Boost Your Credit Using These Credit Card Tips and Tricks

Jessica Quindlen: [00:00:00] Welcome back to the Sound Cents Podcast. I'm Jessica Quindlen. Today we're discussing boosting your credit to build a better future. I have Bree Shellito, our Senior Manager of Community Impact. Hello, Bree.

Bree Shellito: Hey, Jess.

Jessica Quindlen: And Emma Protsik, our Financial Coaching Supervisor. Hello, Emma.

Emma Protsik: Hi.

Jessica Quindlen: All right. So, we've talked about credit several times, but I wanted to bring it back because I just think it's such a good topic to keep talking about.

Bree, start us off. What is a credit score and how is it calculated?

Bree Shellito: That's a great question. So, a credit score is a number. It's a number used by financial institutions and service providers. Usually, it's just really does determine your risk level. So, if they're going to issue you a loan or a credit or a service of some kind, that's what they're going off of. So let me just say it's complicated.

Jessica Quindlen: Okay.

Bree Shellito: And just so our listeners know, it gets super complicated, but don't worry about it because what we're going to be talking about today applies across all models, all bureaus, all the things. Primarily what we're going to be talking about when it comes to how it's calculated is the FICO model that was created many years ago, that's the Fair Isaac Corporation.

It kind of combines [00:01:00] those. There are other things out there, but I'm going to share with you FICO, because the way that that breaks down is there's five categories total. The biggest - and the best part of this - is payment history. 35 percent of that balance is payment history. Which, good news, that's what we can really affect. So, making payments on time, paying things early, that's the largest part of what makes up your credit score.

The second largest part is 30 percent of your credit score. That's your utilization. So that's how much of your available credit that you're utilizing. And that's when we're talking about revolving loans. So, lines of credit, credit cards, how much of that you're utilizing, the lower, the better. If we can stay under 30 percent - which makes it easy, 30 percent of your credit score, 30 percent of your utilization - but the lower you can keep it, the better.

Once we get to using about 50 percent or more of our credit, that's when it really will start to hinder. And certainly, once we actually get to 100%, if we actually max out a credit card, that's immediately reported [00:02:00] and definitely impacts your credit score in a negative way.

The next ones are smaller. The next one is length of credit, which isn't as much of an effect. It's only 15 percent of what makes up the credit score. But truly it's how long you've had credit because the longer that you've had it, the more history they have to go off of.

And the other two are much smaller. They're each only 10%. It's mix of credit and new credit. So, what types of credit that you have? I mentioned the revolving credit. There are also installment loans, like car loans, personal loans. There are mortgage loans. So other things that are out there.

And the new credit. So, if I were to ask you, “Jess, can I borrow $20?” And you're like, “Oh yeah, sure. Bree's reliable.” But then I'm like, “Hey Emma, can I borrow 20?” Jess is like “Who is she going to pay back first? And why are you borrowing that?” Right? Sometimes that will alarm a creditor if you're trying to get a lot of credit at once. It's [new credit] a small amount, but you just want to space out those requests.

Jessica Quindlen: Emma, how can listeners find their current credit score?

Emma Protsik: So that's where you're going to want to find a credit monitoring tool. Credit Karma [00:03:00] is, I think the biggest one out there for you. We do have a free credit monitoring tool here at Ent that you can use, whether you have an account with us or not. That's going to be at Ent.com/YourCredit.

Jessica Quindlen: And we'll be sure to put that in the show notes.

Emma Protsik: One thing to keep in mind, though, when we are looking at our credit score, Bree kind of hinted at it. There is a ton of different credit scoring models and different bureaus so basically what happens is information is sent out to credit reporting bureaus. Experian, TransUnion and Equifax are big players there.

From that, the information is then taken, put into that crazy complex algorithm and credit scores pop out of it. FICO, the standard one that Bree was talking about, that is what most lenders, at least from experience, what I've seen, are utilizing to determine eligibility for loans. A lot of the credit monitoring tools actually do not show you a FICO score.

They show you what's known as a Vantage score. So, a little bit different. The categories Bree talked about are the same. The [00:04:00] percentages are a little bit different, but the weights, as far as payment history and utilization being the biggest impact are the same for that.

I don't want to stress you out. Here's the thing. There's nothing you can do about the fact that you have lots of different credit scores. There's no reason to track them all down and see where you're at. Just be mindful again, as those credit monitoring tools, as you're checking those out, those three numbers that you see might not be what the lender is seeing. They're just using a different scoring model.

And I will say for credit monitoring tools with the Vantage scoring model. What I've seen is it typically will be a little bit higher than the FICO scoring. So again, if you are thinking about building your credit to apply for loans, get the best rate, just be mindful of some variances that might be within the scores itself between those models.

Jessica Quindlen: Great. Fantastic. Bree, how do you dispute inaccuracies on your credit report?

Bree Shellito: That's a great question, Jess. Credit reports, as Emma said, are a little bit different than the credit score. Emma listed out some ways you can get the credit scores, but the best way to get your report and see it is through AnnualCreditReport.com

[00:05:00] That's the only actual government-authorized site. There's a lot that sound like it, but AnnualCreditReport.com is where you want to go. You can pull all three bureaus that Emma mentioned, and if you see that there are some inaccuracies and truly anything, if your name isn't spelled correctly, if there's an address you've never seen before, I would recommend disputing those. But anything that you see inaccurate, you would dispute directly to the credit bureau itself.

Whether that be Experian or TransUnion, you're pulling those reports. And right now, it's actually lasted through the pandemic where you're able to pull it more frequently. It used to be that you could actually go to that site and pull each of the three major bureaus only once per year.

So, we used to recommend that you space those out just from a credit monitoring, but right now you can pull all three every week. So just depending on what you're looking to do. But right at that site, that's where you check the report itself. Some of the tools Emma mentioned also have a version of the report, but this is going to be the full report.

I do recommend you pull it through that site so that you can see the [00:06:00] full report, but it won't give you the score. You can do it right online there. When you pull it, there's actual links to dispute it. And you'd want to dispute it with each of the bureaus that show the inaccuracy.

Jessica Quindlen: Perfect. So, Emma, why is having a diverse credit mix important and what strategies can listeners use to achieve it while also not hurting their credit score and their credit report?

Emma Protsik: Absolutely. So, a diverse credit mix gets brought up a lot. It is a portion of our credit score. I want to highlight that it is only 10 percent.

Bree Shellito: Tiny.

Emma Protsik: So, please never, ever apply for any loan products that you really do not need. For the sake of that credit mix category, it's just not going to be worth it.

Bree Shellito: If you're using any of the tools that Emma mentioned too, some of them do have recommendations built in on how you can increase yours. They'll recommend various accounts and loans and opening additional credit cards.

Because here's the other complicated thing. Everyone here is going to have different [00:07:00] effects with the things we do. You'll hear those myths of never close this credit card and never do that. It's going to be different for all of us. It's based on what your score is, what's on your report. So those tools specifically give you actual things you can do to improve your score. And sometimes that is opening another credit card. And so, if that's something to help diversify your mix, it'll give great recommendations through those tools directly for your situation.

Emma Protsik: And just a reminder to what makes up most of our credit score. Again, that's 65 percent with payment history and utilization. That's all about how we manage accounts, not necessarily how many different accounts that we have.

So, I would say if you are looking to increase your credit score, opening up new loans probably isn't going to be the best way. Focus on what you have now, get that good payment history, and you will see that score increase.

Jessica Quindlen: Fantastic. What are some responsible practices for using credit cards to enhance credit scores?

I think that, at least for me, just because of the word credit, I immediately think of credit cards, but they can be dangerous. So, what's a responsible way to use them [00:08:00] while helping your score?

Bree Shellito: You're right, Jess. There's some concern for them, but they are honestly the best tool for improving your credit score.

And I'll tell you why. A credit card, if used responsibly and paid off every single month, you'll never pay a penny in interest. It's a free way you can build, a free way that you can maintain. It's just really that responsible part that kicks in. So, depending on, your situation, there are great cards that are out there with some great rewards.

It's probably based on how you spend your money. Those tools that Emma mentioned, even tools like Nerd Wallet, that'll help you compare some of the cards, find the one that's going to work best for you and offer the best rewards. But any card out there, regardless of the amazing rewards it offers, if you're paying interest on it, it is not going to work out in your favor.

The interest will always be more in fact, than what the rewards will give you. So, just being responsible there. If you are someone that is uncertain about your use with a credit card, and I absolutely understand that, I would use it in a way of maybe finding an accountability buddy or someone that you [00:09:00] love and trust.

If you're looking to build your credit, finding a card that works for you and getting that card, maybe just putting one thing on it. A subscription service, maybe it's your Netflix charge or whatever it may be, and having it set up for automatic payments. Maybe not carrying the card, because that may not be the best choice for you.

Emma Protsik: Put it in the freezer with some water, that's one tip I heard.

Bree Shellito: Yeah, I think that's hilarious. Put it in a bowl of water, put it in the freezer, that way you think on it. Think on it for a minute before you use it.

But just truly using it responsibly because a myth that we bust constantly, people think that you have to carry a balance for it to count. It's not true. You can pay it off down to every single penny. You'll be gaining, credit and you won't be paying any interest. So, paying it off every month is key. Putting something small on it, a tank of gas, a pack of gum, a subscription service. But using it responsibly and paying it off.

One other thing that we hear all the time is hesitation to increase the credit limit. They're like, oh, I don't want to do that. But remember, utilization is [00:10:00] key to your credit score. So, if you have a credit card let's say the limit's $1,000, that feels manageable to you. But you're spending $300, $400, $500 on it every month, you're utilizing more than it wants you to to improve your credit score.

Now, let's say you could increase that limit to $3,000. That'll really free up your utilization if you keep using it in the way you were before. So just being responsible with it. Finding an accountability buddy can be a great tip, but if you're paying it off every single month, you are absolutely going to increase your credit score because the payment history is being affected, the utilization is being affected, and that'll be a quick way to increase it.

Jessica Quindlen: Perfect. Emma, how long does it typically take for positive changes in your credit habits to reflect in your scores? Let's say, I pay off a card or something to that effect. How long is it going to take for me to actually see that they're [00:11:00] noticing my good work?

Emma Protsik: Absolutely. I will say, it is pretty dang quick now. It used to take a little bit longer.

Bree Shellito: Sometimes three to six months before, but a lot faster now.

Emma Protsik: So, information again, it's dependent on what actions you are taking, of course. How much of an effect is, the payment history have on the overall credit score, right?

Positive payments will increase that faster than some of those other categories that we talked about. But payments are reported every single month, so I've seen people's scores go up, just making those payments on time.

If there is a way for you to get high interest debt off of credit cards to free up that utilization, like a debt consolidation loan, a debt management plan, something along those lines. Getting those balances off just the difference in a month is huge.

Jessica Quindlen: Great. That's awesome and exciting to know that it can happen quick, and you don't have to wait too long. So, we discussed sort of heavily how credit cards can really boost your score. What are some other tips for people to boost their scores, small, large, anything?

Bree Shellito: That's a great one, I mean, [00:12:00] sometimes it's really just reallocating the debt.

We talked about the fact that it's revolving loans that are counting against that utilization. Especially with those high interest ones, finding another option for you, whether that be a consolidation loan, debt management plan.

But also just finding ways to use those cards responsibly. A credit card can be nerve wracking, it can be scary. But just finding ways to use those to improve your credit. Those [credit reporting] tools are huge. Don't be afraid to check them.

Another, myth we'll bust here is the idea that checking your own credit will decrease it. It will not. Those tools are counted more as soft inquiries. So, kind of understanding that a soft inquiry is when you're taking a look at it through any of those tools. It's also when you've received a pre-qualified offer.

A hard inquiry is when you're actually applying for something, applying for credit, applying for a loan. That's when those hard inquiries are going to make a difference. Checking it on your own through those tools Emma [00:13:00] mentioned has zero effect and that monitoring of it really helps to improve your credit.

Emma Protsik: Another tip if you are having a hard time getting approved for credit products, to work on rebuilding that, secured loan products are a great option.

You can get a secured installment loan that would act as a personal loan. You can also get a secured credit card. Basically, what you're doing is you're funding that loan. You're funding your own line of credit and you're making payments to it. So that is a great way to make sure that you can get some good information being reported.

I will add that if you are thinking between an installment loan or a credit card, as far as secured products go, I personally favor secured credit cards. Reason being is that longevity piece. With a lot of secured credit cards, after you meet requirements that that institution has, whether it's a minimum credit score or a [00:14:00] set amount of time, you can transfer that secured line over to a regular credit line. Now you have all this great history, that account's going to stay open, continue those positive payments, and now you worked yourself up to get a regular credit card.

Jessica Quindlen: Fantastic. Well, that brings us to the end of our show. Emma, Bree, thanks so much for being here.

Emma Protsik: Thanks, Jess.

Bree Shellito: Thanks for having us.

Jessica Quindlen: Thank you for listening to Sound Cents from Ent Credit Union. Be sure to follow our podcast as well as rate and review us. I'm Jessica Quindlen. I will see you in two weeks, same time, same place.