if your credit score is low you're probably not paying your bills right in this video I will show you exactly how you should pay your bills to increase your credit score in fact everything that I'm going to share with you has helped me maintain a credit score over 800 for years and it has helped countless of others if you stick to the very end I'll give you another strategy even if you're having trouble keeping up with your bills before we dive in the strategy to pay of your credit cards and Loans are different so let's first go over credit cards the key to paying off your credit card bill the right way to have the maximum effect on your credit score is to know your way around a credit card statement so here's a real life example of one of my Chase credit cards right now I have a new balance of $457 the minimum payment would be $35 and I would have to make the minimum payment by 120 now let's go over the account summary which is the meat of the credit card statement here are the most important parts that you need to know first is the previous balance if you have a roll in balance or if you did not pay a credit card bill it would show up here so for this particular statement I have a little bit over $400 in purchases if you've done any cash advances balance transfers it will show here also if you had it roll in balance it will also display here and how much interest was charged as well so in total my new balance is $457 now here's the most important part of any credit card statement these dates right here are your opening and closing dates some credit card statements label this a little bit differently some may just show you a statement due date but they all roughly mean the same thing these dates are important because they show your billing cycle this is a period that would account for anything that you bought or paid off billing Cycles typically last between 28 to 31 days but the most important date to know is when the statement closes so for this example it closes on December 23rd meaning that any balances that are left on this day it gets reported to the credit barrels if you are new to credit or not familiar your credit scores are determined by TransUnion Equifax and experience these credit Barrels have all different algorithms that determine your credit score now there are hundreds if not thousands of different types of credit barrels but these are the three credit barrels that are most important ones that you need to pay attention to they're the ones that keep track of your credit history and pretty much how you handle your debt so let's go back to our statement with this credit card I have a credit limit of $18,900 so with a $457 balance this means that I have roughly around a 2.4% credit utilization if you wonder how I got this number I simply just have my new balance divided by my credit limit and times it by 100 okay so you don't have to be mapping this stuff all the time I swear this is just to show you how I got this number so ideally you would want to keep your credit utilization under 10% now credit utilization falls under the amounts Ed portion of your credit score which is 30% of your overall score so if you have a large balance and a smaller credit limit this would result in higher credit utilization the reason on why this is bad is that when your balance gets reported to the credit bureaus they know all of your account details this will report that you have a higher credit utilization the higher credit utilization is the riskier that you look to lenders as a result your credit score will go down so the best time to actually pay off your credit card bill is by paying 2 to 3 days before the statement closing date the reason being is that the closing date May fall on the weekend and your payment may not be accounted for so if you were to look at my statement the ideal time to pay off any balance is December 20th this way I would show that I would have a zero balance or a much lower balance when this information gets reported to the credit barrels now if you're not able to pay off your credit card balances in full prior to the statement closing date stick around later in the video because I'll show you how you can tackle debt even if you have no cash flow or if you're struggling to pay down your credit cards now once you pay down that balance a few days before the closing date you do not want to use that credit card until that cycle ends so in this case I would not want to start spending until December 24th I know that this credit card statement looks like the opposite of what I'm telling you to do but I needed an example for this video hence I needed to add a balance for this card so I could break it down for you so what I should have done was to pay off $457 on December 20th once I received the credit card statement this would have shown a zero balance over is zero minimum payment due so the tldw version is to Simply pay as much as you possibly can a few days prior to the statement closing date okay you might be thinking like this is great if I have one credit card but what if I have multiple so there are a few ways that you can actually do this you can keep track of all your credit card due dates on a spreadsheet and meticulously know when to pay off which credit card to keep the lowest utilization for me I don't like this way the easier way is by setting up automatic payments by paying off the balance prior to the statement closing date not all credit cards issue where will allow you to do this but if they do this is something to take advantage of since is automatically taken care of of course this would only make sense if you're able to cover the bill no matter what the amount is but there's an easier way than this which is by contacting your credit card companies and Shifting the statement due dates to the same date on all of your credit cards now this may take some time depending on how many credit cards that you have but if you know the exact date of when your credit card statement closes on all of your cards this will make your credit card management so much more simpler however if you're not able to pay your balance in full a few days before the statement closing date then this is a strategy that you can use to get out of credit card debt so let me give you a real life example so you can follow along let's just say that you have Jeff he earns $5,000 a month but his expenses are also $5,000 leaving no cash flow he has a credit card that's maxed out with a $10,000 balance and a monthly payment of around $500 the majority of his expenses goes to rent which is around $2,000 the rest which includes Utilities phone bills groceries gas and insurances he's charging to his credit card our goal is to utilize his credit card to get him out of debt now most people would think to take care of everything first then think about credit card debt last but we're going to do the complete opposite as soon as Jeff gets paid once he gets that $5,000 and hits his bank account minus $2,000 that needs to go to rent this goes straight to the credit card by doing this this lowers his credit card balance right away positively influence both his interest cost and his credit score reducing credit card balances is the quickest way to lift credit scores by using his credit card for necessary expenses like like groceries and gas he manages his expenses while simultaneously reducing his credit card debt the best part is that his monthly $500 credit card payment is effectively canceled out now his actual out of pocket expenses amount to only $2,500 as the $500 is absorbed by his income transfer so let's run a math initially Jeff's credit card balance Falls to $99,500 by next month using this method his balance decreased to $6,500 this process continues monthly steadily reducing his balance by the fourth month his balance is $8500 which drops down to $5,500 after his income transfer then raises up to $88,000 after expenses by the fifth month his balance is around $7,500 this leaves Jeff with a $2,500 cushion on his credit card so this can be served as an emergency fund this strategy reduces debt while building a rainy day fund in case of anything happen so in total it would take Jeff around 20 months 5 months that's already passed plus the 15 months that are remaining to completely pay off his credit card debt using the strategy in this example I try to make it as easy as possible to follow since we only focus on how much he owes which which is the principle but we haven't talked about the interest since we haven't included these daily fees in our calculations this plan may be a little bit longer but even with those extra fees the plan for Jeff is still a good one because it will help reduce what he owes and can improve his credit score now let's move on to paying off loans because paying off loans is a little bit different compared to credit cards because with loans you know exactly how much you need to pay every single month and for how long this is very different from a revolving line of credit such as a credit card credit cards tend to be higher risk because your payments and balances fluctuate so paying off a loan can either positively or negatively impact your credit score in the short term but it really comes down to your personal credit profile such as mix of account types account balances and some other factors but what is commonly seen when you pay off a loan is that you tend to see a drop in your credit score unlike a credit card or any other revolving line of credit that account remains open even if you don't put balances on it for months ahead now if you have the financial means to pay off your loan early that's freaking awesome because the majority of people don't have the discipline or the ability to but let me go over a great strategy that you can use to maximize interest savings and build credit at the same time the biggest portion of your credit score is the payment history and the amounts owed this accounts for 65% of your over score so this is where your main focus should be the longer that you have an excellent payment history and the lower balance that you have on open accounts the better your score will be so the strategy in a nutshell is that once we have the ability to pay off your loan early we would want to pay off as much as we possibly can meanwhile keeping a small enough balance to keep the account open as long as possible so let's just say that you have a $5,000 loan and you have the ability to pay it off today rather than paying $5,000 off right now I would just pay 91% of the balance and just leave the remaining balance there till near the end of the term this would translate to $4,550 and the remaining balance will be 450 depending on the loan that you have since you paid that much money upfront your next due date may be months or years down the road or sometimes the lender may still require you to pay something every single month but the monthly payment should be much smaller compared to what you're regularly paying or sometimes the lender may still require you to pay something every single month but the monthly payment should be a much smaller amount compared to what you're regularly paying so the main goal with the strategy is to pay off as much as you can but keep the balance high enough so the lender doesn't force you to pay it off early or the monthly payments don't make you pay it off sooner than later this way you can benefit from the long payment history plus reduce the interest that you would have to pay again this really just depends on the type of loan that you have and the financial means so regarding the example it doesn't have to be 91% but anything more than 50% is ideal and with some loans there's really no way to avoid the interest charge but you can still benefit from paying the majority of the loan off early while making the minimum payment and having a longer payment history now I want to turn it over to you what payment strategies are you going to try today let me know in the comments I'll see you guys in my next videos