All About the Credit Score – Episode 343

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[00:01] Welcome to the Prosperity Podcast. On this episode of the Prosperity Podcast, we’re going to be talking about your credit score. And oftentimes, we’re talking about this arbitrary number, but it affects almost everything that we’re doing. We’re going to explain how you can set yourself up for success in the future, what the credit score is going to affect as far as your finances, and a bunch of other things in between. So Kim, I’d love for you to start this conversation setting the table for us. Yes, so happy to and isn’t it wonderful that in today’s world, we can just jump on the web and grab our credit score in some form or fashion. There’s a lot of different places out there that you can do that. You don’t want to be doing that often. Once a year is sufficient,

[00:45] maybe every six months, if it’s something that you’re really working on. And I will also make sure that the show notes include a link to a company that is nationwide that we have used personally as well as referred clients to when you do have credit issues that need to get cleaned up or worked on. So the credit score is something that you get as an adult as you progress into life with payments and things that are due on time or not. And when you make your payments on time, you have a building great credit score. Now, what does that mean? It builds, it grows over time. It starts low, maybe six, seven hundred in terms of an actual number of a credit score. I’ve seen credit scores as low as five hundred and I’ve seen them as high as eight hundred and even maybe eight fifty.

[01:34] I can’t remember your typical credit score is around the seven hundred range and seven hundred and twenty I believe is like considered the dividing line between the best. So seven twenty and above is the best and even as low as six fifty is totally fine. If you get down below six fifty, you’ve got issues and you need to get some help. So what does that look like? Well, it might mean not keeping as high a balance as on your credit cards. If you can believe this, the information that I’ve gotten, you’re only supposed to keep 30 percent of your available credit limit on your credit cards. In other words, if you have a thousand dollar limit, you should only have 300 bucks on your credit card at any one time. I don’t know why that is the case, but that was news to me

[02:23] even just two or three years ago. Now, what’s interesting is credit scores don’t really matter a lot unless you’re a whole list of things, trying to get an apartment, trying to buy a car, trying to buy a home, sometimes even trying to get a job. So the credit score is something that’s going to come into your life at really critical junctures. And if it isn’t in the appropriate place, again, between six fifty and let’s say eight hundred, you could have problems with it. What does that mean? Well, you could pay more for a car loan than somebody that had a higher credit score. You could pay more for a house than somebody that had a higher credit score. You might even potentially not be able to get a job

[03:04] especially in certain industries if your credit score is below that six to six fifty range. So the credit score is something that is going to start low. When you’re just out of school, you can do things to build your credit like get credit cards, like pay your payments on time. Super critical. Do not use grace periods. When you use grace periods on rents and on car insurance and other things that have due dates, that can impact your credit score. And it’s not going to maybe be a big deal one time, but it’s definitely going to be a big deal if it’s two or three times. There are also aspects of your bank and your in your checking account that can have an impact on your credit score, i.e. if you’re overdrafting

[03:48] your account a lot, you might say, oh, I have overdraft protection. No big deal. Well, not only do you probably get charged a fee for that overdraft protection, but the banks do keep track of that. And that can impact your credit score as well, which again could make car insurance, car payments, mortgage payments, all of those things increased by two, three, four hundred dollars and be just wasted money. There is no reason for that when you can impact your credit score on the good side by making your payments on time, having debt that you handle properly, i.e. credit cards with only 30 percent of the available limit used as balance. Occasionally, if you have plane tickets or whatever that are

[04:29] more than that, just pay them off as quickly as you can and you’ll be fine. And then, of course, absolutely positively making sure everything is paid on time. And in today’s world with automated banking and whatnot, there’s really no excuse for being late on your payments to the various things that you owe money to. Don’t you think, Spencer? Yeah, absolutely. There’s a lot of nuances that happen with credit score. And if we use the comparison between your credit score and how you’re operating, setting up a whole life policy, one that we understand is that you want to start early and then you want to be consistent and you want to be principle-based. And it’s just going to be like with your credit score. You want to start early at

[05:10] improving that score, building it up, the trade lines that you have, the amount of time and the amount of money. Now, you went and you talked about this 30 percent, having 30 percent capital, no more than that. And with some cards, or I should say, for the optimal credit score, I’ve even heard that it’s five percent. You don’t want to use more than five percent. Yikes. That’s kind of crazy. There is a term called cycle. So to cycle your capital. So for example, if you had a card that had a $10,000 balance and you spent $3,000 on plane tickets, instead of waiting until the end of the month to pay off the $3,000, you can pay it off before. And then if you happen to buy additional plane tickets,

[05:49] you’re not exceeding that 30 percent. So that’s called cycling your cards. The reason why I think this is so important is because one, it’s pulling up in forums. But two, I’m working right now to acquire some other companies. And so I’ve been in conversations with lots of commercial bankers. And you wouldn’t believe what the floor of credit score that they want. 800. Really? They want to see 800. And so it makes you realize that’s kind of like their threshold. Obviously, there’s going to be some wiggle room. And obviously, 720 would probably be the lowest that they would expect. But we need to set our sights around the 800 range. And so having one savings, having good credit, having a proven track record, and then access to additional

[06:34] capital is then what creates the path for you to have additional opportunities by that bad credit. As you mentioned, you’re going to get penalized for your car insurance even. That’s horrible. That is amazing. And so this is something that we can jump on and get results on right away. You can go to a variety of places to get your credit score. And oftentimes, it is a combination from three different industry groups, I’m going to call them, that create the credit score. And it’s not super critical to have it super exact. And as we’ve said, it’s not something that you want to be working on more than every six to 12 months. And the three credit sources, there are still three, right? Experian, Transamerica, and who am I forgetting? TransUnion and Equifax.

[07:23] Okay, so there’s four now. Yeah, the three, yeah. Oh, okay. I think usually it’s a blend of them, right? It is. And so do you have a referenced best place on the web? I’ve heard annualcreditreport.com is best for now. Yeah, you can do annual credit report. And that will give you the detailed listing of everything that’s on your credit score. You can use Credit Karma and you can use, I think with Capital One Card and Chase and other cards, they provide you with a free credit report monitoring. And it doesn’t penalize your score. But if you’re pulling that hard report from annual credit, again, that’s a one time a year type of thing you only want to do. Well said. And then if you need help in this area, the company I mentioned earlier is National

[08:13] Credit Care. And Spencer, I’ve sent you the link, you can include it in the show notes. I highly recommend them. I’m not connected to them in any way. But we’ve had a lot of clients use them with very good results. Especially if you have just medical issues that you had in the past that need some cleanup or a mistake has occurred. Maybe if you and a father have similar names, sometimes credit information gets crossed over. Or if you’ve gone through a time where your credit was a mess and your payments were not on time, they can help you get that cleaned up the best way possible. Take some time, takes a little bit of money, take some effort, well worth getting the help. You can do it on your own as well.

[08:55] But I encourage getting the expert’s help. Perfect. I’ll give one quick final call of clarity. And I didn’t say call of action, but here’s call of clarity. During the last great recession that we had, 2007, 2008, in that time era, a lot of people took a hit on their credit score because the economy changed and people weren’t able to pay all the bills or they were late or whatever that may be. Right now, arguably, the economy is very healthy and money is very cheap. So if you can improve that credit score, get yourself in place now, then you’re going to have access to capital that is cheap, access to opportunities that you might not have had. And so there’s no better time than right now to put yourself

[09:35] in that position, in that power position for it. And arguably, one of the best things you can do is have yourself and your capital in a vehicle that you have control over. And that is going to be the life insurance policy. So go to HelloItPartnersForProsperity.com to talk with Kim about how the life insurance policy can also amplify and help with the credit opportunities that you do have. Sound good? Wonderful. Thank you, Spencer. Hello at PartnersForProsperity.com is the way to reach us directly if you would like help. Excellent. Thank you. Bye. Bye. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at PartnersForProsperity.com. If you liked

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