Budget Game - Credit Score

This tutorial will go over how your credit score is built and how to use your credit card wisely in the budget game. As you progress through the budget game, you will find yourself using your credit card quite often for many of your purchases. One of your main objectives should be to build up your credit score and this can be increased in one of two ways. The first method is by making sure you actually use your credit card. If you never use your credit card and only use your debit card, your credit score will never improve. The second method is by paying your credit card Bill on time and never carrying a past due balance month over month. So in this example, I have a prompt that says, how unlucky are you, unfortunately, you have driven over a nail, you take it in and get it repaired. $46, how would you like to pay for this? You have the option of using your debit card or your credit card to make this payment. So in this case, I'm going to be using my credit card so I can help improve my credit score. You'll receive 20 points the first time you make a payment on your credit card in a given month and an extra 20 points if you fully pay off your credit card by the time your credit card Bill is due. Your credit card statement will be issued each month on the 19th and it will become due each month on the 26th. Now that you're aware of these key dates, you should aim to pay off your credit card Bill in full honor before the 26th of each month. If I click over to credit card, I'll be led over to my credit card statement. And if I look over to my right, I see my APR percentage, APR stands for annual percentage rate and I currently have an APR of 20% on my credit card. This means that if I don't pay my credit card on time by February 26th, on my outstanding balance, I'll be charged a 20% interest. So for instance, on February 27th, I still have made no payment towards my outstanding balance, what happens is I'm charged a daily interest rate based on my APR. So the calculation goes 20%, divided by 365 days in a year, it gives me my daily interest rate of 0.000547 9, I have to multiply that with my outstanding balance of $331 and 50 cents. I don't get the daily interest of 18 cents. Let's add it to my balance on February 27th. So while you may be charged very little each day, don't be fooled as these costs can add up very quickly, especially if you have a high credit card balance outstanding. You should always aim to maintain a low credit card balance by making frequent payments to your credit card even before the due date. So for instance, I'll make a payment of $25 and that should decrease my credit use by $25. If you use your credit card too often, you can also negatively affect your credit score. As a rule of thumb, you should keep your spending to at most 50% of your available credit card limit. For instance, if you have a $500 limit on your credit card, into only spend up to two 50. If you spend more than this amount or consistently spend near the maximum limit, your credit score may actually decrease and the reason for this is because the credit agencies view people who do this as having a higher risk of defaulting on their payments. While it is okay to go over this 50% threshold, keep in mind that you should always try to pay it back as soon as you can. Maintaining a healthy credit score and building your credit wisely should be one of your primary objectives throughout the game. That's it for this video and thanks for watching.