WEBVTT - Study Hall: Credit Cards & Credit Utilization: What You Need to Know | Shonda Martin

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<v Speaker 2>So, then the next section is like my favorite section

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<v Speaker 2>because it's about credit cards.

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<v Speaker 3>Right.

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<v Speaker 2>So this section, which is thirty percent of your credit profile,

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<v Speaker 2>is called the amounts old section. Right. Some people refer

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<v Speaker 2>to it, and I refer to it sometimes as credit utilization.

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<v Speaker 2>But I wanted to make sure that you guys knew

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<v Speaker 2>it was amounts old because there is more that goes

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<v Speaker 2>into this category than just your utilization on your credit cards. Right,

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<v Speaker 2>So your credit the factors that go into this section

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<v Speaker 2>and will determine how many points you're getting, is your

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<v Speaker 2>credit utilization ratio, so basically how much credit you're using

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<v Speaker 2>versus the amount of credit that you have available to you,

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<v Speaker 2>right on all of your credit cards. Another thing that

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<v Speaker 2>goes into it is the number of accounts with balances.

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<v Speaker 3>This is a big one.

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<v Speaker 2>The next three that I'm going to refer to. These

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<v Speaker 2>are going to be the small things that keeps most

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<v Speaker 2>people out of ever gaining access to the top level

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<v Speaker 2>of offers from a company.

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<v Speaker 3>Right.

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<v Speaker 2>So, in other words, if American Express has their tip,

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<v Speaker 2>if they have a credit card and the ceiling for

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<v Speaker 2>that credit card is a thousand dollars, right, you have

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<v Speaker 2>to have certain qualifications in order to ever gain access

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<v Speaker 2>to that eighty K line because most of their customers

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<v Speaker 2>are only getting access to maybe twenty thousand, thirty thousand,

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<v Speaker 2>forty thousand, Right, So, if you are wanting to actually

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<v Speaker 2>increase your baring power and increase your capital, you know,

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<v Speaker 2>amongst your entire credit profile, these are going to be

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<v Speaker 2>the small things that makes the biggest difference, right, the

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<v Speaker 2>number of accounts with balances, Right, So, the number of

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<v Speaker 2>accounts with outstanding balances. This means any charge offs that

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<v Speaker 2>you have, any charge it doesn't matter how old, if

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<v Speaker 2>it's within If it's still in your credit report, it

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<v Speaker 2>means it's under seven years old. Any charge offs that

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<v Speaker 2>has an outstanding balance automatically affects your credit utilization. Right,

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<v Speaker 2>most people only think that their credit cards affect your

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<v Speaker 2>disc section.

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<v Speaker 3>But it's not right. It does, it does.

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<v Speaker 2>It does make up about eighty percent of it, like

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<v Speaker 2>the utilization percentage that you are reporting on a month

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<v Speaker 2>to mon basis to the credit buias, it makes up

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<v Speaker 2>eighty percent of this section.

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<v Speaker 3>However, the last twenty percent.

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<v Speaker 2>Will will go to how many out how many outstanding

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<v Speaker 2>charge offs do you have?

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<v Speaker 3>You should always look to.

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<v Speaker 2>Settle charge offs if you can, or get a paid

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<v Speaker 2>delete we'll we'll discuss that next week.

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<v Speaker 3>But those are affecting your credit utilization, so it.

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<v Speaker 2>Doesn't matter how responsible you're being with your credit card,

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<v Speaker 2>you will still have to weigh it against this outstanding

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<v Speaker 2>balance until that is satisfied.

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<v Speaker 3>Right, and then another thing is the proportion of loan

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<v Speaker 3>balances to the original loan amounts.

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<v Speaker 2>Now, all this means is if you have accounts on

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<v Speaker 2>your credit report, installment accounts or aka loans, if you

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<v Speaker 2>have ever gotten a defernment that messes up that specific point. Right,

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<v Speaker 2>So if you have a car and you agree to

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<v Speaker 2>have to take out a loan for let's say forty

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<v Speaker 2>eight months, right, whatever, something happens along the lines and

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<v Speaker 2>you get maybe two three deferments which extends the loan

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<v Speaker 2>to fifty one months, fifty one, fifty two months. Yeah,

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<v Speaker 2>so it extends your original loan term which was supposed

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<v Speaker 2>to be forty eight to fifty two.

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<v Speaker 3>Right.

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<v Speaker 2>That immediately will impact your amounts old section because now

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<v Speaker 2>you're overdue. Right.

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<v Speaker 3>The only exception to defer payments.

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<v Speaker 2>Are student loans, so they are the only accounts on

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<v Speaker 2>our credit reports that you pretty much can get as

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<v Speaker 2>many deferments as you You can get as many deferments

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<v Speaker 2>as you want, it will not impact this section, which

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<v Speaker 2>goes to my next point. Make sure that all of

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<v Speaker 2>your student loan bound or I'm sorry, I need everyone

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<v Speaker 2>to look at all their student loan accounts, right.

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<v Speaker 3>Make sure that they say educational loans or student loans.

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<v Speaker 4>Right.

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<v Speaker 2>They will say installment credit because that's the account type

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<v Speaker 2>that they are. But if they do not specifically notate

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<v Speaker 2>that it is a student loan or an education loan,

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<v Speaker 2>then your credit utilization is being impacted heavily, and you

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<v Speaker 2>may not even realize it. Right, A great way to

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<v Speaker 2>tell if your student loans are not reporting accurately or

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<v Speaker 2>you know, reporting as I just stated, if you have

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<v Speaker 2>ever been denied.

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<v Speaker 3>For credit you apply for a credit card or whatever.

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<v Speaker 2>And one of the denial reasons was the proportion of

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<v Speaker 2>your loan balances are too high, or if it says

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<v Speaker 2>and each company will word it a little differently, but

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<v Speaker 2>what it what it'll what the basis will say is

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<v Speaker 2>the balances on your installment accounts are too high, or

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<v Speaker 2>it'll say, uh, it'll say along the lines of what

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<v Speaker 2>I just said. Right, that's one of the clear cut

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<v Speaker 2>signs that your student loans are reporting as regular installment loans.

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<v Speaker 3>As opposed to educational loans.

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<v Speaker 2>Because it absolutely matters because of this, because of what

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<v Speaker 2>I just showed you, because that impacts your utilization.

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<v Speaker 3>It's looking like you.

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<v Speaker 2>Have a large larger utilization then you're saying, because this,

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<v Speaker 2>the difference doesn't show on the credit in your credit score, right,

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<v Speaker 2>but it does show on your barring power when you

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<v Speaker 2>are doing credit applications or if lenders are looking at

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<v Speaker 2>your credit report. All right, okay, so what is credit utilization?

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<v Speaker 2>Credit utilization is calculated as the percentage of credit that

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<v Speaker 2>you are currently using compared to the total available revolving

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<v Speaker 2>credit that you have. So, if you have three credit

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<v Speaker 2>cards with one hundred dollars on each of them, if

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<v Speaker 2>you have a limit of one hundred dollars, that means

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<v Speaker 2>you have a three hundred dollars limit total. Right. If

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<v Speaker 2>you use one hundred and fifty of those amongst the

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<v Speaker 2>three cards however you want, that means that you would

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<v Speaker 2>be your utilization would be fifty percent. Okay, So a

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<v Speaker 2>quick way to calculate your utilization, you take all of

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<v Speaker 2>your balances, add them up on all of your active

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<v Speaker 2>credit cards, and then you divide it by your total limits, right,

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<v Speaker 2>and that'll get you what's called your aggregate utilization, right,

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<v Speaker 2>which is it's that standard ratio that makes up your utilization. Okay, Now,

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<v Speaker 2>what is an ideal utilization? An ideal utilization is always, always, always, always,

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<v Speaker 2>always always going to be between one and three percent.

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<v Speaker 2>One in three percent, And I know that may seem low,

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<v Speaker 2>extremely low to a lot.

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<v Speaker 3>Of people, right, especially if you're used.

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<v Speaker 2>To abiding by the industry standard, which is thirty percent.

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<v Speaker 2>As you can see on the chart that I'm showing

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<v Speaker 2>you guys, thirty percent is extremely high. Right, So if

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<v Speaker 2>you actually are wanting to improve your credit score, or

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<v Speaker 2>if your credit score has just been stagnant, and you

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<v Speaker 2>you like, what's going on? Why why is my credit

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<v Speaker 2>not improving? I've been paying my accounts on time, my

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<v Speaker 2>car on time, my credit card on time, and I'm

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<v Speaker 2>just my credits card is just stuck, right, I can

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<v Speaker 2>I can never increase it, right in a steadily paced

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<v Speaker 2>Usually it's because it's because of utilization.

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<v Speaker 3>It's because you've probably.

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<v Speaker 2>Been reporting twenty percent, thirty percent or you know even higher. Right,

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<v Speaker 2>thirty percent is our industry standard, So it's what's usually recommended,

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<v Speaker 2>is what's usually taught, and that's because it's like that

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<v Speaker 2>safe number.

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<v Speaker 3>It's essentially like getting a C in school. So a

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<v Speaker 3>C is not going to fail.

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<v Speaker 2>A C is not going to cause you to fail

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<v Speaker 2>a class, but it also will not cause you to be,

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<v Speaker 2>you know.

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<v Speaker 3>At the top of the class. Right.

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<v Speaker 2>So if you if we're if we're looking at this

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<v Speaker 2>in the lens of our credit reports, if we are

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<v Speaker 2>trying to increase our credit score, a C or AKAA,

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<v Speaker 2>thirty percent is not going to allow that to happen, right,

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<v Speaker 2>you would absolutely have to report a one to three

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<v Speaker 2>percent utili utilization, which is a sure sure way to

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<v Speaker 2>increase your score, or at the very highest, between one

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<v Speaker 2>and nine percent. Right, So, to to make it super specific,

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<v Speaker 2>the only time that I am concerned about reporting a

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<v Speaker 2>one to three percent utilization is if I'm actively shopping

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<v Speaker 2>for something a car, a home, applying for a credit card,

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<v Speaker 2>or something like that. Right, That's when I'll always lure

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<v Speaker 2>my balances to between one and three the month prior

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<v Speaker 2>to doing an application. That way, I'm able to maximize

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<v Speaker 2>my score, get all of those points that I can

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<v Speaker 2>out of credit utilization, get a small little booster or

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<v Speaker 2>a boost in my credit score before I do my application. Right,

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<v Speaker 2>you should always before you apply for somebod you should

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<v Speaker 2>always know at least the billing cycle before, right, So

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<v Speaker 2>a month in advance, you should be planning for any

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<v Speaker 2>applications that you're going to do next month, simply because

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<v Speaker 2>it takes a full billing cycle for your utilization to update,

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<v Speaker 2>and if you don't wait for them to update, they'll

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<v Speaker 2>just pull your your your old utilization or your old

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<v Speaker 2>credit report.

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