Let's Talk Credit Scores (S3 E4)

Tuesday, June 6th

Sheri and Kris are talking numbers and one of the most important numbers of your adult life is your Credit Score. A credit score can be a determining factor in the job you get, if you get approved for a loan and so much more. Find out what those numbers mean. 


Transcript - Not for consumer use. Robot overlords only. Will not be accurate.

Numbers follow us around all of our lives some of them change and fluctuate wildly but there's one number that's really important I'm Sherry lynch I'm Chris Carroll. And on this episode her money we're talking about credit scores. Her money is sponsored by Carol financial. Hi this is thinly matzo financial advisor with Carol signing into the ring match retirement can be currently confusing and public detours and stops. Whether you're simply getting started pitching retirement for farm somewhere in the middle joining us very new series of workshops this spring we college retirement simple. For more information visit our website at Carol financials dot com. Some people are scared of snakes some people are scared us fighters some people are scared of clowns holding the men almost back I'm scared of numbers numbers on scales numbers on bank balances. And numbers on credit scores. Is it something you should be afraid of amiss episode of her money the podcast it's all about the anatomy of the credit score and Sherry lynch and Chris Carroll. And today we're gonna talk about credit scores and I think it's a really important thing to hit on Chris because. Now your credit score isn't just something that you find out a few times in your life when you apply for loans now are credit scores and toppling your phone. And your credit card companies one of my credit card companies I think it's Citibank. And I know when I see 81 of my credit card companies die a little bit inside a little I apologize. A but they they should mean we know recently you said take a look at your news fight goes score so let's start all the way at the bottom and work her way out okay. Credit score first of all what is it and how is it calculate it okay. So I wanna have one thing to what you just said before you started cherry because. One of the things that is certain to happen now is employers are checking your credit score before they offer you a job to. But tell me why that yes well. If my current scores jacked up why needed jobs yet that's probably true but she knew who unfortunately what. Fortunately or unfortunately what they have found is that people with higher credit scores. Tend to be more reliable. Just in general. Which day kinda makes sense to try assets and so over time what companies have found is if they can't. Do you signed something allows them to check your credit score. They can eliminate some people that maybe they should they wouldn't wouldn't last and a job anyway. Rice people people who don't pay their bills on time now we're giving in to what actually makes a good group score. Just that tends to believe ever and the rest of their lives it's not true in every case is people hit hard times and he's you know it's. But. It's out. There might imagine that in certain industries Akira certified financial planner if you want people you wanna hire principal financial financial institution. Might want to check credits which are not and cannot understand I'm guessing your fiery interview for a job with which you and said now come I try never to look at my bank account. Because that's it it's setting up not gonna get that second are you. Yeah Ed in oh by the way I've follow through bankruptcy three. Yes I don't want to your clients and other finances so I can understand why certain jobs that would check your credit score. I'm so another checking your credit score your FaceBook we're all gonna end up on him. Fully defined as a criticism. I'm so glad the social media did not exist when I was teenager in college can you imagine that I would not want that out there I can't imagine what would happen when I went and from my first he he'd never escaped it and it's OK so let's back all the way so what is occur what is your credit score so so what a credit score is is it's it's a single number. That is basically their trying to encapsulate. What are you a good credit risk argue someone that they should. Loan money to were not. They're made up both they're made up of five numbers basically reversed five things that go into affecting your credit score. The number one I think number one thing which is like 35%. Of your credit score everyone already knows. We think it is here Ing com note now about how much money you oh no no no how old you are no future history. It's I have you been making your payments on time but this kind of challenging for people that are just starting out and don't have. A credit history if you don't have well it you'll have a payment history okay. That does you're going to have a very low score you know when you start when you never had credit your life. Your score basically in day it's okay right below you have no credit okay. Who but as soon as you have a bill in your name your credit start. OK so you have a power bill in your name your phone bill and your name and credit history has started and if you make those payments on time every time. That's how you start building credit or peso 35% your credit score it's all about your payment history. And major good payments on time if you haven't how late they've been if they were way if they were over delinquent how was it resolved. It is it's the biggest number okay. But I think most people know that I think most people know I better pay my bills on time or hurt my credit or hurt our current OK I think most people know that. I think what what a lot of people don't knows and the second biggest. Factor in your credit score. Is basically how much of your credit for you currently using. It's called utilization. Is what we sow meaning if you could Barros say 101000 dollars at. Have you borrowed the whole you know thousand dollars that's exactly right so if I have a credit card. That would allow me to get 101000 dollars and my balance is 9987. Dollars right. You know I I've used all my god what if it's it. What if the Mercer immersed 101000 and it's that 101200. Because I didn't make last month's payment got text too bad yet that's actual bad right. Which you really want is you just what what makes your credit score good and hide our numbers that are 30% or below. Very high 10% are born so. If five occurred Herbert could take out 101000 dollar storm and I only you know 2500. That's that's actually pretty good you know saw them making the payments and everything that's pretty good. Because what is basically saying is. This guy could go hog wild crazy yet. But he's not because he's sensible human being exactly cannot know you have to here's one of the things about utilization that a lot of people don't know. So if I take out a home equity line which is perfectly reasonable we've talked about home equity warrants before yet you're safety net that it can be your saying that you can use it to finance all sorts of things well think about this if I need 20000 dollars. To pay off with champagne off. Other debts that are OK and I go or fill out the paperwork a regular 20000 dollar home equity line and take 220000 dollars and you're used to pay off other stuff. What we're utilization. All all of yeah I thought the paperwork for 20000 dollars in the 20000 dollars right. So that's gonna make my that second score that utilization score look really bad right. So we in Europe applying for credit and I know people are eager to do off about this election for the evening good credit like a home equity line. If I needed 20000 dollars I should be applying for 50000 dollars you know taking the Tony. That was my first side. I've when you said that's not only Venetian is far more than you need and then the other voice in my had said stopping you have no one cents. But you shouldn't you should ask for more than you married and so I sustainment. It exactly you it's a way to game the change staircase so. If you're if you're going to a bank and you're going to thought or home equity line you generally should just say OK what's a large reasonable number that's more than I need and and then you can you can actually take out last summer. And then that helps you. Pol Pot Q school are you publishing now of course for that to work you have to be a person he's very disciplined and has seen it yet or can't you yet if you only need money you borrow fifty and then you end up who's borrowing fifty Loring the whole fifty then yeah. How cute yeah okay. Okay assumed its of those moves to number so you may want history utilization there's one into. And and utilization is 30% your credit score so one and two you've already got 65%. While of your credit scores those two things right that's before you get to the other three things are okay. Number three is linked sort of credit. Credit history right it's it's it's usually calculated by the average length of time that your credit accounts have been opened. Okay announce hey that's 15% of your score OK so so think about this. If I have a credit card that I've had since I was eighteen years old and it's the same credit card you know forever. The net credit accounts and open Tony some odd years we don't have to go into details are okay Brett can play good. OK if he thumb is five got. Sam got if you look to all my accounts are got six different credit accounts you know home equity you are mere dollar car world maybe you know each of these has a length of time and what they measures we measure average length of time. Okay that you've had these credit accounts opened the longer the better. OK with the same card consistently exactly so. There's people who jump heard first from going to another to another to another are not helping you know of is they're actually in a lot of cases they're hurting their credit score now. If it helps you not make delinquent payments. Well then that's how we win because that because there's that payment history is a bigger part. And that average length of time so I've had my American Express account my whole group life and move so that's good that's great progress that's exactly right. And and so if you have. Let's say you have five or six open and your average length of of time is six years or seven years sure great shape OK okay I wouldn't worry about it at all during a perfect world you'd have flight. Three year for creditor accounts. And they were all gonna open twenty years but that doesn't really happen you. And you gotta start somewhere break absent lecture so this idea of jumping credit cards for my hills in new low interest and all of that that that's a little bit event. It's a little bit of the sketchy game Jeff to be careful to play. That's correct OK okay it suit so that leaves those first three the Big Three okay the last two were each 10% range. The first one is recent activity so in the last six months how many times have you applied for credit. Now that I'm glad you brought that up because I wanted to ask you about that so my husband and I found just recently moved he built he built me my forever house. And we had a small construction loan cap and during the period of the construction loan financing. Our personal bankers said now whatever you do know in crew during this process no inquiries on your credit card and I said. I I ask questions all the time but you know as you said don't apply for any credit don't know unlike a Pier 1 Imports card don't go get a card do not think. Tell me why a credit inquiries. Can lower your credit score please. Well yes so we usually this. Boy you were you just described absolutely have to its people and it always happens when I'm move. It's far happened every time I reaganism that it's a big part of the movie floating whenever you're when your when your relocating. You might have three or four new things that you apply for credit for it in that process. And then he might character Walter Reed don't buy for her for me. Win when you when you apply for credit too many times in a short period of time it lowers your credit score now two. Applications and six months not a big not a big deal you surgeon for five and six months big deal. Because because it's signaling that it's strong can Carney time namely the effect the well you know you're moving him OK let's say you've you've you've you've just had twins. You're moving to a bigger house Bruce to go has a deal or whatever where you know it's three years zero interest if you open their card and you have these needs and you think you're doing Smart financial moves but you're hurting yourself why. Yes so to think about this. From performing credit score perspective. The person who's out there and suddenly needs money really that. I can be a bad signal. Wearing that might not be maybe you're just moving. And just explain that she just had twins. Or maybe I have lost your gambling problem maybe you have from you meeting I've found an undercover state trooper to kill my access because I am cash. Have you do you don't like the you do you were joking about this but could have maybe you've hit 88 timing your life. Where your spending pattern changed or your income pattern changed. And they don't know that. The only thing you know is all of a sudden you're applying for credit from a bunch of different sources. And this might not surprise you when people go bankrupt they tend money to a whole lot of people. Idea that they don't that if you don't Jewish kid you not one is yellow your house right that people usually go bankrupt with one with one dapper. Well when I think about you know getting into financial trouble and I come from a family where financial trouble is on our family shield of arms. You. He start robbing Peter to pay Paul is saying goes straight and that's how you end up owned lots of money to lots of different lenders and. Creditor absolutely yes okay so those are the first for the fifth one is the thing had right from the beginning it's it's basically. How much money do you have how much could you take out if you wanted to do so it's not utilization which is how much credit how much credit do you have and how much of years. It's how much credit could you reasonably get. Based on the income data that they half on you guys have and generally income needed that they have on you. Is based on whenever the last time you applied for credit us. So they're not giving your tax forms every year or anything like that occurred occurred girl is don't get your tax. I would think yet is due reported income and job that you put down the last time you applied for credit. So it's you worst say so and if you haven't let's say you haven't applied for credit in five or six years and things have gone either very well for you were our lives are really poorly. Yeah that can be a guy that number but again and those guys to that I just talked about for 10% each of your credit score. So let's talk about you you shouldn't do this truckers per shouldn't do that her purse were yet but it's just gonna bring it down a little it's this isn't generally make or break. Now Chris were brought to 850. That's sort of the maximum number right. You will not meet a lot of people who were I was going to be motor questioned her up there. I would tell you anything that's above seven and 5760. Is considered excellent. OK so you're you're you're there's a pretty wide range ripe. Wife actually showed off to me the other day that she had like an 80211. Or something like that. We talked about this before or washing their credit score than me. Arraignment but one I'm my husband he was busily going off the grid. He was not gonna have credit cards he was gonna live on a sailboat in the ocean and make his own drinking water. Hey don't injured and twelve critics no more like I called click Xperia whenever delta even believe and you didn't. But it's just the way the system and. It's just the way assistants sit and you memo from using my wife is an example. You know do we she has credit it sure does like to credit cards and her name and one bill in her name. And that's basically that you're the mortgages in my name yeah yeah the more resume mining even though the house is joy yet what a deal. For me subsite we know who's not kitten on the door when the Titanic sinks to rest straight. But I mean but if you look at those things I just outlined. She scores crew are all out she's just great she always makes her payments on time you know she's never been late she doesn't carry a balance on our credit cards you know we have a family credit card which you know preserver balance sheets on the family cars are not on her so and we establish that you're the spender in Athens and eat it right back rewrite but I mean you're gonna write down the list and she just goes through on all home because. She you know that's it's just how that system work. So I have a question for you believe it or not while we've been sitting here talking on on this episode of her money. I got a text message from American Express thanks and I will tell you that American Express has the greatest security I've ever seen of any credit car provider. Did you just try to charge you nineteen dollars act Carroll's corporations if yes press one. On May not call American Express and I did not because I've been sitting here with you and I don't know what Carol score appears and I haven't tried to charge nineteen dollars and ninety cents. So others fraudulent activity on my anorexic count and this is probably defense and timely and went out count carols is not spilled the same way and it's not I know what a coincidence right now we're. His inadequate this is out of key yeah so my question this is the fifth time. That I've had a fraudulent because our shop online a lot relic a lot of people can't. And American Express is fantastic and they're not paying me to say this although Amex if you're listening would it kill yet. If they're fantastic about fried. But this'll be the fifth time now that Miami X account has been hacked and Amex has had to change my number does this hurt my credit now. When these things happen to US consumer not at all. Doesn't doesn't enter into it doesn't affect him at all so it's it's you know it's not like well maybe if you were doing a better job of protecting yourself this wouldn't be happening. Yes and yeah the world where it's really little or no and here's the thing. Even if you go out tomorrow. And applied for new credit card because. You know you just decide that you wanna have a sack on the work that war and credit report. Credit inquiry. So I mean not in church it's not a make a change of. So what can you do right now we know what a credit score is sure how works all of the ingredients that go into giving you an awesome credit score. What if he didn't really understand all best. And he made some mistakes that you regret it you were sloppy year lazy forgot Pulitzer bills however it happened blimp. And now it's time to fix that credit score what are some steps well. More and realize it's going to be a long slow process it's gonna take years to do OK but but here's what you want to first get a bill in your name. The power company or phone company or something worth that would generally. Put a bill in your name with a deposit even if you got you either you may have terrible credit so you go to you have to make your departure Ari. Let's find that you actually some companies needed more more deposit even if you have a good credit score but that's that's all the sting but sweet we get to give the power company a deposit and our credit score comes straight 112 it's exactly just so happens so did a building your name it is his first just because if you have bad credit in your spouse has good credit don't put everything in the good credit spouse's name because you never gonna fix. Raise your guy who never takes itself seeming to have some that you need to have something in your name I think you're better off if you have a couple of things in your neck and then BR plus with those things yet I didn't make the payments every time a cake. One of my good friends did one of those prepaid credit carts like it's a credit harbor should put down a 500 dollar deposit to get a 500 dollar limit our credit card a lot of banks what you do that our current heard sorry. Credit unions what China Italy do that was to and says they get older exactly and that's a good way to start building credit because. You have that deposit richer creating a payment history okay. Here's the next thing leave them open. Right number three thing was length of credit price so yeah so even if you're not using them and if you're not using them leave them open. That is not a huge deal for somebody who already has good credit. But for somebody you trying to build pork either build up from a poor credit score it's actually very helpful. So let's say you're singing you're gone our graphics my credit card Chris is saying he if you don't have a balance on the old navy card that you opened to get a deal don't close it. Right it did well here's here's the thing about if you opened old navy card eighteen months ago and you're not gonna use it anymore I'd probably cut and get rid OK you know if you know. Those kinds of loans are different so no it's not all credit is the same brain we talked a little bit about that before partly for car's different to borrow money for house is different than. Borrowing money from our credit card. And the credit. The credit agencies actually do differentiate between what your visa Amex and then restore the source or a store cards are lower quality credit. But if you have morning you're paying an on time then no harm no shout out and I've had a one store card forever. What is it. What does it mean nom look at these these things you see advertised on late 1980s credit repair service insists that is that I am. Sometimes a good strategy sometimes good sometimes and how do you know the difference between a legit credit repair service and the sketchy. It's really hard to let me let me tell you this. I have this rule film that I use whenever you and tries to do financial. Transactions with me. And those people who are charmer her prayer that's a financial transactions OK so here's our what you think when you hear one of those commercials where the U hero Maria receiver and TV tower receive it. How does it make you feel. Thank. If you feel. Scared. Pay attention to that. Do not do business with our company. If you feel greed. Do not do business with that company. Now if you feel interest it can like he might actually be able to help or teach you something that. It's okay to pursue. I doesn't mean that doesn't mean necessarily normal level you need to listen you need to think through what they're gonna do but. If you knew some of those commercials very clearly appealed to your fear. Like when arguing this are you in danger of this is this about to happen we can fix all that and. I am totally having an out of body experience because the last thing I would have expected. So morning you were profession to say is how does it make you feel. Because you think about you know when you think about dealing with money and finances he think will I need to leave my feelings in the cardinal achieved. Do you do need to leave your feelings behind them but my heroin like your gut still there today he and and my point is you need to understand anyone who's trying to sell you anything. Ending June deal yet in the agenda. They're they're trying to make you feel something right from there and so. I don't know if anybody other than me watches these filters these commercials on TV that day. Purposely make you try to feel afraid autographed. Campaign. Just to all that out it's garbage if they're trying to sell you based on fears that's garbage okay so he comes out soon and I Ali. And pulls a gun on you. The financial transaction that happens after that is not going to be good for you. I can't catch a traditional the point yeah. It's okay. So and been sued because you've started out afraid you know the the theater through the action for about what rob is unlikely to be excuse me mr. followed this is a toxic financial transaction. I'm not having it yeah you're right you're right so trust bring your gut to it yeah. Do your homework and do your claim he would review you've got to trust both in and realize when there's an emotion involved. The point is you there shouldn't be a strong emotion involved OK there are companies that can help you organize your credit but throughout. They're not doing magic OK there's no magic here. That you have no short cuts I don't know there really aren't you know can can someone help you picture credit by giving you if you have. Equity in your house you take home equity line. Pay off your credit cards and impair your home equity line. That's why your credit repair takes years and that is but that is a legitimate what method of of credit repair. Some companies will go and negotiate you paying less than you owed to a credit card companies so you owe 101000 dollars. They don't think that hurt her coming Ari extinction are gonna pay as you later on your payments right in the coming together hurt her tummy in six. Look and they are you 101000 off a lot of that's interest and fees and stuff like that what if we get them to pay you back. 8500 dollars over this period of time and here's the set payment schedule. How does not hurt your credit it does it does send C doesn't carry paired it up hurting you yeah and so that's credit repair. It wolf it it may help reduce sure monthly payments. But it's absolutely gonna go down on your credit history as a delinquencies. And a negotiated settlement brain. And how long does that stay on your Craig is you know that you make. You may just feel like your credit report is like your permanent Breck school how long do these singles Sunday. On most things stay three years some things stay separate so bankruptcy stay seven moost payment histories I think if you're less than ninety days delinquent it's three years a few more than wow ninety days delinquent so your less than ninety days delinquent one slip off and you carry that burden for. Three years easy but again it's not it's not terrible it's not community you know this is not having that happen once is not the end of the world twice not the end of the world that you're not going to have a good credit history for a few years you know yeah you can just have to accept that. And again it comes down to a from understanding you is that they it's a pattern of behavior exactly and I think you know and all they're doing. You gotta realize and there is this is just data. Right if someone who doesn't know you trying to decide if they should learn your money. All they have is the data. Right she can't blame them that's not the guy at the bank's fault that you can't get them the loans are so prepared grooming business you know I mean there's just looking at the other just loosened the number. And unfortunately Chris with credit scores you can't hold the number up to go out and under don't. You know been on S open number it is that's exactly right. So we'll visit I mean I've learned so much this has been really fascinating and now that I realize the way the numbers calculated. And you know you concede that there are some strategies in some tricks seemed in some ways that you can get yourself but not healthier and not really sure but not sure cuts and that it takes time and and it and it takes making the decision that you're going to do it. And being a sensible human being which I think in certainly my case is often the hardest circle bar the heat of the bigger. Well that's this episode of her money the podcast and on the next time we're gonna talk about. How you might meet some extra money to get those bills paid down doing a little something that Americans love called aside hustle. That's next time on her mind you the podcast. Hey if you want more information about what we talked on today's show weren't you just have other questions about money. Is our website it's www. Carol financial dot com. Or you can only should mean email whether it's through the podcast or through my website I'd be happy to help if I can't. Her money is sponsored by Carol financial practices in doing that's so financial advisor with Jerrold I need some. The red not to retirement can be currently confusing info they detours and stops with your simply getting started approaching retirement for Fossum when the metal joining us very new series of workshops this spring we college. Retirement simple. For more information visit our website it's Carol financial dot com Charlie my guess is hosted by me Sherry lynch and Chris Carol our executive producers are. New Treo pro Jonathan moving and Carol compete our producer is Heather affirmed our technical directors TJ Barnes and our editors Billy why special thanks to Emily Nestle and Mary Ann Edwards for information from this episode or Duluth and other episodes and subscribe to this podcast. Visit her money podcast dot com Herman podcast is now once Twitter follow us tweet us at her money podcasts. Email us your questions are questions asked her money podcast dot com. You can even use your phone's voice memo out to record your question and email it to us. Questions at her money podcast dot com we might even played on the show they're rebroadcast is a production of Entercom Charlotte and Carol financial. Securities offered through such tearing advisor networks LOC never finreg SIPC advisory services offered through kill financial associates feature registered investment advisor Carol financial entity your advisor networks are not affiliated.