Millionaires Are Made
Credit Always
Today we discuss the elusive knowledge of credit. What is credit? Why did no one teach you about credit? How come schools don’t explain credit? Why does everyone get their credit messed up when they are 21?
To explain credit, let’s start with a brief history of money. It may be the root of all evil and the worst invention man has ever had, but it was totally necessary. Imagine having a sweet prize cow and not needing it anymore. How do you get rid of it without money? Post 43000 prices? 25 beans, 17 trees, 64 wheels of cheese? What happens if someone brings skunks? You have to try to google the market value of skunks vs cows.
So, you can see the problem of not having a medium to facilitate interactions. It is very difficult to determine value, especially in a marketplace.
Next up, loans. What do loans without money look like? A cheesemaker doesn’t have up front ability to get a prize cow. They want to borrow one and pay it off in a percent of cheese? So, now in order to grow your cheese business, you have to A) Find someone with a prize cow. B) Find someone with a prize cow that is willing to let you have it. C) Find someone with a prize cow that will let you have it, and will take cheese as a payment.
Now that sounds difficult! Thank goodness money allows all of that to happen with none of the caveats. Borrow money, buy the cow, sell the cheese, pay back the money!
What happens if you fail? They go Mafia style and come hurt you? They take the cow and all your customers? Just ignore it? Create a facebook group and make people hate you? Let the super intelligent, very efficient and fair government make a criminal punishment? Send them to jail for a year? Would the economy grow if nobody wanted to borrow for fear of death or jail time?
Well, push came to shove and the markets decided on a system to keep track of all that shit. It’s called the credit system or some fancy name like that. It is determined by private companies, and they each have their own algorithm and methodology.
You are rated from 300 to 850. There are 3 major personal credit reporting agencies. Equifax, experian, transunion.
How can you tell your score?. You can get a free report (required by law) from each of the reporting agencies. Do this immediately if you haven’t in the past 6 months! You can see if there are issues or things that are wrong and start disputing.
Credit karma or credit sesame are other ways to check. Your credit card company most likely offers free credit scores and reports. Chase, BofA, Amex all have it in their online systems.
Always use credit wisely. Wow, what an easy thing to say. Fuck tons harder to do. Here is what makes up your credit score:
35% is determined by your Payment History. Paying on time is extremely important.
30% is determined by your Credit Utilization. This is determined on your Credit Limit and how much of a balance you have on your cards.
15% is determined by your Account Age. The older your credit accounts, the higher your credit score. Creditors like to see a long, healthy history.
10% is determined by your mix of credit. Creditors like to see various companies and types of credit accounts.
10% is determined by inquiries. How often you try to obtain new credit hurts your score.
Alright, so like most Americans, you screwed up your credit. Now what?
There are two major types of credit help companies: credit repair and credit enhancement.
They each treat 3 of the 6 factors, credit repair focuses on the negatives and credit enhancement focuses on the 3 positive factors.
Payment history - Negative. If you miss a payment, hire a credit repair.
Derogatory marks - Negative. Collections/bankruptcy can be repaired.
Hard inquiries - Negative. A credit repair company can remove these.
Credit card use (% used) - Positive. Credit enhancement can increase your credit limit.
Credit age - Positive. Credit enhancement company can help increase your age.
Total accounts - Positive. The more varied and higher number shows better use.
Business credit is a whole nother ball game. A couple of these companies are Dun bradstreet, lexis nexus, etc. A lot of you may not have credit for your biz. It takes much more time to build. Initially, with young businesses, they use personal credit. So, it’s just as important to keep that high!
So, that’s a brief explanation of what credit is. Why the hell do we care?
Credit is really important for acquiring funds and assets. Funds and assets are really important for growing businesses. Therefore, get good credit, keep good credit, and use your credit to build your business. How does this all work out? Tune in next week!
Next week I will teach you how to utilize your credit in your business and personal lives. Credit is the best way to grow your networth as well!