Unlock the secrets to a stronger financial future. We navigate the critical importance of credit scores in our lives as we answer Chris’ question. Chris, an attendee at a conference, Dr. Angela spoke to this past January, asked how we can improve our credit.
Our credit history can improve job prospects and secure more favorable insurance premiums. This episode goes beyond numbers; it’s about understanding that you and your spouse’s credit histories are intertwined.
Join us as we discuss the intricacies of credit management and the FICO score. We will arm you with strategies to improve your credit. Learn why keeping your credit card balances well under their limits can be crucial to your FICO score. We share how diverse credit types fortify your financial profile.
Also discussed is how frequent requests for credit can lead to a potential dip in your FICO score. As we swap stories, you’ll gain insights into the tactical moves you can make today for a better FICO score.
Don’t have a FICO score? Or your FICO score is lower than desired? We discuss how to opt into UltraFICO, an option to help improve your credit.
We also explain how to time credit card payments to keep from a stagnant FICO score. Learn how to establish good credit from scratch by using tools such as secured credit cards. We also share how to get a free copy of your credit report.
Helpful links:
The Fair Credit Reporting Act (summary) states that each of the three credit bureaus must provide you with a credit report once a year, but it doesn’t have to include your FICO score.
Here are the links to the three main credit bureaus: Equifax, Experian, and TransUnion
Unlock the secrets to a stronger financial future. We navigate the critical importance of credit scores in our lives as we answer Chris’ question. Chris, an attendee at a conference, Dr. Angela spoke to this past January, asked how we can improve our credit.
Our credit history can improve job prospects and secure more favorable insurance premiums. This episode goes beyond numbers; it’s about understanding that you and your spouse’s credit histories are intertwined.
Join us as we discuss the intricacies of credit management and the FICO score. We will arm you with strategies to improve your credit. Learn why keeping your credit card balances well under their limits can be crucial to your FICO score. We share how diverse credit types fortify your financial profile.
Also discussed is how frequent requests for credit can lead to a potential dip in your FICO score. As we swap stories, you’ll gain insights into the tactical moves you can make today for a better FICO score.
Don’t have a FICO score? Or your FICO score is lower than desired? We discuss how to opt into UltraFICO, an option to help improve your credit.
We also explain how to time credit card payments to keep from a stagnant FICO score. Learn how to establish good credit from scratch by using tools such as secured credit cards. We also share how to get a free copy of your credit report.
Helpful links:
The Fair Credit Reporting Act (summary) states that each of the three credit bureaus must provide you with a credit report once a year, but it doesn’t have to include your FICO score.
Here are the links to the three main credit bureaus: Equifax, Experian, and TransUnion
Hi, chris, it's great to be with you this evening. What is the one topic or question that you have about finances?
Speaker 2:Well, my topic of question would be what is the fastest way to bill your credit?
Speaker 1:That is a great question and we will answer it on our podcast.
Speaker 3:This is Life, love, money with Dr Angela K Love, the podcast for couples who want to get a handle on their finances and strengthen their marriage at the same time. We take deep dives into the money challenges most married couples face and get real about them, Plus practical tips on how to ensure a rock-solid future for your money and your marriage. Now, dr Angela K, love your marriage.
Speaker 1:Now Dr Angela K Love. Chris has a really great question about how to improve your credit score.
Speaker 2:I think first we should talk about why is having a good credit score important? There is a school of thought that having a credit score is not important at all, so just don't have any credit.
Speaker 1:True, there are some advocates out there that say it doesn't matter, you don't have to worry about your credit score. If you're not going to go into any sort of debt, then you don't have any credit. True, there are some advocates out there that say it doesn't matter, you don't have to worry about your credit score. If you're not going to go into any sort of debt, then you don't need to have one. But it is important because you have employers that run your credit score.
Speaker 2:Insurance companies.
Speaker 1:Insurance companies and you can get sometimes you get a lower rate. The better your credit score, the lower the rate.
Speaker 2:Yeah, landlords.
Speaker 1:Yeah, if you're renting.
Speaker 2:You're either going to have a mortgage on your place or you're going to rent someplace, or you're going to be very independently wealthy and you don't need that. But most people are either going to have a rental or they have a mortgage.
Speaker 1:True, and then there's your companies that give you credit but they're not creditors, such as, like, utility companies. Yeah, who will run your credit report to see if you're credit worthy. Like, if you need water, they have to give you water, but they can also charge you a deposit if you have a bad credit score, or ask for someone to co-sign for your utilities.
Speaker 2:Sure.
Speaker 1:Cell phone bills.
Speaker 2:Yeah.
Speaker 1:Or cell phones.
Speaker 2:Yep, there's a lot of different things. It's very unwise to completely ignore your credit score, because doing that is going to mean you're not going to be able to get the same deals or the same interest rate on a loan as you would if somebody has very good credit score.
Speaker 1:Sure, and we've touched on credit scores in a couple of our podcasts. But we're going to go real deep. We're going to go into a lot of specifics on this podcast and really get into it because of Chris's question.
Speaker 2:Okay, that sounds like a great idea.
Speaker 1:Now another thing about credit scores and just having a credit history is sometimes married couples think well and I'm going to stereotype here that husbands should have the credit score and the credit history and wives don't need that because the husband's working and the wife's staying at home. So the husband goes out and does all of that and wives don't need that because the husband's working and the wife's staying at home. So the husband goes out and does all of that. But I don't think that's healthy for several reasons, and one of them is is if something were to happen to the husband let's say he passes away and now the wife all of a sudden is having to take care of herself, she's having to manage the finances and now everything has to be put into her name.
Speaker 1:Maybe she wants to go out and get a cell phone. Maybe she doesn't have one, or, if she has one, she wants to switch companies and they're going to run her credit report to see if she's credit worthy. Or maybe she's going to move. Maybe she's going to sell the house, or if they're renting, she's going to move and she's going to go rent somewhere else, while the landlord, the new property management company, is going to run her credit history. She's going to have to get insurance auto insurance in her own name, and so they're going to run her credit history. Maybe she's not working and now she has to go get a job. The employer might, or most likely will, run her credit history.
Speaker 2:Sure, yeah, that's extremely important. And even if nothing happened to her husband and they were still together let's say they went into business together or something like that they may be both asked to sign as guarantors on the loan and that could have an impact. If she has absolutely no credit or a very bad credit score, it's very important that both spouses are able to obtain and maintain a very good credit score, because it's going to help them save money in the long run.
Speaker 1:Right, or if they were to get divorced.
Speaker 2:Yeah.
Speaker 1:Now, we're not advocates of divorce, but it does happen. It's a reality when you have statistics that are over. 41%, I think is now the average and that's lower than the 50% that's been in the past. They say the reasons are more people are cohabitating instead of getting married, less people getting married. So when people break up but they're cohabitating they're not legally married and they break up. That doesn't go into the divorce statistics. And then more people are waiting until they get older to get married. So that's lowered the marriage rate. Because of that, that lowers the divorce percentages. But when you look at just divorces as a whole, I think it's still at that 50%.
Speaker 2:With people waiting longer to get married, it's probably going to be a larger probability that they're actually going to have established credit each of them individually.
Speaker 2:It's important not only in establishing that credit individually but maintaining it. Let's say, if you have a really good idea with a business that you want to do, let's say you and somebody else have invented something, you've invented a product or a service and you want to go into business together. Well, if you have your partner who you're going to go into business with, if they have very bad credit, they've shown themselves maybe to be irresponsible, it might make you think twice if you actually wanted to go into business with them. I've actually seen this with companies and partnerships where the partner that had the good credit and really was maintaining that, who goes into the business with the partner with a bad credit, several years down the road finds out that the partner with a bad credit is untrustworthy and creates all sorts of issues and stuff like that. Very serious mistake to ignore your credit score or to ignore the reason of why you should have a good credit score.
Speaker 1:Sure. So now we've established you need to have a credit score and it needs to be a good credit score. It needs to be a healthy credit score and a credit score or credit report. So there's a credit report and on their credit report there's a score. It's called the FICO score.
Speaker 2:How do you establish a credit report or a good credit score to begin with? This would apply to a lot of people. Maybe that are older teenagers that are getting ready to go out on their own, or young twenties or something like that. What are some strategies there? Because I know you gave coaching to all of our kids, and especially with our oldest, who took that advice to heart. It really made a difference.
Speaker 1:Well, before we get into that, let's just talk about what's on a credit report. You have your credit report. It has your name, your address, where you work, how long you've worked there. It has your employment history. It has also the different creditors that are sending in information. If you have a mortgage, any sort of loan, installment loan so mortgage, auto loan, recreation loan, personal loan, signature loan, anything that's installment Then it has the credit cards. If you don't have any sort of credit history at all, it would show up as a 999 at the top. If you do have some credit history below that, then it would show the most recent credit inquiry. That would show how many inquiries have occurred over the past 45 days. Another thing that would be on there, depending on the type of credit report that's pulled, it would have your FICO score. So I thought it might be good if we go over FICO scores and what that is.
Speaker 2:Okay. Another thing shows up on some credits is if you have something bad like a tax lien or a judgment and those things will show up on your credit report too. Right A garnishment or maybe a collection item Right.
Speaker 1:I forgot about that. And that's near the top, so that's under the personal information and then it will also have near the top if you freeze your credit, meaning that you go to the three credit bureau agencies and you say I want to freeze my credit and it'll be on there that you have elected to freeze your credit.
Speaker 2:So what things make up a credit score? What are some factors?
Speaker 1:Some factors that make up the FICO score, which is typically used, is there's five components. The first one is payment history, and that's 35% of the score. So payment history has to do with how well you pay back, your willingness to pay back, do you pay on time, how often you pay that sort of thing. So how good is your payment history? The second category, or component of the FICO score, is amounts owed, and that's 30% of the score, and that has to do with how much is owed, based on how much you have available, as what are your credit limits, and then how much have you, do you have out? How much debt do you have against that?
Speaker 2:Okay, so it really kind of takes a look at how much unused debt do you have available Correct, I guess that's a good way to put it Kind of a commitment. So it's kind of a backwards thing, because if you're somebody and you have $100,000 of unavailable debt or available credit that you could get into, that you haven't tapped debt, or unavailable or available credit that you could get into, that you haven't tapped, but you only owe $50,000, you'd probably have a better credit score than if you had somebody that owed $100,000 but had no available credit that they could get into, if they're totally maxed out.
Speaker 1:Right Totally leveraged.
Speaker 2:So is there a magic percentage that you kind of want to stay under? And this would apply to just revolving credit or lines of credit, because an installment loan you're going to be in a situation that, whatever the outstanding balance is on that loan, that's what you have available at that time. It's not like you're going to take more money out on your car loan. You're going to take it and then you're going to pay down, but in terms of those lines of credit and the revolving stuff, is there kind of a magic percentage you'd like to be under?
Speaker 1:30% or less. Some financial advisors would tell you 25 or 20%.
Speaker 2:So the first keys that we have here is, number one, make sure you pay all your debts on time and, as you agree from the first part on credit history. And the second thing is try to keep the available credit that you have that you've used at 30% or less of whatever your lines of credit or revolving credit is that you have available to you.
Speaker 1:Sure, if you have a credit card that has a $1,000 limit, you wouldn't want to have more than $300 of an outstanding balance on that at any time.
Speaker 2:Okay, well, what's the next factor?
Speaker 1:Length of credit history, and that's 15% of the score.
Speaker 2:So does length of credit history mean years or the number of pages your credit history is If you took page and page and page and you taped them together and then ran a big tape measure across it.
Speaker 1:It's not the number of pages Okay, although that's pretty funny it's how long you've had credit. It's for all the things. If you have a mortgage, how long have you had that mortgage? If you have an auto loan, how long have you had that auto loan? How long have you had your credit cards? So it's the length of credit history. Someone who's brand new maybe they've opened their credit card for the first time. It's their first line of credit that they have and they've only had it for three months. That would be someone who's less experienced with managing their credit versus someone like us who has had a credit history for a few decades I don't want to say my age, but for several decades.
Speaker 2:Well, you might have started your credit history at the age of six.
Speaker 1:No, that's not a thing. You have to be 18 to be able to sign a contract for any sort of credit, but that's funny, all right.
Speaker 2:So what's the next factor?
Speaker 1:The next factor is credit mix, and that's 10%, and credit mix is basically a mix of how much unsecured credit do you have compared to secured credit? For secured that would be student loan is considered a secured credit even though it's not collateralized. Then secured that would be student loan is considered a secured credit even though it's not collateralized. Then mortgage, auto loan, recreation loan, those types of things. And unsecured would be anything that's not collateralized. Credit card signature loan and education loans are just this weird anomaly when it comes to the type of credit. It's not collateralized with anything, however it's considered secured.
Speaker 2:Is there a magic ratio of secured versus unsecured credit?
Speaker 1:I don't know the answer to that, but I do know that if you want to go get a mortgage like your first time home buyers and you do that program, you have to show that you've had two lines of secured credit and two lines of unsecured credit. So I know that's the threshold for that to qualify.
Speaker 2:We really don't know the magic secret sauce on what makes that score tick.
Speaker 1:No, but I think that if all you've had is unsecured credit and you haven't had any secured credit, you need to see if you can get a secured credit Right, and I think secured credit is viewed better than unsecured credit. I don't know that there's any sort of justification for unsecured credit being better than secured credit.
Speaker 2:Okay, so what's the next factor?
Speaker 1:The last one is new credit and that's 10% of the credit score. So, new credit is when's the last time you got a new type of credit, whether it's unsecured or secured? Did you recently get a credit card, a new credit card? Did you recently get an auto loan? Did you recently get a mortgage, that sort of thing, and how much? They're looking for new credit and part of that is how much new credit.
Speaker 2:If I go out and get new credit today, does that improve my credit score?
Speaker 1:If you went out and got new credit today, that would actually probably ding you some point point and it can have a significant ding. For example, roughly three or four months ago I decided I wanted to get an American Express card because I wanted to get the airline miles, because I knew I was going to start flying more, I was going to start going to conferences and that sort of thing, and there's a lot of benefits to having an American Express card, a lot of perks. I thought I'll get one of those and my credit score was like 826 at the time and I went and got the American Express and we pay off our credit cards every month. I was just switching from the one type of credit card that we use we have one and then I decided I want to get the second one, using also the American Express. I wanted to divide out.
Speaker 1:American Express is for the business. The other card that we have is for personal. We also wanted to do that because the tax man, the IRS, likes to see that you're keeping those two things separate. My business is getting more active and so I wanted to really show that difference between the two. Right before I got it, I was an 826 on my FICO score and then it dropped down to like 770. So it really dinged my credit score but it's starting to come back up a little bit faster. To get back to that 826, it's going to take a good like nine months to get it all the way back up there.
Speaker 2:So the more new credit you apply for, the more that that's going to lower your score.
Speaker 1:Yep and American Express. They don't really put a credit limit. You have a card and if you want to buy something that's a really large purchase, then you know, put it in here and we'll tell you if you qualify. They don't have the set amount and other credit cards they'll do a set amount. So maybe if you went and opened up a new credit card and they were like, okay, we're giving you a $2,000 credit limit on there, Maybe it wouldn't ding your credit quite so badly, Maybe the score wouldn't drop so severely because it's like, okay, this is how much it is, but because American Express does this sort of open limit type thing, then I think that's why it brought it down so far.
Speaker 2:Okay, so we went over the factors that you have there in terms of your credit score. I guess the first thing I would suggest is that people pull their credit report because you're able to pull a free one every year. There are three credit repositories, I believe is Equifax, TransUnion and Experian. So you have the three credit repositories, but pull those, and I think the first thing is to take a look at that and to see if there's errors on the report.
Speaker 1:Sure, and before we get into that, I wanted to go through the FICO scoring system because a lot of people say what's a good credit score Like?
Speaker 1:is it 800? Is it 700? What's the range? And all of this information is on the myficoscore or myficocom is the link. It'll be in the show notes.
Speaker 1:The way that they grade it is anything less than 580. 580 or less is poor. Now, when I went and worked for the Small Business Administration and I applied for that during COVID, they had a threshold of 560. So you had to have a credit score of 560 or higher to be eligible, among other things like experience and that sort of thing. But if you had a credit score below 560, you weren't eligible to get a job with the Small Business Administration, and I don't know if they've changed that or if that's the same, but that's what it was back in 2020, early 2020. And then the next level is 580 to 669. And that's considered fair. Then the next level above that is 670 to 739. And that's considered good. The next level which is very good is 740 to 799 and 800 and above, which would be 800 to 850. So the highest you can go on a FICO score is 850. And that would be exceptional.
Speaker 2:Yeah, I know there used to be a threshold of 680, 640 or 680 to do a mortgage.
Speaker 1:Right.
Speaker 2:You had to have a score of that at least if you're going to be able to qualify for a mortgage.
Speaker 1:Now what's interesting is for those that have a low credit score or a lower not super low, but a lower credit score, or they don't have a credit score at all. The one thing that FICO has is this thing called Ultra FICO score, and it can benefit those with a lower FICO score or no FICO score. What it does is it incorporates a wider variety of data and it can benefit those with a lower FICO score or no FICO score. What it does is it incorporates a wider variety of data, so it does your credit report plus your bank accounts, checking and savings. So if you're like I have a checking account and I've been doing amazing at it and I haven't had any overdrafts and I don't have a lot of withdrawals and I don't have a lot of transactions and I think that that should count. It can count and what you do is you have to opt in.
Speaker 1:What that ultra FICO score does is it looks at how long your bank accounts have been open, the frequency of your bank account transactions, how much cash you have in there. If you have a checking account, you also want to have a savings account so that it would show that you have some cash in your savings as well. It looks at the history of overdrafts and so if your bank accounts look really, really good and you don't have any credit and you want to try to get some sort of score in there, you can go and sign up and opt in for the Ultra FICO score. Now, the credit bureaus don't do that on your behalf, financial institutions don't do that on your behalf. You have to go and opt in for that and I don't know if there's a cost or not, but it is available and it might be something worth looking into if you're wanting to have that go into helping your credit score is looking at that Altra FICO score.
Speaker 2:I think in the credit score or credit reports, one of the first things that people should do is pull a copy of your credit report every year. I mean, you're able to get a free one and there are three credit repositories that you have Experian, equifax and TransUnion. So you pull those and the first thing you do, I think, is to see if you have any errors on the report. Because if you got an error on there, then you have a right under the Fair Credit Reporting Act to challenge that, and you have a right under the Fair Credit Reporting Act to challenge that, and then it becomes kind of the burden of the proof for the credit bureau to see if that information is correct that's being reported, whoever's reporting it, and then to make corrections. That's one of the first things I think I would suggest in order to improve your credit score is to take a look at that, if there's errors on it and fix that.
Speaker 1:True what the credit bureau does. They contact the company and the company has 30 days to respond and if they don't respond within 30 days, that's pulled off your credit report. The links for each of those credit bureaus will be in the show notes. One thing to realize is that if you go in there, it does not ask for your credit card information. They are truly free. You just go in, create an account and they'll email it to you. So if you click on something where it's asking for money, then you're accidentally clicking on something to sign up for a service with one of the credit bureaus. You want to make sure you're clicking in the area where it's free credit report and it'll say no credit card required. Every single credit bureau says that in that section. You just want to make sure that you're not clicking on a link where it's a service that they offer, because all three credit bureaus offer different levels of services and that sort of thing.
Speaker 1:The other place you can get a copy of your free credit report is Credit Karma. Their credit reports that they give you is from Equifax and TransUnion and it includes the FICO score. If you go to MyFICO, you can get a free credit report on there and you don't have to enter in a credit card. It's just the basic version, or they have a basic version. They have other ones that you can pay for. It's like $29.95 a month and I think you get some credit monitoring and that sort of thing. But the basic version is Equifax report and it's free and you don't have to enter a credit card, but you don't get your FICO score with that one.
Speaker 2:Okay, what are some other ideas to improve your credit score other than I mean? Some of the things we've talked about is pulling your report and making sure all the errors are fixed and making sure that you pay on time, and then also making sure that you keep your used balances of your available credit and revolving credit down to 30% or less of what the limit is.
Speaker 1:One of the things that I get asked. Often someone will come up to me at a conference or a class I'm teaching and that sort of thing, and they're like okay, I have a credit card, I've been trying to build my credit, I charge on it and then I pay the whole thing off every single month. Why is my credit score not going up? It's either staying the same or it's going down. One of the things that people don't realize is that often the date that you pay your minimum balance due that date a lot of times is after that institution or that creditor sends their report to the credit bureau. For example, let's say you have a credit card and it has a thousand dollar limit on it and you're like okay, I'm going to go out and I'm going to charge $500, but I'm going to pay it off. So I'm going to charge this $500 for whatever item. Maybe you need a new dishwasher, so I'm going to go and buy a $500 dishwasher. I'm going to charge it because I want to show that I can handle my credit. You charge the $500, you wait till it's due and you pay it on the 20th. You paid off your credit card for that month.
Speaker 1:Well, the credit card company reported to the credit bureau on the 15th of the month that it shows that you have 50% of your credit limit has been charged. You've used 50% of your available credit limit and now it's looking like you're overusing. Your credit goes above that 30%, or some people say 25 or 20%. If you want to use your credit card and show, hey, I'm using it and you want to get loyalty points or airline points or whatever, and you also want to show I can handle using my credit card, you want to pay that full balance within a week.
Speaker 1:This is what we told our oldest son. We tell all of our kids, but our oldest son really took this to heart. We had him get a secured card and I'll explain what that is in a minute. We had him get one of those and we said, okay, charge your gas. Then, when you get home, wait a couple days and then go online and get the balance. That way it shows that you're using it, but you paid it, but it's not showing up to the credit bureau that you have a balance on it because you're paying it before it's reported to the credit bureau and that's just one of those insider secrets that people don't know about, they just don't think about it.
Speaker 2:Okay.
Speaker 1:And the other thing is to make sure that you're not going into overdraft. When you go to a bank or a financial institution, sometimes they'll offer you overdraft protection at $30 a month. And you're thinking that'll be great, because I'm not good about tracking my expenses all the time and keeping up on that and life gets busy and it's that way for everyone, and you might be living closer to paycheck to paycheck than you're comfortable and so you're like I just like having that added protection. Well, $30 a month is a lot and some of those overdraft protections have some fine print that it's $30 a month but then they're going to charge you $30 for every time you overdraft they're going to pay it so you don't get dinged the 30 by the other company and that sort of thing. And that actually happened to us this month. We don't have overdraft protection and we have it coming from our savings. I wasn't paying attention, I was getting ready for a conference, I've moved too much money to the savings and we ended up overdrawing and it pulled out of our savings that we have a lower amount in. I ended up overdrafting both accounts on accident and we got dinged $30. And that happens. We haven't had something like that happen for 20 years.
Speaker 1:Life gets caught up. Even if you're really good and you're diligent and you're high on conscientiousness and you're this organizer, planner and all these things, sometimes life gets caught up and you're not paying attention and you're moving money. You know everything's moving over to your savings and stuff's pulling and you go oh no, that happened. But what you can do to keep that from happening and to not have to pay for an overdraft protection program is just link your checking account to your savings account. Make sure you have plenty of money in your savings account so that you don't do what I did this month. That way, if you do overdraft your checking, it'll just pull right from your savings. Typically, financial institutions do not charge you to pull from your savings if you overdraft on your checking.
Speaker 2:Okay, so you talked about. One of the keys for somebody that doesn't have credit or has very little is to get a secured card. You said you're going to go back and mention that. What exactly is a secured credit card and how do you get one?
Speaker 1:Secured credit card. So this is for people who have no credit history at all and they're wanting to establish credit. It's really hard to get a credit card. You're going to have a really hard time getting an installment loan, those sorts of things. You can go into your finance institution and say I want to open up a secured credit card, Basically a credit card that's collateralized with money. I recommend $500, especially for individuals that have just turned 18.
Speaker 1:If you have a son or daughter and you're wanting to help them establish credit, you can have them open up a credit card, have them save up $500 from their job and they put that into their savings account and then they get a credit card that's tied to that $500. That in the savings will be frozen by the institution. Then they'll get a credit card that has a credit limit of 500. What they do with that? Because it takes six months to start building your credit. They can use that for gas. They go and charge gas when they get home because everything's online. Now they can pay off that balance right away. That's how I would have them start doing, or at least within two weeks, to show okay, it's there way. That's how I would have them start doing, or at least within two weeks, to show okay, it's there, Now I paid it off and that can start building their credit history.
Speaker 1:Our oldest did this and he ended up doing it for like a year just because he was busy and he was working and all these things. After six months go into the financial institution and say, okay, I would like to open up a unsecured credit card, because now I have this secured line and I've managed it really well and I've been managing my checking and savings account really well, and now I want to open up an unsecured credit card and the financial institution will most likely open up one. And you can say I just want it for 500 or I want it for a thousand, something low. Then open up that and then start managing that unsecured credit card the same way you did with the secured credit card, If you want that $500,. So our son wanted the $500, he didn't want that frozen anymore, so he actually closed that secured credit card so that that $500 wasn't frozen in his savings account anymore and because of that, when he did go to get an apartment, he was moving from South Dakota to Florida and I think was he like 20 years old by this point.
Speaker 1:How old was he? Like 20, 21?.
Speaker 2:Yeah.
Speaker 1:Very early 20s he moved to Florida and got an apartment because he got a job in Florida and so he moved down there and when he called up the apartment complex that he wanted to live at, they waived one of the like the. They normally had a security deposit and first month's rent. They waived one of the deposits. They loved him because his credit score was in the high 700s.
Speaker 2:Yeah, it saved them money. And the other thing that saved us is we didn't we weren't asked to co-sign the lease.
Speaker 1:Right, he only had to pay one deposit.
Speaker 2:So you know that's a huge reason for parents out there that have kids that are getting older is to if you get them established with credit, then they're not going to be coming back and bugging you and saying, mom, I need to get this apartment and I'm going to need you to co-sign the lease to get out of, you know, to get the apartment. And if you don't co-sign the lease then they may end up becoming a hermit in your basement, which you may not want. You may want them out to be a productive member of society there, but I think that's very important.
Speaker 1:That's a really great point. I've had some parents say well, I put my kid on as an authorized user. Well, that shows up on the credit report that your son or daughter was an authorized user on their credit report. And so a lot of creditors go ah, that doesn't count because mom and dad was paying the credit card, so it doesn't really show me as a creditor. If your willingness to pay back it doesn't show me.
Speaker 2:Authorized user is not a good thing in terms of building credit.
Speaker 1:No, I mean, it does establish credit, it'll give some sort of credit. But the downfall to that is creditors look at that and go yeah, but you weren't the primary sole person responsible. The other downfall that could have is if you go okay, mom and dad put me on your credit card as an authorized user. If their credit's poor, if they're maxing out that credit card or if they're not paying it on time, that'll also look bad.
Speaker 2:Well, and they could also go out and charge a whole bunch of stuff.
Speaker 1:Right and you're not responsible as an authorized user, but it impacts your credit report. So either way, it doesn't really help you.
Speaker 2:Best to figure a way to help to get them their own credit.
Speaker 1:Right.
Speaker 2:Establish it on their own.
Speaker 1:Right.
Speaker 2:You're not going to want your kids to be dependent on you forever.
Speaker 1:And it's better if you're not co-signing.
Speaker 2:Yeah.
Speaker 1:Scripture has some stuff to say about that. Another thing that can damage your credit history or your credit report, rather, is if you're moving credit balances from one card to the other. I know some people do this. They have one credit card and they're like, okay, you get these things in the mail. They have one credit card and they're like, okay, you get these things in the mail. It says, oh, you can move your credit balance over to this one. It'll be 0% for three months or six months or 12 months. If you're like, okay, I'm going to take advantage of that and you move it over, that impacts your credit score.
Speaker 2:Sometimes you may want to do that. If you get a deal that's going to be a whole lot lower on your interest rate, it might be able to save a lot of money that way if you take advantage of something like that.
Speaker 1:Well, now, this isn't like you're doing a one-time deal and you're like okay, we have a plan and we're going to move this balance from this credit card over to this other one that's got this 0%.
Speaker 2:This is the habitual every few months you're moving credit card balances from one to another, because then you're opening up new accounts, so that's dinging your account, and so on and so forth.
Speaker 1:Right, MyFICO talks about this on their website. You don't want to do this sort of thing. And the other one is a lot of people think, okay, I'm going to pay off my credit card and then I'm just going to close it. Or I'm going to close it but I'm going to pay it off. That can also ding your credit score pretty hard. Don't close your credit card at all. If it's too tempting, put it in a safe deposit box. We talked about this on another episode. Put it in a safe deposit box, cut it up, shred it, get rid of it that way, but keep the account open so that it doesn't negatively impact your credit score. And get that card paid off. Then you don't have to worry about it anymore. Just don't use it.
Speaker 1:Another thing is some people will apply for a credit, get denied. Go apply for a credit from someone else, get denied. Go apply for a credit, get denied, go somewhere else, and that can have a super negative impact. Or they may open up a credit card and then open up another credit card, so they might do several in a row. One of the biggest things for those that are doing mortgages is still and it's really frustrating for loan originators that are doing mortgages is that they'll apply for a mortgage, they get approved, but the closing date is 30 days away. They think, oh great, we got approved for our mortgage, we're going to close on that in 30 days. And then they go out and they buy a car loan or they open up a big credit card. And then it comes time to close and the mortgage originator runs that last credit report and sees that all of a sudden you've added a $30,000 car or you added a $5,000 credit card that goes into your debt to income ratio and now you no longer qualify for the mortgage. Sure, you're having to scramble to figure out. What are we going to do so that we can still close on this deal? So if you're going to get a mortgage for a house and you're doing a loan, don't go getting any other credit. Just keep everything the same and let the dust settle and then decide can we handle after your loan closes and that sort of thing? Can we handle more debt? You don't want to just be getting into debt just because it's there, just because it's available. It's kind of like if you're, you know if you're in a room and there's a ton of desserts and you know if I eat too much sugar it's going to make me feel bad. Just, you don't need to go eat all the sugar just because it's sitting there. Try to do some of that self-control and keep yourself from going out and getting more credit. Just because you're qualified doesn't mean you need to go get it.
Speaker 1:So a lot of people what they'll do is they're like they might be in the market for getting a mortgage and they'll go to financial institution A, fill out an application and then their credit's run. Then they go to financial institution B, apply. They might not got turned down, they may just decided okay, well, I don't really like what they're offering me as far as the product. Maybe the interest rate's too high, the term's too low, whatever, it is right. They just don't like what's being offered. So they go to financial institution number two. They do the same thing. Well, I don't really like what's being offered there. So they go to institution number three. And by the time they get to institution number three, like, oh, I really like this product, I like the rate that they're offering and everything.
Speaker 1:But the institution now says well, you know, you've had your credit run two times at this other institution and we don't think you're a good credit risk because it looks like you're shopping for a lot of credit and you may be getting a lot of credit.
Speaker 1:The thing on a credit report it shows where your credit was run. It doesn't show what credit you received until a few months later. If you got the credit and now your credit is being reported, a creditor doesn't know. And so if you go out and you apply for five loans in a matter of two weeks, all the creditor sees when you come to them and you're the sixth person or the fifth person, all they see you've had your credit run all these times and now you potentially have all these lines of credits that haven't shown up on your credit report yet. You don't want to go shopping for credit. You can go to a financial institution and you can say tell me about your product, what's the interest rate? You don't have to fill an application. You're not obligated to do that until you're ready to take the step to do a loan like, say, a mortgage or something like that.
Speaker 2:Okay, any other thoughts that you have on how to improve your credit score?
Speaker 1:Another thing that can help you build a credit history is a lot of times property management companies or landlords. They don't report your rental history to the credit bureau. But if you go and talk to them and you say you know I've been paying on time for a year, two years, whatever it is, would you report my rental history to the credit bureau. A lot of times they'll do that for you because that can now help you with your credit score or help you start building or improving your credit score. A lot of people don't know that they can go to their landlord or their property management company and ask them, and a lot of them will. If you ask them, they'll do it for you. They'll report to the credit bureau because I don't think it costs them anything to do so.
Speaker 2:If you get these companies that say, hey, we can improve your credit score by 40 points in a month or whatever like that, is there any validity to any of those, or are they good or bad or what?
Speaker 1:Well, I don't know it's hard to comment on any specific company, but I'm sure that they're doing these kinds of techniques that I'm talking about. I'm sure there is validity to it that they can get your credit score increased pretty rapidly by these techniques. They're telling you pay down as much debt as possible, as quickly as possible. Go to your landlord and have them report your rental history. If it's really good, do this ultra FICO and go opt into that so that that'll be included. If you've taken really good care of your checking your bank accounts, so all these things factor in. Also, spend way below your credit limit.
Speaker 1:If you're using your credit card as a source of cash, stop doing that. Don't use it as cash coming out of your wallet. Start using actual cash or don't spend, and I'm sure that's basically some of the things they're doing and I don't know how they do that. I don't know if the person signs over some sort of giving them permission to go in and speak on their behalf and that sort of thing, kind of like a limited power of attorney or something like that. I don't know exactly how that works, but I'm sure that they're using all of these different types of techniques and I'm positive that they're having them write a credit report and have them look at that and challenging anything that's on their credit report that doesn't look right.
Speaker 2:Okay, so do you have any other ideas? Kind of wrapping up some of this.
Speaker 1:No, I think that's pretty much it. I think all of this is really helpful, and the first thing I would start with is getting a copy of your credit report and taking a look at it and seeing if there's anything you need to address, and then, as far as something that doesn't look right, taking care of that and then just moving forward with all of these different types of tips that we've offered on our show today.
Speaker 2:Well, I appreciate all the folk out there listening. We really appreciate you all and look forward to any comments or ideas that you have.
Speaker 1:Yep, thank you for listening to the Life Love Money podcast. If you would like to learn about your spouse's money personality, go check out my website, angela K Love that's Angela K-A-Y-E. Lovecom and sign up for my email newsletter and you'll get a free copy of 10 questions you can ask your spouse to learn about their money personality. And then I have all sorts of other resources on there too, like the 30-Day Money Tracking Challenge, how to create a financial vision board, the link to take a free personality test and so much more. So go check out my website at AngelaKLovecom. Thank you for listening.