Episode Transcript:
Miesha Williams 0:11
Welcome to the networthy podcast. I'm Miesha Williams sharing with you money, tips, tricks and advice for the rest of us how to get it, how to save it, how to make it work for you.
Miesha Williams 0:26
So I realized that a lot of the conversations that I've been having with people during this time of self isolation has revolved around credit, how to build good credit, what goes into having a good credit score, the type of credit score you would need in order to do certain things like purchase a home.
Miesha Williams 0:44
So with having those conversations, I've realized that a lot of us have not been taught how to build a good credit score or what makes up their credit score, how your credit score can be affected, because that's usually not something in a lot of cases it's usually not something that you come across, unless you're specifically looking for that information. You know, like, we've never really had a class on it. You know, like, nobody really sat you down and been like, here's how to do your credit score. Like here's here's how to figure out your credit situation. Because finances isn't really a topic that people like to talk about, because it kind of makes us uncomfortable to like, really look and see what our financial standing is. Because a lot of times we can say we have goals like okay, we say I want to buy a house or I want to, yeah, we'll go with that. I want to buy a house. But then you say I want to buy a house in this many years, but you haven't really started putting the savings together that you need to you don't really know how much you should be saving right now at this moment to make sure that you have the house in so many years. You haven't started looking at your financial standing your credit score or figuring out you know, like where you want to be by the time you're buying a house. So yeah, we're gonna go over that today.
Miesha Williams 1:57
I also want to add that the advice that you get on how to leverage credit is going to be different depending on who you're receiving information from. So you do have some financial experts who will say, you know, don't use credit, everything should be paid for in cash. So I'm not telling you whether or not you should use credit what I'm saying if you're interested in your, your credit situation, then we'll dive a little deeper into it. You know.
Miesha Williams 2:29
So my first brush with credit was with a credit card like most people, so when I was in college, it might have been my freshman or my sophomore year of college. I don't remember, I applied for a student credit card for the sole reason of, I had broke my phone and I wanted a new iPhone. So I wanted a new iPhone. Obviously I didn't have any money. I was working three jobs while I was in college. So I apply for a credit card, I got approved for the credit card, the student credit card, which has certain, you know, like benefits for students, I apply for this credit card I got approved and I was able to buy the cell phone which at this time, it was while you could still get off phones for not a million dollars. So obviously I was able to purchase the phone on this credit limit that I have received.
Miesha Williams 3:27
So I haven't always made the best decisions with you know, when it comes to credit, like you shouldn't be opening credit cards to buy phones, obviously. But I would say that that was probably the best decision that I made early on without realizing it because I have now built a credit history off of that card. So now it's showing years, so what was that like eight years ago, so years of just like good payments, making good payments on time payments on that card and keeping the balance of that card relatively low.
Miesha Williams 4:02
So the first step when you're trying to figure out where you currently stand where your current credit score stands, compared to where you would like to be, will obviously be to check your credit score. So I know that a lot of people use Credit Karma I personally don't use Credit Karma. But a lot of people use Credit Karma. Because you know, like, it's available you see the commercials it's there, it gives you a credit score. The reason I don't use Credit Karma is because it only takes like it only use the information provided by two credit bureaus. So there's three major credit bureaus that have a file on you and your credit situation. Credit Karma looks at two those three and that's how they decide your credit score. When I am trying to see where I stand with my credit score, I actually use a FICO a FICO score, and that is different from your Credit Karma score because it uses all three major credit bureaus to receive information on you, you, you.
Miesha Williams 5:07
So I use a FICO score. And it wasn't something that I had actually looked into. But remember I said I got that first card when I was in college and with that card came the option to see your credit score every time you log in to see your FICO score every time you log in and explains, you know, like, if it went up, this is why if it went down, this is why, here's how much of your credit limit that you're utilizing over all of the credit that you have out there. So if you have other cards or whatever.
Miesha Williams 5:42
So if you want to take a look at your FICO score, there are places online that you can do this. So you could probably just Google, you know, like FICO, and see it, but if you do have certain credit cards, you should be able to see your FICO score through them. So like discover for example, if you have a Discover Card you can go onto Discovery's website and check your FIFO score. If you don't have a card with discover, but you would still like to check your FICO score, you're able to do that you just have to make an account. It's not a credit account or anything. It's just like you were making, like just a login, a login and password like you would do when you're logging out of logging out while you're checking out on an online store. So you don't have to pay for it is completely free. They're not going to use your information to sign you up for any new credit cards or anything. Just go to discover, say, log in and find your FICO score. Yeah.
Miesha Williams 6:37
So there's also what was it Capital One. Capital One also has a credit score that they give their cardholders and I do know this because I also have a card with them. And they have a score that they give the card holders and through a service that they call creditwise and I believe that you're able to sign up for creditwise even if you don't have any Credit out with Capital One. But I'm not completely sure on that, but they have an app called creditwise. So I'm assuming that they allow non members to sign up for this. And it will give you your score, it'll actually give you more than just your score it gives you like your whole credit report that they run for you. And it completely is completely free. And of course checking your FICO or checking score, the Capital One doesn't affect your score. And it's free and it doesn't hurt you. So the issue with Capital One also is that I do believe that they're only pulling from one credit bureau, but I'm not sure I know that this is not the same as your FICO score. So your your score through the creditwise app might look different than your FICO score. But the benefit of the creditwise app is that you're able to actually see everything on your credit report. So if you had any closed accounts, like let's say you got a Victoria's Secret credit card and you closed it.
Miesha Williams 7:59
You can see the closed accounts you can see the open ones. If you have student loans or car loans, you're able to see all of this and then it explains to you why your score is the way that it is. They have a simulator also, which I like, which you show like, Okay, well, I'm deciding that like your stimulus check. For example, let's say you got your 1200 and you wanted to pay off some debt. But you didn't know, you, you was paying off the debt, specifically to raise your credit score, but you want to know how much would affect your credit score to pay off that debt. Now, you could add that into the simulator on the credit wise app, it'll show you like, okay, your score, you know, if you pay this much today, your score will be raised by 38 points next month.
Unknown Speaker 8:44
It also shows that okay, well if I close this credit card, what happens and so forth, and so forth. So it's actually a really good benefit. I do recommend checking your FICO score because usually if you're going to take out a loan or apply for a new credit line. They're looking at your FICO score too. So it's very important that you look at your FICO score. But if you want to use another service like Credit Karma, and creditwise on the side, then yeah, it benefits you.
Miesha Williams 9:22
This episode was created using the anchor app, a free podcast creation tool, which allows you to record directly from your phone or your computer. I'm actually recording in my car right from my phone right now. You can download the anchor app or go to anchor.fm. To get started, believe me it's the easiest way to get started with your podcast, download the anchor app today.
Miesha Williams 9:56
So let's say you've now taken a look at your credit score and you went into signed up at discover or credit wise or Credit Karma somewhere and you're now able to see your credit score and exactly what is on your report and you know, you can see where you stand. So it's either gonna be in a better or worse position than you initially thought. Congratulations step one, you know your credit score. I would advise if you currently do not have any credit cards, or any you're currently not making payments to anything that affects your credit. So lets start with credit cards because that's where a lot of us mess up. I would advise if you currently don't have a credit card, and you don't have a budget in place that you don't run out right away and get a credit card. Because if your mind is not like trained, your mind does not understand how to manage money that you have in your pocket and your current bank account, then add in a credit line on top of that is not going to help you It's, you're probably gonna end up in a worse position.
Miesha Williams 10:58
So what you should be doing now that you see your credit score, and let's say you don't have a credit card yet, you should be sitting down and trying to budget. So we've talked about budgeting here before, you need to figure out exactly how much money you have coming in, and how much money you have going out. So after you create your budget, you, you know, set your budget and you're able to live life on your budget for a month or two, then maybe then you go out and you apply for a credit card.
Miesha Williams 11:26
Now, when you get this credit card, you see the credit limit, and now suddenly, all this money that you currently don't have, I mean, as you know, like you really didn't have at the time you have all this money, what are you going to do with it? You're going to be smart about it, because you have to pay it back at some point. And the interest that comes with credit card payments are high and they can get out of control. Right? So you might think like, Okay, well, I'll just run to the store real quick and I'll buy this. You pay, you put it on a credit card. You don't pay it, pay it off right away, okay, fine. But now you're looking and you're seeing that the minimum payment that they have you makeing towards this card is only a couple of dollars over the interest that they're charging you every month to maintain the balance on it. So where's your money going to interest you're now paying the credit card company, all this money and your balance is barely moving. Congratulations, you played yourself.
Miesha Williams 12:20
So you want to set a limit on how much you're going to spend on this card and that limit should not be the max of the credit limit that they give me, right? So people usually say 30%. So if you are, if you have a 1500 dollar credit limit, then you want to look at what 30% of that is. And you'll say okay, well I'm not going to have a balance on this credit card over that 30% limit. So with a credit card is like a balance, you want to make sure you you are using it and it's active and you're carrying a balance, but you want to also make sure that it's not the balance is not too hot. So 30% is usually the number people say.
Miesha Williams 13:01
I've had people tell me now that I'm looking into buying a house, that that 30%, for me should now be 10%. You know, because you're looking to build your credit score for a specific goal to buy a house, you want your credit score to be as high as possible when you buy your house, you know. So I've been told to get my 30% percent down to 10%. But it depends on you, maybe you don't want to keep your balance, all the way up 30% is your max. Basically, you know, like, maybe you don't want to hit the whole 30. So you going into 10 or you go to 15, or you going to whatever. But as soon as you start keeping the balance over 30% on your card, then you know, you might see you might start seeing your score affected by that. If you max out the card, your score is going to be affected greatly by that. And after a couple months, you're going to start seeing your score go down by a lot just because you're carrying a high balance on that card. So if you've got a 1500 dollar credit limit, and you've used 1400 of that credit limit, and not only are you paying huge fees and interest but your credit score is also going down at the same time.
Miesha Williams 14:03
Another like misconception or thing that I see people do wrong is where they'll go to the store and they'll buy something, and then they pay it off right away. So your credit card company is only reporting to the credit bureaus once a month. And then the day is usually around the same time that you're getting a statement. So notice with my cards it's, like, I'll receive my statement like three days after I know that they report it to the credit bureaus.
Miesha Williams 14:30
Um, so yeah, you want to wait at least wait until you get your statement for the month with that amount, you know, pay that amount off then but not to the next month. You don't want to put the same you know, like the same amount right back on before they report again. So like let's say in January, they report that you used $500. Cool, February comes around. After you get your January statement, you pay with 500 off but let's say you go and you put something else on there. That's $550 now to the credit bureaus, it doesn't look like you paid that amount off, because you have already added more to it before they go and update that to zero. You know, in the same way, if you go to the store and you buy something and you pay it off right away, it looks to the credit bureaus that that you never bought anything on their card, you know.
Miesha Williams 15:21
So, I hope I'm explaining this clearly. Because nothing about this be clear. So it's like you want to just want to know when your credit card company is reporting. So let's say you now have your credit score, you have a credit card, and you're keeping the balance under 30%. Another big thing is that you want to make sure your payments are being made on time. Anything that affects your credit score, your student loans, your car payment, your credit card payments, anything that directly affects your credit score, you want to make sure that payments are being made on time, because when you make a late payment, it goes as a negative mark on your credit report and that's something that's hard to get off. So make your payments on time.
Miesha Williams 16:05
Another thing is when you're making these payments, you want to make sure that you're making more than just the minimum payment that they're asking you to. So this is specifically for credit cards because of course your student loans and your car payment that is going to be dependent on like, a whole different scenario, before you credit cards. If they're telling you your well your minimum payment is $15 a month, then maybe you, you pay $30 a month towards that because now you're getting more of that principal balance down and reducing how much you're going to end up paying in interest. So you're keeping the balance under 30% you're making more than a minimum payment. You know, you should be good, right?
Miesha Williams 16:47
So, one thing that I like to do is make sure all of my bills that affect my credit is on auto pay so my student loans, my credit cards, my car payment, make sure all that is on auto pay. So I know what day I get paid during the months, I know, my due dates for these certain bills, I make sure that its automatically coming out and that the money is in my bill account in order to handle that so that I'm never forgetting to make the payment because I wouldn't want to have a late payment mark on my credit report.
Miesha Williams 17:18
So if you do have late payments that you know, like late payment marks on your credit report already, then the best thing to do was would be to Now make sure the payments are being made on time, because like a gradual and consistent history of making your payments on time will help you even with those negative marks. But one thing I've noticed with especially our parents generation is that they think that every bill affects your credit score and it doesn't. So your phone company, for example, let's say your at&t or Verizon. If you go a couple weeks late paying one of those, they won't put that as a negative mark on your credit report right away because it's not a credit agency.
Miesha Williams 17:56
They might give you a couple months to pay it off if they can get in contact with you, though, and a long time has now passed, they might then decide to sell that debt to a creditor. Right? So now this becomes a debt on your credit report. And that's where it becomes a problem. So as long as you are I would recommend paying all your bills on time, or paying all your bills, when you can, I know it's not always possible to make sure everything is getting paid. But what I'm saying is something like a cellphone bill being late won't affect your credit score right away, like your credit card would. So like the whole whole thing about this is just building good habits, you know, like being consistent with your good habits. So there's things that we can control to help improve our credit scores. And then there's things that might take a little longer that we really don't have control over like time because how long you're how long you've had a credit history also matters, you know, someone who has a credit history 25 years will not be looked looked at the same as someone who just started their, you know, credit situation today. So if you apply for a credit card today, No, you won't have years and years of credit history for lenders to look at. And of course, this, these are all things that lenders are looking at when they're deciding if they are going to, you know, lend you money, like a loan for a house or a car or anything.
Miesha Williams 19:17
So your score might be affected, or your score will be affected by not having a long history of making the payments. So instead of worrying about that being something that you can't do right now, what you want to do is just like start on the road, the path of making these good decisions when it comes to your credit, you know, so making your payments on time keeping the balance low, things like that.
Miesha Williams 19:43
For those of you with kids, certain things that you can do to ensure your child has a good credit history. But that also gets tricky. So like a friend of mine, her parents made her an authorized user on their credit card while she was still a minor. So that means now when lenders go to pull her credit history, they can see that okay, well, she, you know, she's been listed on this credit card for this many years. And if those good payments have been made on those cards over the time, now that goes and benefits your child. But if you are not in a position where you can ensure that will happen. So if you open a card and you put your child's name on it, and you're unable to make payments on it, for whatever reason, you might lose your job, you might you know, things happen, life happens. Now, that is a risk that you're taking with your child's credit, so is all about how you want to go about it because you don't want to open that card and then you have a high balance on it. You can't make the payments on it. And now your child's credit score is suffering because of decisions that you made, you know, like with good intentions, that also goes to like putting bills and your kids name. If those accounts aren't paid It will hurt them in the long run and you never want to put your child in a situation where you're you know, kind of fucking it up for them before they get a chance to fuck it up for themselves.
Miesha Williams 21:06
So yeah, I think this is going to end up being like a segmented type of situation because there's really so much that you get into like credit score as it comes to buying a car or buying your home or, you know, like where do I need to be with, you know, what's, what's a good place to be? Like you could really get so deep into this and I'm not going to turn this into a hour long episode of the podcast. So we'll see what happens.
