Talk Wealth to Me

#002: Credit Score 101

May 03, 2019 Felipe Arevalo, Chase Peckham, Katie Utterback Season 1 Episode 2
Talk Wealth to Me
#002: Credit Score 101
Show Notes Transcript

You may have heard of credit scores before but do you know what a credit score really is? On top of that, how exactly is a credit score determined? And does anyone other than me really care what my credit score is anyway?

Credit Score 101
Your credit score is a statistical number that is used to evaluate a consumer's creditworthiness aka how likely you are to pay debts back on time and in full without anyone having to twist your arm.

Credit scores range from 300 to 850. The higher your score, the more financially trustworthy a person is considered to be. But use caution: just because you have a high credit score today doesn't mean you'll necessarily have a high credit score or even the same credit score a month from now. That's because your credit score is like a living, breathing number constantly adjusting to your financial behaviors.

That's because your credit score is determined by five (5) main factors. They are:

  1. Payment History (35%)
    1. Are you paying your bills on time every month?
    2. Have you ever been delinquent?
    3. Were your delinquencies reported to the credit bureaus?
  2. Debt-to-Credit Ratio or Amounts Owed (30%)
    1. Are you utilizing more than 30% of your credit limit per credit card?
    2. Are you utilizing more than 30% of your total credit limit?
    3. Using more than 30% of your available credit, whether that be total limit or per card, can have a negative impact on your credit. 
  3. Length of Credit (15%)
    1. How long have you had access to credit?
    2. The older your credit history, the better - it shows your ability to pay on time over a longer period of time and that creditors continue to find you trustworthy to lend to.
  4. New Credit (10%)
    1. How frequently are you looking for additional lines of credit? Experts recommend applying for new or additional lines of credit once every 12 months. Any more and your credit may take a bigger hit. 
  5. Credit Mix (10%)
    1. Having different types of credit such as installment loans like a mortgage and revolving credit like a credit card can illustrate your ability to handle diverse types of financial debts. 

Who cares about my credit score?
Unless you're in the market for a new credit card, a home, or a car, chances are you may not care about your credit score, but that doesn't mean no one else does. 

Those that may review your credit score include:

  • Creditors
  • Student Loan Providers
  • Utility Companies
  • Insurance Companies
  • Landlords
  • Employers
  • Collection Agencies
  • Government Agencies
  • Courts

Where to find my credit score?
Order a free copy of your credit report from Experian, Equifax, and TransUnion each year and review it for errors by visiting AnnualCreditReport.com

Comments, questions or suggestions for the show? Email us at [email protected]

To learn more about DebtWave Credit Counseling, visit our website or connect with us on Facebook, Twitter, Instagram, and LinkedIn.

To learn more about the San Diego Financial Literacy Center, visit our website or connect with us on Facebo

Support the show (https://www.sdflc.org/help-sdflc/donate/)
Intro:

Welcome to Talk Wealth to Me, a safe-space podcast where we chat about anything and everything related to personal finance.

Felipe:

The information contained in this podcast is for educational and entertainment purposes only. It does not constitute as accounting, legal, tax or other professional advice.

Chase:

Welcome to Talk Wealth to Me. Podcast episode number two number here with Katie Utterback and Felipe Arevalo. And this week we are talking credit reports and scores. We are talking about consumer credit. What is it? How do you build it? Why do you need it?

Katie:

Why do I care?

Chase:

Why do we care?

Felipe:

That's definitely something we get out to the community and say, you know, why should you care about this?

Chase:

And, and so many people have an idea of what it is. So many people kind of hear about what it is and they know it's important to them, but why and they don't usually find out about what their credit score is or what's on their credit reports until they need something. Yeah, yeah.

Katie:

Jinx

Chase:

They go to buy something, right? They go to buy something and they go to, uh, apply for a loan. And they get an answer.

Felipe:

And unfortunately sometimes the answer's not the one they're looking for.

Chase:

Absolutely. And then they come panicked. They're like, what do we do? How am I ever going to buy a home? How am I going to buy that car? Somebody will cosign for me. Right. And especially if they're a younger mom, Dad, right? Yeah. Just say no folks. Just say no unless you are willing to flip the bill for whatever it is your child needs or wants at the time. Um, just say, no. But I can't even say that 100 percent.

Katie:

But are you saying that because if you're a co signer, are you 100% responsible for whatever somebody spends?

Chase:

Yes, 100% responsible, uh, you and the cosignee, whoever, whoever it is, if it's your child, your son, your daughter, um, you are both signing that document as if you are both 100% responsible. Now you might have the agreement with whoever you co-signed for because you have the credit or the, the, the good or bad credit as it might be a and they don't. But according to the creditor, the one who is a financing the loan for you, under that agreement, you are responsible to pay the debt. They don't care who it is. Now they'll send the bill to the cosigner or to the cosignee, right? They will send the bill to your son or daughter and hopefully they pay that bill every single month.

Felipe:

So Chase now I'm going to put you on the spot. You have two little ones.

Chase:

I do.

Felipe:

What happens when a one of them, your oldest, your son turns 18 and says, Hey dad, you cosign on the credit card for me.

Chase:

Yeah. You know, I won't start it that way. I will actually make them an authorized user on my credit card early on in their lives. I will not let them have it. They will not use it unless it's specifically given to them for a specific reason. Um, but they won't have it. That'll sit around in their wallet.

Katie:

So can we just slow down there too?

Chase:

Sure.

Katie:

Authorized user?

Chase:

Different deal altogether.

Katie:

Different from cosigner?

Chase:

Yep

Katie:

What exactly is that?

Chase:

Meaning That on my account. It can be a current account, a new account that you buy. It could be, uh, your singular account. It could be your wife's in, uh, you know, where you both have an account together, joint account as they say, um, where you can make anyone, this isn't just your son or daughter, but I could make you Katie, I could say I want to add Katie Rucke too or Katie Utterback. Excuse me, I'm going to apologize your husband so many times. I'm sorry.

Katie:

Sorry AJ

Chase:

Ah and you are newer. Yeah, you are newly married AJ so I apologize. But um, you can have anybody added to your account and what that does is you can have an actual card with your name on it, uh, that you can use at your will. But what happens is, is I still get the bill. You do not, that person does not, uh, and they are not responsible at all for paying that bill. I still am.

Katie:

I kind of like this arrangement

Chase:

it's a convenience thing.

Felipe:

Yeah.

Chase:

For the authorized user. I was, I would too if I were you. But it basically means that that person is able to use it and, and use the card with their name on it. So it's not confusing. Um, anywhere that, you know, anybody takes visa, mastercard or American Express or discover whatever card or account it is and they can use it of their free will. But when the bill comes in, it doesn't come to them. It comes to me. And when that report is, when that information is sent to your credit report and, and, and your credit scores being built, it does not show up, um, as heavily on your report, let's say, um, as mine, meaning on your credit report, if you were to go look, you would see my account, but it would say on their authorized user, which means it's showing and telling the creditors that you have no responsibility for that debt at all. However you are now using credit.

Katie:

Okay. So maybe that would be a good step for someone trying to build credit.

Chase:

it's a step, it's a step. It's called piggybacking in the financial world. And, and in fact the creditors would love it if, if piggybacking would go away. Um, but it really, it can't, um, it's very difficult.

Katie:

Can we talk a little bit about why we need to care about our credit scores? Because they think for a lot of people, myself included in this, I always thought it was just kind of something you needed if you wanted a new credit card or if you wanted to buy a house, but there, but there are other people that are looking at your credit score or your credit report to make a decision.

Chase:

Everyone

Katie:

Everyone

Chase:

I mean obviously not your friend, isn't trying to look into your credit

Katie:

credit's not good enough

Felipe:

or your significant other should at some point.

Chase:

But I tell you what I have known, I've known people that looked up people's credit before that because not everybody is honest, but that's a whole different podcast together. Um, but yeah, I mean insurance is looking that up. Um,

Katie:

landlords?

Chase:

For sure.

Felipe:

Absolutely. Possible employees?

Katie:

Oh

Chase:

yeah. Prospective employees. Now it depends on the laws and it depends the state you live in. But I mean, even down to if you're open, if you're trying to get an apartment, I mean whenever you try to get the lights on and utilities and you know, here locally in San Diego we have SDG&E they're looking up your credit for everything. You fill out applications for everything

Felipe:

or your cell phone trying to switch to a different cell phone provider. There might be looking at your credit

Chase:

no, not might, they are, they're definitely,

Felipe:

well unless you do those prepaid ones. The cheap ones

Chase:

Boost, boost mobile. Yeah. Maybe not unless your mind, anytime you're going to finance something or you're going to pay monthly for, uh, whether it be cable or direct TV or whatever it might be a, they're, they're looking up your credit for all of that stuff. Um, if you're in the military, uh,

Felipe:

Your security clearance

Chase:

you're looking for security clearances or you need security, you have security clearance. They're checking it all the time cause you, if you have bad credit that you could lose your security clearance.

Katie:

Okay. So I actually interviewed DebtWave, has a credit score coach on our team and it's um,

Chase:

a good one by the way.

Katie:

A really good one.

Felipe:

Really Nice.

Katie:

Really Nice. Adriana Sanchez Torres, I spoke with her, you guys talking about credit scores and credit reports a little bit this morning. And a couple of things she was talking to me about, we didn't really delve too deep into it, so I wanted to bring it up with you guys. One of the things we were talking about is Experian, one of the credit reporting bureaus now offers this program called Experian boost. And like you were saying, the utility companies that are looking at your credit, if you didn't pay those bills, a lot of times you could get penalized for that.

Chase:

You're not getting penalized, they're just not reporting it. I mean, so in a, I guess in a way you are for those people that don't have credit cards to build credit, you have to have to have it right. You have to spend it. And so what a, what a big theory and an argument that a lot of people in industry professionals are making, which is true, is that, you know, these people, we make these payments on time all the time, whether it's my utilities are my, uh, my cable television or my phone bill. Um, those things that, that we pay for monthly, just like we would pay a credit card or a mortgage or a rent, although those are larger ones, right? We still make those payements all the time, but yet those aren't being sent to the credit reports because technically they're not. Um, you're not paying anything back. You're just paying for a service. But a lot of it is the same. In fact, FICO nine for instance, uh, is something that FICO has recently, a couple of years ago put out, but not everybody is, is using it. FICO eight is typically the most common, a FICO score that, that most industry professionals are using. But FICO nine, for instance, takes into consideration, uh, less impact on unpaid medical bills because it were FICO eight. It's if you don't pay your medical bills and it's on and it goes into collections or you don't pay those, I mean it's, it hits you just like it would hit a car credit card or a missed car payment or missed mortgage payment would be where now they're saying as we've learned in credit evolves, fico is saying, look, medical bills can be huge. Right. And that can be an a very unfortunate situation in your life where it could be just a huge amount of money in a very unfortunate situation where you're just not, that's not something that says if you can't pay that at that time and because you are unlucky that you didn't have great health insurance that you're offered through your company, that you can turn to saying that you are not necessarily a bad credit risk because you couldn't pay big medical bills.

Felipe:

Yeah. That wasn't a bad decision or two that you made.

Chase:

That's correct.

Felipe:

That's just something that's one of those life happened and, and you know, now you have to deal with it

Chase:

FICO nine says that's true. And also with rent, you know, the renters have been really affected negatively by their credit because that's something that we pay for monthly to live. Just like we would if it was an in our buying the home and paying a mortgage. Um, and you could pay rent for you know, forever and not be late once. Um, in fact that's why we tell people all the time that, you know, have you have a letter if you're trying to buy a home or you're trying to do something where you don't have a ton of credit and get a letter and have it from your, your landlord saying how great it was to work with you because you paid everything on time. Um, but it's evolving

Katie:

because you're right, it's the utilities, it's a mobile phone payments and it's rent. Those are the things that you're trying to give people credit for.

Chase:

Careful what you wish for because there's going to be good and bad with everything. People think that those things are good, but they're going to forget that they forgot. They forgot to pay that phone bill a few times.

Felipe:

Auto pays. Set up. Auto pays.

Chase:

Yeah. I mean I think that's a great thing that DebtWave credit counseling has made available to their clientele. Uh, and that they have that option to speak with somebody like that that can help them

Katie:

one on one.

Chase:

Not Everybody has that. I mean you can do that with the SDFLC, but I mean that's something that DebtWave designated an employee just for that. I think that that's pretty impressive. And she, she's really on it. She knows what she's talking about.

Katie:

She is, and she takes the time to really work with you on a personal level to figure out what is going to help you specifically improve your credit. Score. And that's honestly the most valuable thing that we could probably do

Chase:

Especially because it's not a one size fits all thing. Everybody's situation is so uniquely different

Felipe:

around the community. People always want to know, well, my friend was told, I was like, well that's good for your friend. And that might've been great advice for your friend. But you know, you and your friend are in different financial situations. You know, the thing that's going to benefit you the most isn't necessarily the thing that's going to benefit someone else for the most. It's like when people always ask us, what's the best credit card for who you know, for what financial situation? Because the answer is not, here's your credit card ABC, that's the best one for everyone because it's not, some people may not qualify for that card. Some people may qualify for a card that's much better. Um, you know, we all have different lifestyles so there's not one size fits all when it comes to credit a lot of times. And it's important to try and identify that. The fact that she's able to provide customized, uh, advice for, for the, for the individual that that's always great because you know, you don't want to try and provide a blanket advice because that's really not going to work for everyone.

Chase:

Take a listen to this, this interview, because I think that she's gonna shed a lot of light with Katie on what it's like to work with people individually with their credit and how it can benefit them. And she really tells a lot of insight into this. So don't miss this interview.

Katie:

Thank you so much for joining us for our podcast because we really wanted to get into credit scores and credit reports. And this was something that you are working with our clients every day on credit scores and credit reports and this is a very important role. We actually, this is a new position that credit score coach. So can you help us explain a little bit about what you're doing as a credit score coach? What kind of information are you sharing with clients when they call in and are wanting to talk about their credit score?

Adriana:

Okay. Thank you so much for having me. I'm actually very honored to be here. I love, I love sharing and spreading the word about what we do here at DebtWave. Um, first I usually on my daily life, I'll call the client to have had an anniversary with us. And I just introduce myself, tell them about what I do, uh, what I can do for them, which is you should usually just a short speech telling them that I can give them their FICO score and let me see what else

Katie:

and maybe you could just back up a little bit to and explain what is a fico score.

Adriana:

Oh, okay. So the first thing is a fico is a way to measure, uh, your credit worthiness. So pretty much to see how much of a reliable debtor you are. And um, it all depends on, it's a bunch of numbers and I think it's from 300 to 850, and it focuses on five main factors that usually people think, oh my goodness, how much I make it affects my fico score. But that's not true. It is just purely on how you handle paying people back.

Katie:

So income is not a factor in your credit score?

Adriana:

Not a factor at all, which surprises people so much. Um, but I believe he gives the ability to people that earn under a certain level to have a good FICO score. And even if you make six figures, you can still have a bad or a good fico score. So it's not dependent on how you make, how much you make and a, yeah. So the fico score, usually it is broken down in about four, four main categories. There's the lower lowest one, which is, or poor. Um, there is also that needs improvement category, the average category. And then there's a good and excellent. Um, yeah.

Katie:

So for the clients that are calling in, the clients that you're working with, where do they fall on this spectrum of credit scores? Are they people that have good credit scores, poor credit scores, excellent credit scores. Is there a group that kind of fits in?

Adriana:

We have a variety of clients. Uh, most of my clients are going to fall in the average category. We do have some of our clients in the needs improvement. Um, what I have seen though is the, the lowest you are, the higher you can go. So if I see a client in the lowest category, it's nothing that worries me. As long as you start working on your credit score, the minute we start. And we started working with our clients two months after they've been on the program.

Katie:

So this is really good news for somebody that has a really low credit score. Is that that's not permanent at all is what you're saying, right?

Adriana:

Yeah, absolutely. It changes all the time. I tell them, I tell clients that the fico score is so sensitive and it goes up and down however it desires. But there's certain tricks that we can do in order to increase the credit scoring using certain tricks sometimes. Um, in order for you to increase it without you having to change as much as do you think you would have to change?

Katie:

Interesting. Yeah. Can you kind of expand a little bit for me? What are some of those tips or tricks that people can implement in their daily lives to try to build up that credit score?

Adriana:

Yeah, so the first thing I tell them is to make sure you're monitoring your credit report. Because sometimes we focus so much on credit scores that we forget about our credit report, right? Whatever shows up on your credit report is what dictates your credit score.

Katie:

And how do I even monitor my credit report? Where do I go to find that?

Adriana:

So the best way for us to do it, and now there are so many ways and so many places to say that, say that they're the best website. The one that I particularly trust just because it's authorized by federal law, it's annual credit report.com

Katie:

annual credit report.com. Okay. So that's where I go to get my credit report.

Adriana:

Yes. And financial advisors recommend us to go every four months. So let's say today Katie, you go home and you want to check your annual credit report.com and you ask for Experian in four months later. You ask for Equifax and four months after that you ask for TransUnion. Um, and then that way every single year you're monitoring, monitoring, monitoring your credit report throughout the year. That is something that financial advisors recommend. I personally, I'm a very forgetful person, so I tried to do it on black Friday or right after Thanksgiving as everybody's focusing on shopping. I know it's my time to ask, for my three credit reports

Katie:

Oh that's a great idea. So you can do two different ways I is what you're trying to say. So you can pick a day of the year, like your birthday or a day. That means a lot to you like black Friday, maybe it will limit you from spending too much.

Adriana:

Definitely

Katie:

I would need that. So then there are three credit reporting bureaus,

Adriana:

so there's more than that. But the main ones and the most official ones are three. Yeah.

Katie:

Okay. So I just go to annual credit report.com and I can order all three from Experian, Equifax and transunion at the same time or I can stagger that every four months.

Adriana:

Yes, exactly.

Katie:

Okay. Is there a benefit to ordering them all at the same time versus staggering?

Adriana:

Staggering would be best. If you are going to, let's say, Katie you, tell me in a month you want to go and apply for a mortgage. I would say that just do all three today just because you want to start working and make sure that everything looks fine. Right? As opposed to, whenever you apply for a mortgage, finding out that there was a collections that you didn't know about and now it's too late. You've already applied for a mortgage and you already had a hard inquiry for nothing. So if you're going to make a big purchase, I would recommend you do all three today.

Katie:

Okay. So when you get that credit report, what you're just saying, you may find a surprise on there that you either never approved a transaction, it can maybe be identity theft or there just might be a complete error on your credit report.

Adriana:

Yes. I had clients that had, for example, one of them had a car loan that wasn't hers. She said that she's never even applied for a car loan and it was three months behind and she didn't even know about it. Um, I had clients that are kind of young and they would have had to open credit cards when, whenever they were 11 years old based on the information on their credit report. So clearly identity theft, right? So all of those things are very scary at first, but places like Annual Credit Report they focus on that so you can dispute whatever problem or mistake there is on a credit report and they'll help you and guide you through it.

Katie:

So even if you're not looking to buy a mortgage or acquire additional credit, checking your credit report is important for identity theft and all the data breaches that we have going on?

Adriana:

Absolutely. yeah I agree with you

Katie:

Oh wow. Do you have other clients experiencing identity theft? How common of a occurrence is it to find identity theft or an error on your credit report?

Adriana:

To find a little error on your credit report is pretty normal. I find it on a weekly basis. To find identity theft, I've only seen it three times.

Katie:

Ok maybe you could speak more to those smaller errors. What should people be looking for when they order that credit report?

Adriana:

For example, sometimes some errors may be reporting something is reporting as behind and it's not. There are some serious delinquencies that shows. In our case we use Experian to gather our information, sometimes Experian will say there is a serious delinquency but our clients was never behind on anything. So there is something I might not be able to see that if you go on AnnualCreditReport it might give you more insight as to what this is. Another client filed for bankruptcy over 10 years ago and it was still showing on her credit report. And that is something that shouldn't be there - it should be 10 years past that gone. Or one credit card reporting twice or one credit card not reporting for the past six months.

Katie:

Is there, other than ordering your credit report from AnnualCredit Report.com, is there another way you can kind of track or manage your credit score on a more regular basis. And if you can is that something people should be doing?

Adriana:

I definitely think you want to monitor your credit score, maybe not your credit report as much because you'll have to pay, but your credit score banks nowadays are doing this thing now where you're allowed to see your credit score and it is a soft inquiry which means it doesn't hurt your credit score to see it. Banks, main banks like Chase, Chase Card or Bank of America or Discover, am I allowed to say names of banks, can give you your FICO score or Vantage score which is another model to provide you credit score numbers. So you are able to see that once a month, I would encourage you to do that, don't obsess too much about it, because usually in a month you won't see a lot of change, but it's something if you see your credit score drop 100 points you can automatically be aware you know something happened and can check. Usually if we get very acquainted with our online account we'll find that actually there are way more perks banks are giving us that we're not taking advantage of

Katie:

And is this the kind of conversation you're having when clients call in and want to chat about your credit score?

Adriana:

In part, yes. because I give a lot of general recommendations, I always tell clients you want to make sure, I'll give you a bunch of recommendations and you take the ones that apply more to your lifestyle, right, but there's also I have to see a credit report because everybody is different. Everybody's credit report is different. So I'll tell you different things according to what I see on your credit report. So some recommendations might show up and some might not because you might not need that.

Katie:

Do you have any recommendations that you kind of see over and over? Is there any sort of pattern that we have with our clients any sort of tip that you routinely give out?

Adriana:

I, yeah, there's two that I can think of. Number one, I always, always, always tell clients that opening new credit cards hurt you more than you think he does.

Katie:

Really?

Adriana:

Yes. Because places like, uh, Credit Karma for example, they tell you, oh, based on your credit score, you can apply for this credit card right and it looks since, you are in a place that you're trying to improve your credit score. You makes, you think that maybe if you open this credit card, your credit score is going to improve, but that's actually falls because number one, a 15% of your fico score, it is length of credit history. So it is an average. So the more new credit cards you have, the younger your average gets. And just like in life, the older, the wiser, you want to have a very, very good age on your length of credit history. So you shorten the time by opening that many new credit cards. And also the other one that I always see repeating is the hard inquiries. Sometimes we'll have three, four, five different hard inquiries in our, in our credit report per year. And they do stay with you up to 24 months. So, and it is recommended to [not have] more than one per year.

Katie:

Oh Wow. So a hard inquiry, will stay

Adriana:

up to up to 24 months.

Katie:

Oh Wow. And any more than one hard inquiry is going to start having a more dramatic effect on your credit.

Adriana:

Yes, definitely. And this is something that I'm not proud of, but I will, I will share, I sometimes share my personal experience with my clients is just so they know that I'm real like credit score is not perfect. Um, so one time I apply for two credit cards in the same year, which I should have known better. Right. Um, but I applied and nothing changed my debt income. My debt to credit ratio actually decreased and my credit score dropped 30 points, which I thought it was a little dramatic if you're, if you ask me. Um, but then yeah, nothing really. It changed except the two hard inquiries in the same year. It was up from three months apart. So yeah, I know that 10% in your credit report or hard inquiry doesn't sound like a lot, but in the long run it really eats 25% if you count the 15% off length of credit history.

Katie:

Sure. I mean, I had a similar experience and you actually kind of helped me out a little bit because I had an account that I was trying to drop after I change after I got married and was changing my name because it was kind of a headache. But it was my oldest account. It was some 10 years old every other account that I had was not quite a year. So you told me. Yeah, I would see a dramatic decline in my credit score you would have.

Adriana:

And he usually stays for about the next seven years. Um, but you would lose in that case, you would lose credit limit availability. Um, and then yeah, you would lose that.

Katie:

Okay. So let me you kind of mentioned something too. When we were talking about the age of accounts, you were talking about the debt to credit ratio, and this is something that was newer for me when I started working here, which was credit utilization. I always assumed that if you were given a $10,000 credit limit on your credit card, that meant you could spend every single one of that $10,000,

Adriana:

you would think, because they're approving you for that, right? No, no, not at all. Actually, what I've seen from just working with Experian is that creditors don't only want you to not use more than 30% overall, but also per credit card. So I always tell clients, if they approve you for $10,000, please don't use more than $3,000 any. They approve you for $100. Don't use more than $30. Even if you pay it off, just don't like 30%. It is the golden rule for finances. Let's say

Katie:

30%,

Adriana:

30%,

Katie:

that seems very low for a percentage.

Adriana:

Yes. yes. But there's ways that we can bypass that. Let's say for example, asking every year, I tell clients, don't be afraid of asking for a credit limit increase. Like you have power as the buyer. And I think that clients don't realize how much power we have. I think that we drive the market according to our behavior, right. But people don't realize that. So I tell clients that I personally with my discover card every year, I go ask for a credit limit increase even if I don't need it. Um, and even if they haven't offered, and of course we want to make sure first to ask if they do a hard inquiry on your credit before you ask for a credit limit increase. And if they say no, then what's the rush? The worst thing that can happen is that they say no and your credit limit is still stays the same, you know? Yeah. Or another way that we can bypass that is also just paying them in full, uh, the not carrying balances. Because the problem is that sometimes we are below the 30% but banks are known specialty retailers for having killer aprs. Right? So if you have, let's say you're using 28%, but then that interest hits and he bumps you up.

Speaker 3:

Okay. So let, let me just repeat this because this is shocking to me. So not only can am I not supposed to spend over 30% of my credit limit, but if I can't pay it off and that interest accumulates, that goes toward my credit utilization.

Adriana:

Yes. Because he's taking away from what you can, what you can spend.

Katie:

Oh Wow.

Adriana:

Yeah,

Katie:

this is okay. So you really have to watch that number.

Adriana:

You really do. And the best way for you to reach that point is by not carrying a balance, using them, using your credit cards, like a tool for you to get maybe a little bit of cash back or just being able to have the opportunity for you to one day a buy a home and have good credit, not for you to, um, not for you. Because I tell clients, and I don't know if you want to put this in the podcast, but I always tell clients, if you go to target and you buy a sweater, let's see that that sweater is for some reason $10, right? Um, then whenever, after, if you carry that balance, you're not going to pay $10 for that sweater. You're going to pay usually $12 and 50 cents. So if you couldn't afford to pay it off on the first place, why would you want to spend more money on the sweater that you couldn't afford in the first place? Does that make sense?

Katie:

Yeah, that's, I mean, that's a good point. You're right. If you tell yourself it's only $10

Adriana:

it is not right.

Katie:

But I mean, at the same time, if I found a $10 bill on the ground, I would pick it up. And because I wouldn't just say it's only 10.

Adriana:

Yeah, I wouldn't.

Katie:

Okay. So going back to credit scores, if I have nowhere, no idea where to start, what should I do with my credit score or credit report? So if you do not know anything, so you're just starting thing. I don't know if I should be concerned. I don't know where to go. Okay. Can I call you?

Adriana:

Definitely. We would love to. Uh, we would love to help you. We have great certified financial counselors that can help you kind of figure everything out. And if you have some questions about credit scores you can contact me directly and all my information.

Katie:

Yeah, we'll share your information with our readers on the podcast show notes website. Okay. And I want to ask you to, so DebtWave actually came out and released a small, very small study but it relates to what you are doing exactly, which is we had 116 clients from 46 states plus Washington DC that were enrolled in our debt management programs. So that means they met one on one with a credit counselor and then a lot of them talk to you or with chase and Felipe about budgeting. Um, and they also participated in our smart with your money financial education series. We had 79 people, their credit score went from 625 to 638

Adriana:

I love that.

Katie:

And in the second year we had 29 people that continue the program and kept up their financial education, their credit scores increased on average from 612 to 686 well, so I wanted to ask you what you think, how important is financial education or making those smart financial decisions? How much of a role does that play in having a healthy credit score?

Adriana:

I think that knowledge is power. And of course I would say that, uh, but I think the more you know, the more likely you're to make changes because sometimes he's not that you're bad with your money, sometimes you just didn't know the 30% rule or sometimes it's not that you're have a bad credit score because of your payment history. But sometimes there, there's some mistake or something that we didn't know about doing so many hard inquiries for a year could hurt. So as long as you know, and there's so many resources now a days where you can find information about finances in the way the matches your learning style. So there's youtube, there's podcast, there's reading that you can do. Uh, there's blogs like the one that we have at DebtWave that has so much good information I sometimes share with my clients. Um, so there's so many ways that as long as you know what's in your credit report or what are the five factors that affect your fico score, that we can start making changes.

Katie:

That sounds great. Any other advice for people looking to improve their credit score?

Adriana:

I'm trying to think. So I would say, uh, number one, just talk to us. You are already paying a monthly service fee. Utilize that. Everybody here, knows a little bit about finances. Um, so just make sure that you utilize whatever you're already, it's you in your hands to use. Uh, and number two, put your credit cards on automatic payments. At least minimum payment. Um, because sometimes I understand, we forget life gets busy, so just make sure you put them on small. Um, the minimum automatic payment. And then what you'll do is whenever you have extra cash, once your budget allows it, you can put extra, but you already know that the accounts are being paid right on time.

Katie:

Can you set it up to pay in full?

Adriana:

Yes. So you can do very different things. So number one, you can do a minimum payments and other one you can do full statement balance. Then you can also put a set amount that you want to put for, let's say that your minimum payments are $30 on that credit card, you can put $300 on just every month, $300. I think on other recommendation I would give clients is if you want to get out of credit card debt, the only way out, I guess there's two things to that come hand in hand. Number one, ask for help. Research has shown that if you have accountability, you're more likely to succeed. And number two, stop using those credit cards, right? And then you'll be able to see those balance is actually decreasing because you're no longer adding more onto that pile.

Katie:

That makes sense. So stop using it so you can actually pay it off.

Adriana:

Yes. And Ask for help.

Katie:

Perfect. Thank you so much for joining us on our show today.

Adriana:

Thank you so much Katie for having me. I loved this.

Katie:

Perfect. We'll have to have you back and chat a little bit more about other credit score related topics coming up.

Adriana:

I would love that. Thank you so much. Thank you.

Chase:

Well, I'm telling you, Felipe, I thought that that wasn't incredibly good and informative interview that Katie had with Adriana.

Felipe:

Absolutely. I think a lot of good takeaways,

Chase:

a lot of good takeaways and that just goes to show you the, for those that are still with us, uh, and listening that I'm taking care of your credit report and your credit scores are really incredibly important and knowing how to financially be smart, um, budget, keep your money, you're on your cashflow good. You've got to use credit to build credit and if you want to buy that home or that car and you want to pay lower interest rates, it's something that you really have to keep track of and, and take care of.

Felipe:

It's true. And it's one of those catch twenty-twos, you know, you have to have credit to build credit and then if you don't have credit, no one will give you credit to start off. But that's why it's important. And, once you do have a line of credit or lines of credit that you take good care of them.

Chase:

Yeah. And thanks again to Adriana for taking the time to do that podcast with Katie next week. Stay tuned. A podcast number three is going to have really, really good interview with Sarah Arevalo and, and yours truly over here, Felipe. New parents. uh, and what they do for a living obviously is, is help people with their financial situations and budgeting, especially Felipe over here and they're going to talk about the costs of being new parents, the costs of babies. Um, and the, the name of the podcast will be and baby makes three because it's our third podcast. But it is something that you don't want to miss because it is funny, but it is also incredibly informative. So stay tuned next week and baby makes three. Stay with us. See you next week.