So typically these credit bureaus keep track of everything that's reported for them, uh, to them for at least seven years. Uh, and then after seven years, these negative marks like missed payments, for example, they usually get erased or forgotten. So it's as similar as getting like, um, like a speeding ticket from a police officer. Sometimes these tickets fall off your record after a certain amount of time, or at least towards insurance purposes. So all the information that these credit bureaus get, they create your credit report right here and that's used to calculate your credit score. Okay. So my final thoughts on this video, I'm not going to rehash everything we talked about here. Uh, I don't want to sound redundant. Uh, but basically your credit score is incredibly important because that's how this entire country works from birth to your social security number, uh, to your plugged into the matrix all the way until death. Your credit score is important unless you want to live off the grid and then that's a whole different story. Uh, but for all the people that talk about, um, you know, your credit score isn't important. I don't need credit cards. You know, I just use a debit card, all that stuff. That's fine. If that's how you want to operate your life, there's nothing wrong with that. Just know that, uh, it's much easier to go through life just using your credit card, for example. Um, just like cash and then also paying off all these things on time. Uh, you can automate it, uh, but never pay interest. Once you're paying interest, you're losing the sight of the whole game. Um, I personally enjoy credit cards. It's going to pay for my trip at the end of February to take my family to Aruba. Um, that's all literally just from credit card rewards. I've paid zero, uh, dollars in interest in my entire life on pretty much anything, uh, except my mortgage, which I paid off in about a year and a half. So anyway, my point to this video is not to brag about not having debt or anything like that. It's about to, it's showing you the math, not just the, um, philosophical stuff and maintaining a credit score and why you need a good credit score. Uh, but these numbers, they speak for themselves and it's just going to help you in many other areas of life. Okay. Uh, co-signing, things like that. So hopefully you got value out of this video. Uh, if you want to take a look at Whiteboard Finance University, I'd greatly appreciate it. Uh, we're actually teaching the four pillars of wealth. Uh, it's basically money management. So we have an entire budgeting course that comes with the school. Uh, we have increasing your income, which one of our professors is creating right now as we speak. Um, I'm not going to spoil what that income is. It's basically what anyone can do from anywhere. Uh, the third is stocks, full course, four or five hour course on stocks, and then also real estate full four or five hour course on real estate, all taught by professors and a successful subject matter experts. Check it out if you haven't already, uh, use the code credit 20 if you want to get 20% off. Thank you so much and have a prosperous day. You know what? This is the part of the video where I would erase this and do something funny. I think I'm just going to leave this up forever. I'm proud of my work.