Credit scores are a three-digit numerical system that credit bureaus have created to determine an individual’s creditworthiness. These scores range from 300 to 850. Below is a simple breakdown of an individual’s credit rating using this numerical scale.

• 300-579: Poor credit rating.
• 580-699: Fair credit rating.
• 670-739: Good credit rating
• 740-799: Very good credit rating.
• 800-850: Excellent credit rating.

How is a personal credit score calculated?

35% of your score is a reflection of your payment history. For example, do you have any late payments, bankruptcy, judgments, settlements, charge-offs, repossessions, or liens? This information will impact your score and give them insight into how you’ve dealt with credit in the past.

30% of your score is calculated by the debt you owe. In other words, your debt to credit limit ratio, the number of accounts that carry a balance, the amount owed across different types of accounts, and the amount paid down on installment loans. Therefore, if your personal credit is always at or close to your available credit limit or your credit usage is very high, it can negatively impact your personal credit score.

15% of your score is impacted by the length of your credit history. The two most impactful sources of information for your credit history are the average age of the accounts on your credit report and the age of the oldest account. Creditors predict your future creditworthiness by analyzing your past performance. So, the more information they have about your credit history, the easier it is to determine your overall creditworthiness.

10% of your score is determined by the type of credit you use. If you can demonstrate that you can manage different types of credit—revolving, installment, mortgage, etc., it will positively impact your personal score.

10% of your score reflects new credit inquiries. Every time you apply for credit and the creditor makes a “hard” inquiry into your credit report, it can reduce your score. While shopping for a new mortgage or auto loan will not typically hurt your score, frequently applying for credit cards, revolving charge accounts, or department store credit cards could reduce your score. According to Experian, these inquiries will likely be on hourly reports for a couple of years but have no impact on your score after the first year.

Credit scores can dictate what an individual can become approved for from a lender depending on the lender’s specific lending criteria. These numbers help lenders determine the likelihood that a person will make timely payments and ultimately pay back a loan. In addition, a higher credit score can sometimes award you with faster closing times, less money down, and significantly lower interest rates.

Credit profiles are significant because they show an accurate history of what debt or loans you have carried in the past years.

A credit profile shows the most significant car loan, mortgage, credit line, or credit card balance a person has ever had. The history allows lenders to see how an individual has handled a debt load in the past. Credit history can significantly affect the chances of funding if a lender detects the applicant has not demonstrated an ability to repay a loan in the past.

Another example of a credit profile would be evaluating credit card usage, and this might be the best example to see the impact of a credit profile. If you look at a credit report, it shows a list of all credit cards ever issued to an individual in their lifetime. It shows if the credit card is still active and available to use or if it is closed. It offers a detailed payment history on each card. It shows on the report the highest the credit balance or debt has ever been, and it shows what the balance is right now.

So let’s say we have two applicants who both apply to get a new credit card from the same bank, and both of these applicants have the same credit score of 810, making them both have an excellent credit rating. Nevertheless, one applicant is approved and awarded a credit limit of $15,000, and the other is approved and issued a credit limit of $50,000. They both have the same credit score, so how is this possible? Because the applicant awarded the $50,000 credit limit has likely used higher balances on previous credit cards more frequently than the other applicant. This scenario is an excellent example of how banks use the credit history or credit profile to determine what amount they’re willing to lend.

Other factors have a significant impact on creditworthiness as well. Income has the most considerable effect on proving an individual’s creditworthiness because this logically proves that at least there is enough household income to afford a loan payment. Other factors would be the length of time at a job, employment history, and time at a current place of residence.

Borrowing money, using it temporarily, and repaying it strengthens your credit profile.

This fact applies to people who use the money to make consumer purchases or people who borrow money and invest it. Those who borrow money to invest it, such as business owners, need to know this! Why do they need to know this? Because most business owners will have to borrow money and probably borrow money from any lender who’s willing to lend it to them. Every business or investment needs float time for the funds invested to produce a return or income.

Because borrowing money is something almost every business regularly does, you should know that borrowing money provides you with what you need temporarily and has the massive upside to strengthen your borrowing capacity in the future.

Let’s use credit cards as an example of how powerful this can be. If your business gets approved for a 0% interest rate credit card with a $10,000 limit, you will more than likely use this money simply because it has a 0% interest rate, and logically, it makes sense to use it. So your business uses the card for expenses and creates a debt of $9,800.

All 0% interest rate credit cards have a minimum grace period for that 0% interest of 12 months. When the 0% rate is nearly expired, you logically pay the debt off to a zero balance to avoid the higher interest rates the banks are about to start charging you. Using the bank’s money while it’s available at 0% interest has accomplished more than just using the money. You have done something quite rare by, at one point, utilizing 98% of the credit limit available and having paid off the amount. Most people who use 98% of their available credit do not pay it back before the 0% interest rates expire. Your credit profile will always show that you used 98% of your credit (credit utilization) on that card. You’re using 0% because you’ve paid it off to avoid the higher interest rates. Utilization history will never leave your credit profile, and more important to understand is how to take advantage of that history to get your business access to more money!

With this unique history on your credit profile, you’re now ready to capitalize on getting access to more money. Next time you apply for a credit card to get access to more 0% interest money, you will get approved and likely see a 100-300% increase in the credit limit you’re approved! Why is this the case?

There are a few factors as to why it works this way.

1. You look like a rock star to the banks because they rarely ever see someone successfully pay the debt back before the 0% interest rates expire.
2. They are willing to challenge you to do it again, knowing the odds are in their favor and not yours! They also put the odds even more in their favor by increasing the limit.

You see, banks only offer 0% interest rate credit cards to try and trap people into debt. The 0% interest makes people feel comfortable using the card. Let’s face it, whether you’re using their money to float a business or going on vacation, we all can’t resist using money when the interest rate is 0%! But, statistically, the banks know that most people who take the bait and use the card simply will not pay it back and therefore get trapped paying their higher interest rates. If these odds were not in their favor, the banks would stop offering 0% interest rates, and that is a fact!

With this knowledge, you can build up significant access to capital for your business. You can build your credit limits up to $100k+ on just one card. One of my favorite parts of this strategy is what you do once the 0% interest rates expire on a credit card. Because this card no longer offers a 0% interest rate, you do nothing. You make no purchases. You show no activity on this particular card. Sounds weird, and maybe even a little crazy, right? When there is no activity on a credit card, it drives the banks nuts, and that’s a good thing. Banks will eventually want to entice you to use this same card again. Their proven way of getting you to use this card again in the future is the same way they got you to use it the first time: offer you 0% interest to entice you to use it!

The only likely difference will be that they will mail you blank checks and tell you to use them to pay off other debts. It’s a perfect scenario for you, especially if you happen to have debt on another card that is about to lose its 0% interest rate! Simply write the check out to the other bank and transfer the balance to the 0% interest rate card. Or, if you don’t have other debts to pay off, you can deposit the check into your bank account and have access to cash that your business will likely need.

You may be thinking, but what about the fees to use a check or make a balance transfer? There are fees associated with using a check or making a balance transfer. Still, the fees are one-time fees and minuscule compared to other loans with origination fees and interest rates. View any fees as an origination fee, then let it sink in that your interest rate is 0%. That rate is unbeatable.

Understanding this is not relevant to people who don’t have businesses or are not investors (people who use other people’s money to make them money). If people that use loans, credit lines, and credit cards as consumers (people who use other people’s money to make consumer purchases) knew and understood this, it could be pretty dangerous. This knowledge is reserved only for people ready to use the money to make money and who want to start thinking like an investor. To run a business and maintain access to capital to build your business, you must think about money with the mindset of an investor.

We want you to learn that credit scores are just a number that can efficiently work to your advantage. Depending on how much credit you have extended to you and how much of it you are utilizing, they can fluctuate drastically. Credit scores going down from utilization of available credit is simply temporary. Credit profiles are permanent for the most part and must be handled correctly. Never miss a monthly payment or default on any loan to maintain a favorable credit profile. If you use money as an investor, your credit score (that’s just a number) can go up and down like a wild roller coaster ride, but that is ok as long as you don’t damage your credit profile by missing payments or defaulting on a loan.

Are you ready to use money as an investor does?

If so, we are ready to help you. Simply drop us a note and one of our credit gurus will be in touch!