[Music] I now want to kind of transition to the second number that I think people need to know about Bo, and that is your credit score. This one's controversial though, yeah, this one. I'm going to give you a hot take here. A lot of people out there would suggest that your credit score is your I love debt score, and that's just not the case. I do not think that that's what it is, but a credit score can give lenders a snapshot of your financial health, and it can be a huge asset. It can be a huge resource to you without having to be something that causes you to derail your financial life. I think my opinion is that assuming that you're aiming to have a solid credit score is going to immediately put you in a place where you're in a dangerous financial situation. I don't think that that bridge connects well. No, I think it's back to, are you measuring things in your financial life to know if you're doing well and that you're in a healthy place? And I love that we titled this

On this slide is your credit health. Because I put a lot, if I was creating an analogy, I do multiple times a year. I go get my blood drawn, and I because I'm very proactive in trying to monitor my physical body health. That and I don't like, matter of fact, I hate needles. I don't like having to not eat bread and sugar like I want to because I need my cholesterol and my, you know, and all the enzymes and all the other metrics to do well. It's not that I love testing or blood draws. I just want to be healthy. And I think that your credit rating and your credit score is going to be just like when you go get your annual physical and they draw your blood and they take the metrics. It's going to give an indicator of what your financial health or your credit health looks like to people out there who are definitely going to have an active role and an interest in that. And what's great is over the years, it's become much easier.

to monitor this, there are a number of services out there, both free or some that are included with products you may already be using, where you can track your credit score. So, this doesn't have to be some black box thing that you don't have access to. Well, why does it matter? Why does having a good credit score make a difference in my financial life? Well, the first thing is vendors. When you go to buy something, when you go to borrow money, they're going to use that data to determine your risk profile. If you have a high credit score, that would suggest this person is a low-risk person. It's probably going to be okay for us to do business with him, and we can offer them more favorable terms. If you have a low credit score, there's a good chance that those vendors are going to say this is a high-risk person. We don't know that we want to do business, and if we do, we're going to have less favorable terms. So, it can very much affect how you interact with the companies that you

consume products from well. Yeah, it matters because I want you to have the lowest cost of debt possible. And if interest rates are definitely impacted by this, we need to make sure you look good from a healthy standpoint. 'Cause more than likely, look, I would love for you to be able to go debt-free your entire life. But if I look at my own journey to building wealth, I had to take a car loan right out of college. I had no assets to my name. I needed reliable transportation. I needed 238 to work for me. And so having, you know, building a credit score so that I could get the lowest possible rate on that debt was important. When I got my first house, I made some huge credit score mistakes that I share in Millionaire Mission and all kind of other things to where I didn't understand how this all worked together. And I cost myself a 25 basis points or a quarter of a percent on my first mortgage just because I was not understanding how the system worked. Yeah, and I think what's really interesting is

is a healthy credit score. It is a side effect of sound financial behavior. I don't think that it should necessarily be the goal, but if it is something that you want to impact and you want to have an influence on, you need to understand what goes into it. There are five areas that affect your credit score. The first one, the largest area, this represents about 35% of your credit score, is just your payment history. When you have a bill due, when you have a credit card payment, when you have an auto loan payment, when you have a student loan payment, do you make your payments on time? Do you miss payments? If you make your payments on time and you don't miss any payments, this will be a net positive for your credit score. So, that's the biggest one. That's the one you want to make sure that you focus on. Now, here's something I think that is really, really interesting. This is a big myth that exists. A lot of people think that if I want to have a good credit score, I have to carry a balance. I have

If I want a good credit score, I have to make sure that I have a credit card balance that is outstanding and it rolls over month-to-month. That is not true. What they care about is, are you making that payment, even if it's paid in full on time every month, and doing that consistently through time? That's the first section: payment history. The second section is your credit utilization. Brian, this is one, this is a big one that, uh, let me explain what it is, and I want you to tell what you did. Credit utilization says how much credit do I have available to me versus how much am I using. If I have this much credit available and I'm using 99% of it, that looks very different than someone who has credit available and is only using 10% of it. You thought this might have worked a little bit different. I was thinking in my younger self who was good at math. I was already working in public accounting, but I didn't necessarily know how credit scores worked. I was like, you know what, if I was

a lender. I'd probably be worried about how much access to credit this person has. So, I said, You know what I ought to do is I ought to lower all my credit cards, call my... I had one or two credit cards at that time, and I said, 'Hey, why don't we lower my credit limit? Did you want to look lower risk?' So, it looked like I didn't have a lot of access to credit card debt out there. What I didn't realize is all you do is when they pull your monthly statement and they compare that to your maximum... What's if it's closer? It looks like you're utilizing a ton of your credit, and you look like you're desperate, making desperate decisions. So, I screwed that completely up, and it definitely had an impact on some of my big early purchases. So, what you want to do here is you want to make sure that you monitor your credit usage. You obviously want to keep your debt balances as low as possible, but as you

have pay raises as you have income increases. There's nothing wrong with increasing those credit limits even if you're not using it because that's going to have a more attractive credit utilization that represents 30%. Now, the length of your credit history is 15%. There's not a whole lot you can do to affect this other than the very first line of credit that you open, whether it's your first credit card or you have a student card. You probably don't want to close that down. You want to leave that open even if you freeze the account. You're not actually using it anymore because when you close down that oldest line, the length of your credit history will go to the next oldest and the next oldest. I don't mind 'cause I share my mistakes all the time. Let me tell you something positive. My first credit card was a Six Flags credit card. Can you? I mean, this shows what a knuckle literally. Flags credit card because I lived in Atlanta and went to Six Flags all the time. So I had great

memories and, uh, you know, was using that. Well, obviously, I grew that. I mean, we're not going to Six Flags all the time. So, but I knew that this was my very first credit card that I had opened up. I didn't want to close that up because it would really screw up my length of credit history. So, this is a tip for you guys, and this is something positive I did do. I called the bank, called the number on the back of your credit card, and you can say, Hey, look, I don't want to close this credit card, but it no longer is serving my needs. Do you all have a partner, you know, a different, does this bank offer a different credit card program that now works with my life? So, I was able to transition that to a rewards credit card that actually gave me cash back and other things. Much more functional, much more usable than my Six Flags rewards card that I started out with. For parents out there, I do not think it's a sound strategy to go.

open up a credit card for your 9-year-old. However, if you have a student in your house that's getting a little bit older, maybe they're Dr. beginning to teach them about credit cards and how to use them responsibly. Not might not be crazy. So maybe you go to your local credit union, go to your local bank, and you help them open up a small balance credit card where they can go ahead and begin practicing the sound behaviors of paying it off every month. Maybe it's for me. When I was growing up, it was one tank of gas. I'd put on it once a month, and I'd pay it off. I still have that card open and accessible because that is what controls my length of credit history. So that's 15%. The next 10% is how much are you asking for new credit? How often are you trying to apply for credit? You want, you don't want to fall in the trap of applying for a lot of new credit all at once, or else it will ding your credit.

score and the final 10% is your credit mix. Do I have revolving credit or unsecured credit, or do I have fixed lines of credit? Fix would be like an auto loan or home loan; revolving would be like credit cards. They just want to see what types of debt are you using. That makes up about 10% of your credit score. If you understand how these five pieces work, you don't have to love debt to do it well. You just have to do it well, and the side effect will be a good credit score. And I want to make sure just to give the close the loop on this. If you want to monitor this stuff and know where you are, most of your credit card statements or your monthly, if you go log in on the portal, they actually have now made it very easy for you to see what your FICO or estimated FICO score is. And don't forget, there's also tools out there. I've used Credit Karma in the past. I get nothing for sharing that with you. It is something that

you can use to go and look at to see what's going on with your credits with all the different reporting bureaus.

Why a Credit Score is a Controversial but Important Financial Number

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