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Using credit wisely: How to build your credit score and how it can affect your finances

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Building credit is a fundamental skill in personal financial management. Your credit score can affect everything from your money, your job and even where you live. However, understanding how your credit score is calculated and what you can do to improve it is not always easy. Having a good credit score will make it that much easier to hit your financial and life goals.

Episode notes

In this episode, we cover:

  • What is a credit score and why it’s important?
  • What factors go into your credit score.
  • How to improve your credit score or build credit.

Transcript

Brent Sabati: [00:00:00] Welcome everyone to the Sound Cents podcast. I'm your host, Brent Sabati, and today I'm joined by Bree Shellito, our Senior Manager of Community Impact, and Emma Protsik Financial Coaching Program Lead. So today we're gonna cover one of the most important topics in personal financial management, how to improve your credit score.

Now, I feel like credit scores are one of those things that people don't really think about when they first think about their finances, but it's one of those things that are so important to everything else you do with your money. So tell me, Bree, what's a credit score and why does it matter?

Bree Shellito: It's a great question. A credit score is a number that's used by financial institutions and credit card companies to determine risk level when issuing you a loan or a credit card.

Brent Sabati: So generally, who's looking at your credit score and what other considerations do you have to take when thinking about it from a high level?

Bree Shellito: I think that's the surprising thing to so many people is that there's a lot of institutions and individuals that are looking towards credit to just really analyze the risk factor.

[00:01:00] So certainly you know that when you're getting a loan or a credit card, the lender or the servicer is gonna look at your credit, but in addition to those people, it's also employers. Employers is a big one. They're looking to make sure that you are using credit responsibly, especially military. Military actually uses it when increasing their security clearance.

And as we've worked with some military here in Colorado and even our military liaison, there's been times when he was serving in the military that he wasn't able to actually promote someone based on their credit score because they were not allotted a high enough security clearance. So, in addition to employers, you also have cell phone companies, really a lot of different providers, utility companies.

Insurance. Insurance is another one. You'll be paying higher rates if your credit score is lower because that just shows that sometimes that you're, you may be a more risky candidate. Uh, it can also be definitely apartment complexes. There's a lot of different areas that are looking at your credit,

Brent Sabati: so, it sounds [00:02:00] like your credit score not only affects your ability to work with financial products like loans and insurance but can also affect everywhere in your life from career and job opportunities to housing, to a whole bunch of other things, it sounds like.

Bree Shellito: Absolutely. You said it's certainly the opportunities, but as well as the cost.

So regardless of what your credit is, the higher that it is and the better that it looks, you're going to get the best pricing on the goods and services that you're using. So outside of getting the opportunity all together, potentially through a job, through an apartment, through something that you're renting or owning, it's really gonna be the cost associated.

You will pay more for a lower credit score.

Brent Sabati: So, when different lenders or different institutions are looking at your credit score, what is the range of credit score people should be looking at what's considered, a not-so-great credit score versus a really great credit score?

Bree Shellito: That's a great question. On a majority of the scales, and some of them have changed cuz there's a lot of different models and things out there, but a bulk of them are 300 [00:03:00] to 850 and they, kind of go up from there.

So, the different ranges are fairly broad, but really anything 740 and above is the best place that you can be 740 and above. Even though that isn't necessarily considered excellent per se, 740 is going to get you the best rates on anything that you're looking at. We like to joke that the difference between a 740 and an 850 at the very top, which in all of our careers, I've never seen an 850.

We had a boss before that had seen it one time. One time in his entire 40 plus year career in lending. So, 850 is very rare, but the only difference between a 740 and an 850 is room for error and bragging rights. So, if you make a small error, make a late payment, if you're at a 740, you're easy to drop to that other tier, and then you're not getting the best rates.

But if you're at an 850, the likelihood that you potentially would drop below 740 for a small error is not very large. So, it really leaves you a little bit of wiggle [00:04:00] room. But really striving towards getting at a 740 and above is what we recommend to everyone.

Brent Sabati: So, for someone who's kind of being introduced to the topic of credit and credit scores, those numbers, while serving as a good benchmark for where you're at can be a a little bit arbitrary to a lot of people.

So, can you explain a little bit about how these scores actually calculated to give people a better idea of what that breakdown is?

Emma Protsik: Absolutely. So, when we're looking at your FICO credit score and a lot of those other scoring models, there's really five main categories that are being taken into account.

The first one that has the largest impact, about 35% of your credit score is calculated based on your payment history. So, lenders, those other institutions that Bree was talking about earlier that look at credit, like to see two main things that you're making your payments both on time or early and in full.

As you're making those payments on time, it's really gonna start boosting up your score if you are struggling with it at the moment. But again, those two major things is that you're [00:05:00] making your payments on time or early and in full.

Bree Shellito: Do you mind if I clarify something as well, Emma? Because this is where it gets a little bit unfair, and unfortunately this is the system that we all have to work off of.

There are some cool credit products that are coming out that allow some things to be added into the equation, like your cell phone bill and your rent and other things. But the difficult part is most times, unless you're using one of those different credit products, just for making the payments on time, specifically for things like a cell phone or a utility payment, they're not reporting the good things.

They're not reporting that you're making those on time. They certainly will report though if you did not make them on time. So that's where it's really gonna get tricky and sometimes a little unfair is because they'll count it against you, but you aren't necessarily always building up the good credit for making those payments on time.

We're not saying not to do that. Certainly, do that because it will count against you. But the difficult part is it isn't always calculated in that you're making those payments on time, unless you're using one of those like Experian Boost is one of them. [00:06:00] There's a few others that have come out. That one's probably the most famous where it can add in some of those.

Otherwise, they're just not calculated unless you've missed or made a late payment.

Emma Protsik: That's a really good thing to keep in mind. Definitely. I think too, when we're looking at our payments, you know, whether it is loan or you know, phone bills, things like that, the number one thing to keep in mind is communication.

So, as soon as you realize you're going to miss a payment, whether you forgot about it, maybe some emergency came up, just contact that provider, contact the institution, get on the phone with them and just let them know. A lot of different institutions will have programs to really help make sure that you're not getting a missed payment reported, whether it's deferring a payment, meaning it'll go on the end of the loan instead, or giving you a little bit of a grace period. So, communication is really going to be important when we're looking at our payment history.

The next biggest category that is factored into your credit score is something called capacity, also used as utilization. That's 30% of your score.

So, when we're looking at revolving lines [00:07:00] of credit, so your credit cards, your lines of credit, those are things where the balance due can change from month to month as well as the payment.

 So, when you're looking at capacity, aim to use about 30% or less of your available credit, having that reported month to month. For example, if I have a credit card that has a hundred-dollar limit, I would only want $30 being reported carrying over month to month on that.

Anything above that, if you're looking about 30% to 50, that's kind of a neutral zone, but once you get into that 50% or more utilized, that's when you're really gonna start seeing your score drop

Bree Shellito: Can I do a quick myth buster, since you mentioned carrying over one that we hear all the time, People think that you have to carry a balance on your credit card in order for that to count towards your credit.

That is completely false. You can pay it off every single month and never pay a penny in interest, and you're still building credit in an incredible way. Just a cautionary tale though, just because you're paying it off every single month, you still [00:08:00] wanna abide by that capacity rule. Once you've gone over those percentages and depending on when they report, which is not up to us, and you don't really know when they're gonna do that, if you spent, let's say 50%, it's still potentially gonna record is 50%, even though you paid it off completely.

And the other really one we wanna caution against is never actually spending to your full credit limit and certainly never over. There are some cards that'll let you do that. The moment that you hit a hundred percent capacity, that's reported right away, regardless of whether you even pay it off the next day, and that would count against your credit.

Not in a great way.

Brent Sabati: So, would you say that it would count negatively against your credit if, let's say you had a, between all your credit cards and lines of credit, you had maybe $10,000 of total credit available. But let's say you have a credit card that only has a thousand dollars of line of credit, so even though that's under 30%, if you maxed out the capacity on that one card, that's not a good idea either?

Emma Protsik: Nope, you definitely wanna try to reach for one of those with a higher balance if [00:09:00] you're looking for something that's closer to that thousand dollars.

Bree Shellito: Yeah. And as much as it would make sense, what you were saying, Brent, where it's spread across, let's say that you do have five credit cards. The idea necessarily isn't to keep them as a whole under 30%.

The easiest way that we'd recommend is to keep each and every one of them under 30%. Sometimes it just doesn't calculate it as a whole big picture. It'll look at each card individually, but then sometimes it will look at the whole picture. So just to be completely safe, count each card separately, keep them all under 30% would be our best recommendation.

Emma Protsik: Absolutely. Cuz those reporting dates can be all over the board when you're looking at different credit cards and loans you may have.

Brent Sabati: So, when talking about utilization, it's really important it sounds like, to keep track of what your total available credit is. So, if someone is starting to look into improving their credit score, improving their utilization, where can they find what their actual total credit limit is?

Emma Protsik: So a couple different ways to do that. When you first get the acceptance for the credit card, when you do apply, they should let you know the [00:10:00] balance and interest rate. those are two very important things. Love you to jot down somewhere. Just kind of keep in mind really paying attention to those. We recommend downloading any apps, getting online banking set up for those individual credit cards as well.

 I have lots of different apps on my phones for the ones I have, so it's really easy to sign in. Super quick, just check the available credit that I have and what I have on that card so far.

Bree Shellito: just overall as a recommendation as well with what Emma's saying is having an idea of how much each credit limit is, is huge.

Also, knowing exactly what the interest rate is, because as much as we'd advise, in another podcast I'm sure, to keep an emergency savings and have that available, we certainly would not advise you to carry that emergency savings in your pocket. Certainly not in an envelope, because if that's cash, that's unsafe, so in A time at emergency, the likelihood that you're going to use some sort of potentially debit card or even a credit card isn't a bad idea.

You can use that in the event of an emergency, ideally with the funds to be able to pay it [00:11:00] off in full, but you'll wanna look and see what the credit cards are, what their limits are, because in an emergency, the likelihood that you're pulling up your spreadsheets and even potentially your apps isn't big.

So know what your limits are on each of the cards, but also just having the idea in your mind, what the interest rates are. There's some amazing credit cards with some of incredible rewards for travel, gas, cash back. Those aren't the cards that you might wanna use in an emergency unless you plan to pay it off in full, because then you're getting the points, which is great.

But if you're gonna carry a balance, don't carry a balance on the card that has amazing rewards because that interest rate's probably high. Even with great credit, a rewards credit card is gonna be somewhere potentially in the twenties, even thirties, for an interest rate. So, if there's a potential that you might even carry that balance over a month, those rewards are never gonna actually equate to any more than what you've paid.

Emma Protsik: So, the next factor that is, considered when looking at your credit score is our length of credit. So that is just simply the average age of all the accounts that you [00:12:00] hold. So as those different institutions are pulling your credit, they like to know that you have a good history making those payments on time, keeping your utilization low.

So, they definitely do take account, The average age of the accounts that you hold and the longer history you have of those good credit habits will definitely raise your score up.

 The last two factors that go into your credit score definitely are lower they, only make up about 10% each of your total score. It's gonna be new credit, so that's when you have a hard inquiry on your credit with the intent to take out a loan. I also kind of see this as a safeguard for yourself.

Just making sure you're not applying for too much credit, but if you start opening up a lot of new credit cards, Auto loans, whatever that looks like in a short amount of time, it can hurt part of your score. So just be mindful as you are applying for credit. Definitely only apply when you need a product.

One thing that you definitely wanna make sure to do is shop around though for different rates. So don't let this scare you. We definitely wanna mention that it is your right as a consumer to do rate [00:13:00] shopping.

We highly, highly encourage that. So, if you are looking for an auto loan, definitely check out different institutions, see where you can get the best rate. Save the most amount of money. The credit reporting agencies have gotten pretty smart with this, and again, it's very encouraged to do this rate shopping.

So, within a 30-day period of time, you can have your credit pulled by multiple institutions for that same type of loan, that auto loan, and only counts as one hit. So don't let that part scare you. And again, it's only 10%.

Bree Shellito: Perfect. Where we see this playoff most often is at dealerships because the dealerships themselves will actually compare where they can get you the best rate, which is fantastic as a consumer.

So sometimes We see people get a little nervous as they start getting the mailers back that they were either approved or denied for a loan, and sometimes they get over 20 of them. The dealer themselves sent your information through a system that allowed you to look across those different organizations to actually offer you that loan.

So, it didn't actually count as 20 different credit inquiries. In the end, that'll only count as [00:14:00] one. So, if you prefer to do that yourself as a consumer, that counts mostly on an auto loan. It gets a little trickier when you're looking at things like mortgage and credit cards. The best thing we can recommend is just doing your research, looking at the various websites.

Those rates are always posted. Might not be the exact rate that you can get. But we recommend just knowing what your score is. That way you already know what types of rates that you're looking at. Again, if you're at 740 and above, you know you're gonna get those prime rates. If you're below 740, that's when you can really expect to potentially be at those, those higher interest rates.

Emma Protsik: Absolutely know your score. It's a great tip. The last category, again, only about 10% is gonna be your mix of credit. So, we kind of already talked about one type of credit you can get, which is revolving. So again, revolving credit are going to be those credit cards, those home equity lines of credit, where the balance and the payment due can differ month to month depending on how much you charge on it.

So that's gonna be type number one. The other type of credit that's out there are your installment loans. So those [00:15:00] are where you take out a set amount, let's say $25,000 for an auto loan. So, my payment will always be the same amount, due the same date of every single month. Once that loan is paid off, it's, it's paid off.

You can't necessarily add to it unless you're looking at doing a refi, some other options there. But mortgages, auto loans, personal loans, those are going to be a different type of credit. So again, creditors, different institutions like to see how you handle different types of debt. So having a mix of both is always going to help boost your score.

We never recommend taking out, credit that you do not need, though again, this is such a, a small part that goes into your credit score. So don't get discouraged if you don't have a certain type of loan just because you don't need it yet. Maybe that time will come.

Brent Sabati: So, between the five different factors of what comprises your credit score and the different weightings between all of 'em, it really seems like there could be a lot of different strategies on how to improve your credit score.

So [00:16:00] can you talk a little bit more about what are some of the best and most effective ways to build or rebuild your credit score?

Bree Shellito: Absolutely. So as Emma said, those first two, those are the big ones. You've got 35% on payment history, 30% on capacity and utilization. So that's making up a huge part of that 65%.

The others fit in there, but those are the two to really concentrate on. So, when we're talking about payment history, like I said before, not everything counts. Not unless you're using some of those booster products. So really the ones that are counting the most are gonna be loans and also credit cards.

So, I understand that over the last several decades there's been some fear around credit cards. However, we absolutely recommend that a credit card is used not only to build credit, but certainly to maintain credit. And to boost your credit score. A credit card itself can be completely free if you're paying it off every single month.

So, we definitely would recommend doing your research at this table. We've got the three of us. Each one of us is gonna have a different need, and a credit card is gonna suit us best [00:17:00] for whatever we want. If you're somebody that likes to travel, a travel card is great for you. I'm not a traveler, but I do shop at different locations that I'll get higher rewards on based on where I shop.

If you're somebody that drives a lot, a gas card makes complete and total sense for you. Think about where you're spending most of your money. That's gonna be the card. There's so many different tools out there. We definitely recommend taking a look at those. Even when Ms. Had mentioned knowing your score, those different score systems that are out there often give you recommendations based on your profile.

So, and really often they'll give you estimates on whether or not you'll be approved for the card as well. So, things like Credit Karma. We also have one here at end. We work at the Savvy Money Tool. If you go to ent.com/yourcredit, you can get that information. There's also Nerd Wallet, that's a great resource. You can narrow it down to what you're interested in, whether it's travel, gas, there's, there's tons of different options that are out there that you can research on and, and see which one's best for you.

But if you pay it off every month, [00:18:00] you'll build credit very quickly. It's really gonna get that score up and you're not gonna pay a single dime. One of the things that we like to talk about in our Classes is really the cost of credit when it comes to an auto loan, and it's a great example because let's say that today Emma and I went and we bought the exact same car for $25,000.

If my credit score's not so great, let's say mine's 550, I might be lucky to get an auto loan anywhere, and if I am, let's say my interest rate's something like 21% Emma's credit score is better. Let's say hers, is that 740 and above? Maybe she's looking somewhere around the 4% range. And just depending on what the rates are, definitely would recommend always checking rates on the rate sheets.

So, these are just information that I'm putting out, but Emma and I, over the length of, let's say 72 months, cuz that's the most common car loan that we're seeing. It used to be 60. We're seeing them at 72 now. So people are going from that five year to that six year over the length of that loan, remember we both pay $25,000 for the car, I will have spent over $40,000 over the length of my loan on that car for [00:19:00] Emma, only 27,000.

So the difference in those two, I'm spending over $19,000 more for the exact same car simply because of my credit. So I say that to caution folks from starting with something other than a credit card or a line of credit.

Really the same thing. Those two things are gonna be interchangeable if you're more comfortable with that. But starting with something, an auto loan for example, if your credit is not great, you're gonna spend a lot of money. So something like a credit card or a line of credit can be completely no cost if you're paying it off on time and early, and you're gonna be building your credit quickly.

Emma Protsik: We always like to just say, to treat your card like cash, and what we mean by that is, don’t put more in than you have money to pay off. Again, before or on that due date. Some tips you can have is maybe throw your Netflix subscription, something you're already paying on that credit card and put the card away so you don't...

Bree Shellito: set it up for autopay.

Emma Protsik: Exactly, exactly. So just get something small reoccurring on there that you know you can pay off

Bree Shellito: One tank of gas a month.

Emma Protsik: Love it. And then you're [00:20:00] already building your score because you're getting that great payment history again, which is the biggest factor of your score. Your utilizations being nice and low, cause you're paying it off.

So that's definitely a great way to start building credit.

Brent Sabati: So just to hammer home the importance of a good credit score. Going back to your example, Bree, about the difference in auto loan and how much interest you pay over the life of the loan, that $19,000, that's not just at the end of the loan. That's a significant impact on your monthly budget, right? You're seeing that difference every month.

Bree Shellito: Absolutely. Even the payment alone with those exact figures, Emma, your payment would be, is it right around $350 or so? My payment is about $640. So, you’re exactly right, Brent. Every single month I'm gonna feel that hit. And as you said, it's not added at the end.

That's added every single month. So, if I can get it paid off a little early, fantastic. But how can I do that with a payment of over $600 a month? So it's, it's a lot of money.

Emma Protsik: Your credit can definitely get costly. So Brent, you brought up a great point at the beginning of this podcast [00:21:00] that not a lot of people maybe focus on credit necessarily when thinking about their finances. They're focused on their savings and different financial goals they have.

But in the example Bree's been talking about, having those monthly payments that are higher, paying more for the same product is going to eat away at a lot of those goals. Whether it's your retirement savings, emergency savings, short and long term. So definitely a big part of the big picture when looking at your financial wellness.

Bree Shellito: Yeah, there's a lot of big names out there and a lot of them have fantastic ideas around savings and really getting money saved. But making sure that you're using credit to the best of your ability is so huge. We talked about all the places that pull it, that look at it, uh, wanna make sure that you're getting the best rates, even on things like insurance, on utilities.

Having bad credit could mean that even if you're able to rent an apartment or get into a home, you might not be able to get the utilities turned on. So, makes a big picture difference in a lot of ways.

Brent Sabati: So it definitely sounds like capacity and utilization play a huge role in building your [00:22:00] credit, and that makes sense with it being, majority of how your credit score's calculated.

But what are some other strategies people can look at if they're trying to build credit?

Bree Shellito: If they're starting from building, then we definitely recommend just taking a look at your options, seeing what those things are. The other thing is if you're brand new to credit, sometimes it's complicated to actually get started. So what we do recommend is having a relationship with a financial institution, whether that be a credit union, bank.

If you don't already have an account, absolutely would recommend starting there. Not that that's gonna build credit, just to clarify, but it does start the building of a relationship. And if you're building a relationship with an institution, then that institution begins to trust you, and that's a fantastic place to start, either with a small line of credit or a credit card from that institution.

Sometimes also store credit cards can be an easier place to get started as well. Those ones sometimes look at a lower credit score or no credit score and can be easier to apply for and to get initially. So if you don't already have a relationship [00:23:00] established with a financial institution, then a store credit card's a great place.

But those are gonna be the very best places to start. And the tools that we mentioned earlier as well, they'll often have recommendations for you based on your situation. So depending on what it's seeing, if you're brand new to credit and just getting started, then it might not have anything.

It might be too thin of a profile to see, but otherwise, definitely check with your own financial institution to see what they might be able to offer. There's credit builder loans, some different things and even secured products like a secured credit card or a secured loan where you can actually put some of your own funds almost on hold for a short period of time.

You're kind of loaning yourself money in a way but building credit that way as well.

Emma Protsik: A couple other options too. If you are younger, the different institutions out there, the credit card holders, when you're getting close to 18, you're probably gonna be getting a lot of things in the mail offering student credit cards or entry.

Those are definitely great options as well. Again, the interest rate might be a little bit higher, but if you're paying off that balance, don't need to worry about it too, much [00:24:00] at the moment. Another option you have is being added as an authorized user. On an existing account. So, an older account, whether it's a relative, maybe they have really good payment history, low utilization.

You wanna make sure those two things are there cuz when you get added as an authorized user, it doesn't even necessarily mean you have to have or use the card all the past information from that card, so the payment history, what the utilization rate will then be added to your profile. So definitely an option there as well.

Bree Shellito: It's why it's important to choose a trusted individual [Yes] as well. So a friend or family member that you know, either does have good credit. It's no good getting added as an authorized user to a card that's not used responsibly.

Emma Protsik: Yeah. Make sure you trust them.

Bree Shellito: So if you're not actually getting started, and let's say you're rebuilding the credit, another great thing to do, and we talked about some tools on how you can access, there is a government site that you can use.

It's annualcreditreport.com. So there's tons of commercials that are similar in name, but that's the one you wanna use. That one's completely [00:25:00] free. It allows you to get a free credit report from each of the three bureaus, meaning Equifax, TransUnion, and Experian. And you can do that once per year.

Why we recommend you do that. It doesn't give your score, which is okay. There can be a cost associated to getting the score, but there's a lot of free tools out there that we talked about earlier.

Why it's important to check the report is to make sure that all of the information is accurate. Your score may be affected because there was maybe a number that was a different number thrown in when someone else applied for credit. So checking for accuracies is huge. Even accuracies as far as addresses. If there's an address in there that isn't yours, there's a lot of different ways and a lot online that you can actually dispute those. So that's actually removing the information from your credit report itself.

That way none of that additional information can be reported as you. So we would recommend taking a look, making sure all of the information is yours and accurate. It's also a good idea to do that because when you're applying for new credit, sometimes you'll get those questions that are asked as you're going [00:26:00] over that they'll ask you past addresses, past employers.

If there's something on there that's inaccurate, you're never gonna be able to answer that question correctly. So making sure that the information that you're seeing across all three bureaus is first of all, accurate, but also that it is your information is important and disputing it if it isn't.

Emma Protsik: In annual credit report, when you do pull from either of those three bureaus, they really walk you through that process, let you know exactly what to do for disputing, so they make it very simplified.

So definitely be checking annual credit report. Again, I like to set a reminder every four months on my calendar to pull one of 'them just so I can monitor my credit throughout the entire year. Just always have a good idea what's being reported on there.

Brent Sabati: So we've talked a bunch about different ways to improve your credit score, but I think it's equally as important to know the things that could negatively affect your credit score.

So, earlier in the podcast, Bree, you mentioned money myths and things that you hear commonly throughout the personal finance space. And one of the things that I see a lot of questions about [00:27:00] is what should I do if I have a credit card that I haven't used in a while, or a credit card that maybe I don't use that often and it has a high annual fee.

What can I do with that? Should I close it? Should I try to downgrade it? What's the best option there?

Bree Shellito: That's a great question, Brent. We hear that a lot as well, especially if it's the first credit card that you opened. So especially as we're talking about building credit, what we'd recommend, and we've mentioned a lot of credit cards, do your research.

Again, we would not recommend that you do open that first card that has an annual fee, but it's a myth out there that you wanna leave your first credit card open forever. It's not necessarily wrong and depending on how soon you got other credit is where that's gonna make a difference. Because when Emma was talking about the length of credit, let's say that I opened a credit card 10 years ago and I've had that credit card, but I've opened nothing else.

By closing that card, oddly enough, it actually gets rid of the history. So it's as if I've almost had no credit at all, unless it's negative, and then it's gonna show that I didn't make my payments on time and all the [00:28:00] things, so it really would affect the length of credit. Now remember, that percentage is not huge.

 So the length of credit that Emma was talking about earlier, that's only 15% of your credit score. Now, it definitely still is a factor, but not necessarily the larger factor as long as things like payment history, but remember, the payment history could potentially disappear off of my credit if I delete that.

That's why over time, and often a lot of recommendations are to have more than one credit card. That's okay. Especially from a utilization standpoint like we talked about earlier. And let's say that that one is for gas. You use that one for gas, and you use something for another.

Another recommendation, just to throw this in here as well, is using some of those tools that Emma talked about, some of those apps, a lot of them are aggregators, they call them aggregators, where you can pull everything together into one place. Ent has one as well, if you're an Ent member, you'll already find that within Ent.com.

It's called Ent's Money Insight, so it pulls all of the accounts from other places. You just put in the login for that and it shows it in one spot that allows your budgeting to kinda stay [00:29:00] on point as well, because then you're not looking at multiple different websites and apps to determine where you're spending your money. But so we'd recommend that.

And then also we recommend that over time you continue opening different accounts. So just by having one and keeping that open for 10 years, that might be a bad idea for you to actually close that card. Now, what you could potentially do is contact the company and negotiate. Potentially they have another card product that they can transfer you over to that doesn't have an annual fee.

It might not have maybe the great rewards that the current card has. So getting in contact with the company is one idea, but for everyone, it's not gonna necessarily hurt them. So if it's something that you're paying money for, another great recommendation would be to use a score simulator. So a lot of the different credit products that are out there for you to check your score also have a simulator attached, and within that simulator you can say, "If I closed this card today, what would happen?"

I wouldn't necessarily be afraid if it showed that it's gonna drop a few points because the [00:30:00] likelihood that you'll make those few points up over the next few months is good. But really overall simulating that is a great idea because there's so many factors.

Today the three of us could close a card. It might raise your score, Brent, it might raise your score, Emma. It might lower my score. So there's no direct formula in saying yes, never close a credit card. Especially if it's one that's hurting you. Take a look at one of those simulators. If it's one of those ones that's costing you money and you don't use it frequently, take a look at it, but no real sound advice on whether it's gonna work for each individual because credit is so personal.

Brent Sabati: So Bree and Emma, you both have talked about different credit monitoring tools, different simulation tools, and even just the three different bureaus you can take a look at to get your credit report. So if I'm trying to find out more information about what could improve my score, where's my score at what's on my inquiries and I'm looking for this information, should I be paying for it? Is it gonna be free? Or what should I expect to make sure I'm going down the right path. [00:31:00]

Emma Protsik: I think that there's enough free tools out there where you should never, ever pay to check your own credit again, annual credit report.com to see what's being reported and just do your research on different monitoring tools out there.

So again, ent.com/yourcredit is a free tool that will pull your TransUnion vantage score. Keep a good eye out on that. There's plenty of others out there for free.

Bree Shellito: The last thing we wanna do is go into a rabbit hole of all the models, because there's tons, there's tons. Emma just mentioned vantage score. A more common one is FICO score.

There's a lot going on out there. You don't need to worry about that necessarily as a consumer. But the one thing that you should know is that the scores that you're pulling through some of those different partner agencies, there is gonna be a discrepancy sometimes on who you go through as your lender.

So today, if I went and pulled my score on one of those tools, which we highly recommend, I just need to know that it might be slightly different if I actually go into my credit union or bank to apply for a loan depending on what they use. Years ago, the three bureaus used to be regional, so depending on the region that you live, that's where it was being reported.

[00:32:00] So that's changed. That's not quite the case anymore. I'll say from an Ent perspective, we actually report to all three bureaus. So if you're paying your loans on time with us, it's counting against all three bureaus, which is amazing. It could also be negative, but we don't need to worry about that. Cause you all are paying your bills on time. It's phenomenal. You're listening to this podcast and helping yourself financially.

But some companies choose to only report to one or two. So you may check your Experian information and it may not show a credit line that it would show on Equifax. Unfortunately, there's nothing as a consumer that you can do about that.

Companies choose who they're gonna report their information to. Ent itself, we actually use Experian to pull information. So when we're actually pulling information, we're not pulling all three either. We're pulling Experian, however, we're reporting to all three to make sure that you're getting credit for how you're paying your loans.

So don't wanna go too far down that rabbit hole. Know that there's a lot of different models and there's gonna be a discrepancy in the score. So what we talked about earlier, kind of that 740 to 850 difference. It's room for error and bragging rights. So [00:33:00] in that case, if you're just really waiting to apply for a loan, once you see one of those credit monitoring tools, hit 740.

Know that as soon as you actually go to pull it, we would recommend getting it a little bit higher than that 740 to be sure that you're really gonna get those best rates depending on where they're pulling from.

Emma Protsik: I think that's a really great thing to keep in mind, and it just kind of ties up the bow nicely.

That credit is really complex. There's lots of nuances. It is different for each and every one of us. It's complex system. Lots of different things go into it, but it's the one we have, it's the one we have to work with. So just doing what you can to help improve your score, make sure you're in a good place where it's affordable to take out loans you need, or pay for different things like utilities and your phone.

Brent Sabati: So if I'm someone who's on my journey to improve my credit score, I have learned all the strategies I know how much each factor weighs into the score, how long does it take to actually improve? Should I be going into my app and checking my credit score every day, every time I make a payment to see, is it going up [00:34:00] two points? Is it going down a point? What should I expect?

Emma Protsik: Well, Brent, the short answer to that is it depends for how long it takes to improve. Signing into those different tools and being diligent, checking your score daily is not something we actually recommend.

We definitely don't want you to start being discouraged by what you're seeing because it does take time. There's no minimum, maximum average number of points that your credit score will jump or drop. Depending on different actions that you do, and again, Bree mentioned it depends for each individual and their situation.

 How long it takes to boost your credit depends on the specifics for why your credit score was lower to begin with. If the major negatives on your credit score are your utilization, maybe they were those higher balances, then paying off your balances will actually improve your score drastically in a single month.

But again, we understand that takes time. That's why signing in daily might not be the best thing for you to keep your motivation up. If your score was low, maybe because of collections accounts, or maybe the couple missed payments there, [00:35:00] then it might take several months of making those payments on time, getting into the habit of that, having those on time payments being reported to see that movement in your credit score.

Bree Shellito: We are seeing it move faster. So it used to take upwards, sometimes of 90 days to even make a difference, especially when you were getting started on credit, you'd have it established or using your credit card. Sometimes that wouldn't reflect for over 90 days. We're seeing it faster, but to Emma's point, it depends on what day that it actually reports.

Sometimes it depends on the credit bureau, all things that, again, as a consumer we don't have control over. So agree with Emma completely. Don't get in there every day. Don't necessarily get too caught up in the number. Sometimes you will see changes from day to day. A lot of those credit monitors allow you to pull it every single day, but don't get discouraged.

Know that it does take time, and again, depending on what it is that you're trying to overcome, it's gonna take different amounts of time and for each and every person.

Brent Sabati: So credit obviously is one of the most important pieces to your financial puzzle it seems like. So if you had to leave the audience with [00:36:00] one key takeaway from today's episode, since there's so many different factors and tips and strategies you can use to improve your credit, what would it be?

Emma Protsik: I think my number one tip or just recommendation is again, just checking in on your score.

Get a really good understanding on where you're at currently and where you would like to be and what actions you can take to get you to that spot where your credit's better, maybe getting those better rates or approval for different loans. So like I kind of mentioned, I like to set reminders on my calendar to pull my credit report.

That way I know what's being reported on it. I like to sign-in to different credit monitoring tools. Again, that's Savvy Money. Maybe Credit Karma every now and then. Just to, again, make sure that my score is where I want it and need it to be.

Bree Shellito: Great idea, Emma. Especially with a lot of the fraud that's happening these days, we're seeing a lot more of that. So even if you know that you're not doing a whole lot with your credit monitoring, it is huge.

Mine would definitely be paying your bills on time all the time, if not early. As Emma said, payment history is 35%.

That is a huge piece of that puzzle. So making sure that [00:37:00] factor is really counting in a good way for your credit is huge. Payment history is a big one. That's one that I keep track of for myself all the time. For me, I do like to use a credit card frequently to make sure that I'm getting the rewards.

I use it for nearly everything except the atm. Each and every week I'm going in and paying off that credit card in full to make sure that it's never kind of counting towards my utilization and keeping that below 30%. My personal goal is more so keeping it around the 10 to 15% mark, just because I put everything on it, but I pay it off every single week.

So staying on top of it for me is really important, and then I also stay on top of my budget.

One other reminder is. Like we talked about in the beginning, a credit score is used to determine risk. What we wanna make sure to mention is that there's been some difficulties. We've all been through some difficulties over the last several years,

There's always a way out of it. Using some of these tools is a great way to do that. We're also well aware that if you find yourself really in debt, you are not alone. in Colorado alone, the average [00:38:00] credit card debt that people carry month to month is over $7,000. So having a bad credit score by no means, means that you or anyone else is a bad person.

Brent Sabati: So that's about all the time we have for this episode today. Thanks so much, Bree, Emma, for joining and sharing some of the awesome credit building tips.

Bree Shellito: Thank you so much for having us.

Brent Sabati: Thank you, Brent. And we hope to catch you all next time on another episode of The Sound Cents Podcast.

PLEASE NOTE: The information presented in this episode is intended to be used for informational purposes only and should not be considered advice. Consult a financial, tax or legal professional to see if the information provided in this episode is suitable for your situation.  

 

Information stated is current as of the time of recording and may be subject to change in the future. 

 

Third party products and services mentioned in the podcast are done so for informational purposes only and should not be considered endorsements or affiliations unless stated otherwise. 

 

Any opinions of guests or third parties on the podcast are strictly their own and do not represent Ent Credit Union.  

 

Ent Credit Union is insured by the NCUA and is an equal housing opportunity lender. Visit Ent.com for more information.