Building Credit 101

Credit 101: Your Journey to a 720+ Credit Score

Aiming for that travel rewards card or business funding?

You’ll need a GOOD credit score (720+).

But how do you get there? Let's break it down.

Think of your credit score as your financial report card.

Different factors come together to determine your grade:

Payment History (35%)
This is like your attendance in class. Never skip or be late. Pay your balances in full every month and never, never miss a payment.
Amount Owed / Credit Utilization (30%)
Imagine your credit as a bucket of water. Always keep it less than one-third full. This means using as little of your available credit as possible. Remember, your utilization rate goes down as you get more cards.
Credit Length (15%)
Think of this as seniority. The longer you've been responsible, the better. Keep your oldest card active to maintain a longer credit history.
New Credit (10%)
Every time you get a new card, it’s like joining a new club. There might be a small initial dip in your score, but it usually smooths out and can benefit you in the long run. More credit increases your overall credit limit, which is good for your utilization.
Credit Mix (10%)
It's good to show you can juggle different types of credit (like auto loans, mortgages, or student loans). However, don't take out a loan just to increase your score—the impact is minimal compared to other factors.

The big players in this game are your Payment History and Credit Utilization.

Together, they make up 65% of your score.

Always pay on time and try to use only a fraction of your available credit.

If you're new to the world of credit:

Kickstart with a Secured Card:
Approach your bank for a "Secured" credit card.
Think of it as training wheels for your credit journey.
You provide a security deposit, which the bank holds as collateral, building trust and helping you establish your credit score towards 720.

If you’re in the low-score zone:

Pay Down Your Balance:
This reduces your utilization.
It’s like shedding some weight—you'll feel and look better.
Ask for a Credit Limit Increase:
But first, check if your bank does a 'hard inquiry' (which can temporarily dip your score).
This is like asking for a bigger bucket; even if it's a tad fuller, it won’t spill over.

Building credit is a marathon, not a sprint.

With consistent effort, that 720 score—and the travel rewards card you’ve been eyeing—will be well within reach!

I hope this explanation gives you a clearer and more relatable understanding of how to efficiently build your credit score.

For any questions, feel free to DM me here.

Journey on,

Ade O.
The Leverage Letter.