December 2, 2020 • 34 mins
Everyone knows that it’s good to have a high credit score- it’s true, but what is high enough? It can be tempting to spend an inordinate amount of time in pursuit of the perfect score, but we’re here to let you know that it’s a waste of time and energy. You’ll find that chasing after the elusive 850 will likely leave you feeling disillusioned, IF you even achieve it. There’s no pot of gold at the end of that rainbow! Yet, our credit scores impact a lot of different areas of our lives. They truly are important and they deserve our attention! So during this episode we talk about what we feel is a healthy credit score, where to track your score for free, as well as some actionable tips in order to raise it. Just don’t get sucked into the trap of thinking you need a perfect credit score.
During this episode we both enjoyed a Nuclear Seahorse by Booneshine Brewing - thanks for donating this one to the show Christopher! And as we’ve ramped up the podcast with an additional Friday episode every week, we could really use your help to spread the word- let friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to spread the word to get more people doing smart things with their money in these difficult times!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to How the Money. I'm Joel and I and Matt.
Today we're asking the question do I need a perfect
credit score? Joel, I wonder if our answer to that
(00:27):
question would be any different if you or I had
a perfect credit score, which we don't. Well, I don't.
I don't know about you, but I do not have
a perfect credit score. Now, man, I'm not even close. Alright, good,
I didn't know, if I know. Previously we had been like,
all right, on three, tell your credit score? Uh, and
I think I think our scores were pretty close, But like,
I don't even know if we're gonna do that this time,
because honestly, above a certain point, having a credit score
(00:51):
that's that's higher than that it might matter some, but
maybe not to the extent that a lot of people
think it would. It doesn't nearly have the impact on
our finances. That's a lot of people maybe wish it
did if you were in that super super upper one
percent of of folks that you know that have a
perfect credit score. Yeah. Yeah, So it's an important thing
to to consider, like how important is my credit score?
(01:11):
We'll talk about that something today and then how high
do I need to make sure it gets in order
to have all the benefits of having solid credit and
doesn't need to be perfect. You know. Well, we'll answer
that question as well in today's episode. But Matt, before
we get there, we recently mentioned that I kind of
lost our competition that we weren't actually in, the one
about keeping your phone the longest the cell phone battle. Yes,
(01:31):
so congratulations again on winning. I recently sold No need
to rub it in. I'm rubbing assaulted in my own
wounds right now. But of course I sold my old
cell phone because I don't want that hunkle junks just
sitting around cluttering up my house when I can make
a little bit of money from it. I made a
whole seventeen dollars, so pretty impressive. And it's from a
(01:52):
website that we mentioned not too long ago called sell
sell dot com. Well, we'll post a link to that
website in the show notes. But it's one of those
things where if you have an old phone lying around
that you're not using anymore because you upgraded, don't forget
to get rid of your old electronics and to make
money from them. Uh. Cell cell was just super easy
because actually send you the envelope, you do a hard
factory reset on your phone. You toss that phone in
(02:14):
the envelope, you mail it off, and then you get
a check or you get a PayPal deposit. So super
chill way to go about, um getting rid of something
that you don't need anymore and making some money off
of it. Yeah, exactly, Well, I'm glad to hear you
got your money. We did the same thing with Kate's
uh most recent phone that she outgrew too big for,
get too big for her photos, did get too big
for Okay, it was only a sixteen gig storage phone
(02:37):
or whatever. But I feel like for me, like what's
difficult when it comes to something like this is I
know that I could get more money by taking a
little bit more time and selling it on eBay right. Uh.
And that's where cell cell dot com that they make
it so easy you hop on there. They've got a
bunch of different sites listed out in what they're currently paying.
It's an aggregator, which is nice. It's it's not you're
selling just at that site. It's like you're seeing all
(02:58):
the sites that want to buy your cell phone, and
and they all make it super easy. Like I mean, basically,
as long as you meet some certain a certain number
of requirements, you send it off, and as long as
those things are met, you get the money. And so
they make it so stink and easy. But for me,
I get hung up on the fact that I know
that we could have gotten more money for her phone
had I sold it on eBay right But after a
(03:19):
quick search, what I quickly learned though, is that yeah,
I would make a little bit more money, but not
a ton more. I think the highest phone I saw
going was like around fifty bucks, and so there's a
chance that we could have sold it for something near there.
Most likely it would have been closer to like thirty bucks.
But then on top of that, yes, I could have
gotten a little bit more money, but there would have
been way more time involved with getting that money. And
(03:39):
that's an important consideration. You need to know what your
time is worth, and in my mind, taking the time
to you know, shine it up, like make sure it's
all nice and clean, getting a few photos of it,
getting that listing up, maybe even answering questions, you know,
like what you post something online. And when it comes
to electronics, people are like, okay, hey, what's the battery
life on that? And they're kind of checking in on
all different sorts of things, even writing the listing, whereas
(03:59):
you don't have to do that with a website where
you're selling it. And so you're right, there's all this
extra time involvement and is something you have to consider
because is it worth you know, an extra hour to
list that phone to make an extra ten bucks? Yeah,
and in this case, no is the answer. And I
would be willing to do it for something that's a
higher dollar item. Like we talked recently not too long
ago about a high end kind of luxury clothing item
(04:21):
that we that was gifted to Kate that we sold
on e Bay. You made like bucks on it, totally
worth it or seven something, Um, but it's your ten bucks.
I've don't move the needle that much exactly. And so
in that case, yeah, we weren't gonna just like send
that off to a site that is just gonna pay
us pennies on the dollar for what it's actually worth.
And so yeah, that's definitely something to keep in mind.
It's better to get some money for for something like
this and kind of get it out of your house
(04:43):
than to sit on it thinking that like, well I
could get more, but what are you actually going to do?
I think for a lot of people taking the lesser
amount of money but actually doing the thing, that's totally
the way to go. Yeah, and especially think about this
too with a cell phone. Every day it sits there,
it becomes less valuable, so it is more and more
obsoletely exactly. So, so if you say you're going to
(05:03):
do it and you finally get around to it three
months later, it might be worth just as much on
eBay now as it would have been if you'd told
the easy way three months earlier. So yeah, it's one
of those things where what are you actually going to do?
And if you're actually going to sell it on eBay
and it's worth that time to you, then do it.
By all means, get the highest dollar amount you can
for your item. But if you're not going to at
least go the easy route and make some money for
your item. Yeah, and the thing is too. Three months
(05:25):
later you look at the prices for it and you're like,
oh crap, it's worth like absolutely nothing now. And then
you go to one of the you go to cell
cell and they're literally paying you like three dollars. So
it's just like i've've already spent way too much time
on this already. Yeah, you're overthinking it kind of I
did recently with my entire inflation, just spending way too
much time thinking about how much money you're paying, which
is almost nothing to play your tigers. You're like, oh,
(05:46):
if I'm not running this area and I can swing
by the gas station, hit it at the right time.
You need to have a dollar twenty five and change
on hand. Yeah, you don't need to overthink it. It's
amazing though, how somebody with, you know, a frugal mindset
can obsess about things that really don't matter very much.
And so yeah, this is one of those things, is
where you can overthink it when you don't need to. Yeah,
and that's the perfect segue. It's a credit scores. I mean,
you know, having the perfect credit score. Do you actually
(06:07):
need to have a perfect credit score? Are you overthinking it?
We're gonna get to that here in a little bit. Yeah,
let's first mention the beer that we're having on the show.
This one's called Nuclear Sea Horse and it's by Boonshine Brewing.
Big thanks to listener Christopher for sending this one our way.
We'll give our thoughts on it at the end of
the episode. But for now, Matt, let's get to the
subject at hand. Let's ask the question and then talk
about it. Do I need the perfect credit score? And
perfection is something that sometimes we we strive for even
(06:31):
though we know it's not achievable. Sometimes it just random
areas of our lives. But it's easy to start to
think about our finances is wanting to get them in
a state of perfection as well, at least for Type
A personalities or indiogram ones, you know, like those are
the folks that are like, I need to have the
perfect score for us seven So, like, we don't really
care about that stuff. I'm not totally sure what I yet. Well, well,
(06:51):
we'll get to the bottom of that one of these days,
one of these days. But but honestly, still knowing that
perfection is impossible doesn't really stop us from trying in
some cases. And then in the case of our credit score,
it's important to note that perfection is is almost impossible,
but at the same time, having a great credit score
is incredibly important in the modern financial age. So how
much effort should we put into boosting our credit score
(07:14):
taking it into the realm of perfection. That's an important
question for us to ask so that we don't put
too much effort into something that won't offer enough of
a payoff for us. Um And that's what we're going
to discuss in today's episode. We don't want it to
be like the cell phone, where we put way too
much effort into something for minimal extra return. Yeah, not
knowing how high the credit score you actually need, uh,
(07:35):
and then how much time you should you know, be
be spending on it and thinking about it working towards
a healthy score. That's the thing that we're gonna you know,
really hone in on today. And some of our listeners
who are digging into their personal finances, you know that
they could actually be attempted to focus too hard on
the credit score. Uh, maybe even leading to their overall detriment,
you know. And so yeah, how do you know when
(07:56):
your credit score is good enough? Let's dig in. But yeah,
us though, we've got some thoughts on why you should
actually be spending less time thinking about your credit score. Yeah. Yeah,
overall you should actually be spending less of your life,
less of your energy thinking about your credit score. When
we spend too much time on our credit score, we
actually lose sight of the bigger picture right in pursuit
(08:18):
of the perfect the unattainable or almost unattainable, which is
the max credit score on the Pico scale. If it
did sound effects like, that's when the uh kind of
like the course of Angels would come in right exactly.
What that's perfection, right, Yeah, that's nirvana. That's the halo
on top of your credit score right there. But if
we're seeking that eight fifty, if we're going too hard
(08:40):
after the perfect score, it could cause us to get
lax on. Actually, other more important aspects of our personal finances,
like our larger money goals and ramping up our ability
to earn more, cutting back on our spending, like those
are the things that have the biggest impact on our
personal finances. Really, when it comes down to it, what's
the point of increasing your score by ten or twenty
points if it's keeping you from being able to focus
(09:01):
on excelling at work and getting that huge race, or
if it's causes you to to go on spending venders
is a way to treat yourself because you've put in
so much effort in in this one particular area. I
don't think we're necessarily defining a huge segment of our
listeners amount of people who obsess about their score to
this extent. But I do think it is a problem
because a credit score can be so tangible and it's
(09:22):
so easy to track. Now, some people do get a
little too obsessed about it um and it can cause
them to put less emphasis on the things that actually
matter the most. Yeah, I mean, even aside from financial
like the bigger financial goals, to just like personal life goals,
you know. Like I think there could be some instances
of maybe some super nerds out there who are letting,
like their credit score maybe get in way of like
their personal life like relationships where they're just like, oh, sorry,
(09:44):
I need to I don't I can't go on this
trip because I need to make sure I'm I've got
to put that charge on this this other credit card,
you know, like as far as manipulating and making sure
that your ratios are all right and things like that, that,
coupled with just the additional stress of having to think
about it not worth it right, striving after higher scores
could also just make you vulnerable to scammers. There are
a lot of services out there touting their ability to
(10:06):
immediately boost your score. Credit scores were sort of like
this low hanging fruit that companies are going after to
get their hands on your money. And so you know,
while you are working on your score, do you do
want to make sure that you avoid anyone asking you
for money to help you with your score. Working to
raise your credit score, it's a long road, and it's
not something that you should just throw some money at
(10:26):
force some immediate results. Yeah, it can be tempting, but
at the same time, those people usually take your money
and run and your score stays put um and and
so to highlight the fact that it takes a while,
Matt I thought it was actually important for us to
talk about what's usually involved to get a credit score
that's over eight hundred. And I think this will highlight
for our listeners maybe the futility at least in seeking
(10:48):
a perfect credit score. Typically you need to use less
than seven percent of your available credit limit, have no
late payments in the last seven years, and have a
twenty five year credit history. So for our younger listeners
in particular, it's really not even possible unless you know,
when you were a baby, your parents may do an
authorized user on a couple of credit cards and they've
been handling it well. I mean, it's just like we've
done recently with for our kids. We want to set
(11:10):
them up for having good credit in the future. But
that's one of those things. Yeah, that, Uh, it's almost unachievable.
It's essentially impossible for a lot of people unless for
a couple of decades or longer you've been handling your
money really, really well and been paying special attention to
that credit score. Yeah. So while striving after that perfect
credit scores and something that we would recommend your your
credit score, like, having a healthy credit score is still
(11:31):
an important piece of the personal finance puzzle, you know.
So even though a lot of listeners might be years
away from maybe even getting into the eight hundreds, Uh,
it's still really important to start working towards a healthy
credit score. And so why is it actually really all
that important? After the break, we will dive into it.
(11:57):
All right, we're back from the break, and Matt, we
just kind of made a point for why people should
be spending less time thinking about their credit score. Now,
let's quickly make the opposite point. That's what I love
to do. Point counterpoint, go back and forth, Obviously, there
are several reasons why you should be working to increase
your credit score, even while at the same time perfection
isn't something you should be striving for. First of all,
(12:19):
a higher score really does show that you're doing a
decent job managing your money. Your ability to make payments
on time demonstrates that you're at least avoiding late payments,
plus those awful penalty a p rs, you're not paying interest.
So that credit score is essentially a snapshot picture of
the kind of person you are, how reliable you are
when it comes to handling your debts and handling your money. Yeah. Yeah,
it's a good indicator for what you're doing with your
(12:40):
money now, although it's not like a like a comprehensive report, right,
and like it makes me think of like maybe a
good metaphor is like a speed limit, and so if
you follow the law, you stay within the speed limit.
That doesn't necessarily mean that you are an excellent driver,
but at least you're doing this one thing, right, Like,
there's a good chance, like you're less likely to get
an accident if you're going to speed limit versus twenty
(13:02):
or thirty over. But having a good credit score, just
like in the same way that following the speed limit
doesn't make you a great driver. Having a great credit
score doesn't mean that you're doing a really good job
saving four retirements, that you're achieving your your financial goals.
But it is kind of a like you said, like
a snapshot. It's a good indicator for us to kind
of measure ourselves up against here and there. It can
mean that you're just not totally screwing things up. Yeah, exactly,
(13:25):
which which honestly, like, if you're a lender, that's what
you want to know. Does this person screw things up?
And the credit score is a good indication of that,
You're right, it's not always an indication for the positive
that this person is like doing awesome with their savings investments,
when it just means, man, this person is not completely
ruining their life when it comes to Debton credit. Yeah, Yeah,
they're good enough right now. Yeah. And obviously aside from that,
you know, one of the most straightforward benefits of having
(13:47):
a higher score means better interest rates when borrowing. Hopefully
you aren't borrowing too much money, but when you do
need a loan, having a top tier credit score will
ensure that you get the best terms, which means that
you'll pay less. And so getting a more favorable interest
rate is actually a big deal here, right, And so
for example, on a three thousand dollar home, having a
(14:07):
higher credit score could easily mean scoring an interest rate
that is maybe a half a percent lower, which means
paying about twenty five dollars less over the life of
a thirty year mortgage. Uh. This is maybe just a
way for folks to see that, Like, no, your credit
score impacts interest rates that you pay, and the interest
rate that you have directly correlates with the amount of
money that you're going to spend for something like this,
(14:29):
And so this is real money. It has a real
impact on our finances. Yeah, and when you're talking about
dollars over thirty years, that's closing in on a thousand
dollars a year or a hundred dollars a month. Let's
say it's ninety bucks a month. I mean, who couldn't
use that back in their back in their life. And
so much of that comes down to your credit score.
What you'll pay for insurance is also affected by your
credit score, to at least in most states. Some states
(14:50):
don't allow or at least severely limit the usage of
the credit score and factoring premiums. If you live in
like California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, in Utah, those
are the only states where your credit score won't impact
what you pay for car or homeowners insurance, or is
at least legally not allowed to impact it. But in
in most of the other states it is a factor.
(15:11):
And so your credit score will partially at least determine
in addition with other factors like your age and driving history, right,
it will determine the rates that you're paying. And again
we talked about ninety bucks a month maybe for your
home mortgage, This could be ninety bucks or more a
year on your homeowners and car insurance. So it's one
of those things that having a good credit score will
save you money in that realm too, right. Yeah. In
(15:33):
addition to that, your employment can even be subject to
having a good credit score. Stats show that twenty of
human resource professionals that they check your credit history when
hiring for a position. Uh, they won't have access to
your actual score, but your report is what they have
access to, and that is what essentially informs your credit score.
Right and so you're responsible handling of credit or or
(15:55):
like thereof could have an impact on the job offers
that you receive, in particular jobs that have security clearances
attached to them as well. They don't want you to
be blackmail herble. So all these ways, right, whether it's employments,
the amount you're paying for your homeowners or car insurance,
or the rate that you get if you're buying home,
all these things are are impacted by your credit score
by this one number. So it makes sense that this
(16:16):
is something that, yes, we should be paying attention to,
but doesn't need to be perfect. Joel, No, no, it
doesn't know, it doesn't need to be perfect, But you're right,
it is something that that we do need to pay
attention to. And so I guess it's important now to
start talking about, well what is a good score? What's
good enough? If perfection isn't needed, but we do need
to pay enough attention to make sure our credit score
(16:36):
is in a good range. Well what is a good range?
And first it's important to say it can be complicated.
It's about a nice non answer for you, Well, it's yeah,
it's not an easy answer. And part of the reason
it's not an easy answer is because there are so
many different credit scores out there, right, that there's not
just one. FICO is the main credit score, and it's
(16:57):
the one, Matt, you and I talked about the most
because it's it's the most widely used. But the Vantage
score is another really popular one put up by another
credit scoring company, and and there are other well known
reputable systems as well. But even Fico, Matt, when you're
boiling that down, they've got different versions of the FICO score.
And so you think currently we're on PICO eight nine. Yeah,
it's like it's literally the eighth iteration. I think it is. Yeah,
(17:19):
They're always launching new ones, and different lenders will use
either the most recent or maybe one generation older FICO score,
so we can be confusing. Yeah, I prefer the Legacy
five edition. That was good. It was like Windows Man
so great. Uh, but I think you know all that
meaning said, It can make it kind of crazy for
people to try to understand what their score is and
(17:41):
whether it's good or not. Because there are so many scores,
it's hard to know which one to follow and hard
to track them accurately. Some people will maybe right in
occasionally Mautin they'll be like, I've got one credit score
that's thirty five points lower than the other one. What's
going on? And that's part of it is that they
weigh things differently. There's a different algorithms essentially that spit
out a at score um and they're factoring certain things uniquely.
(18:03):
But this also is not worth getting hung up on.
It would mean expending too much energy thinking about your
credit score to go too deep into all the many
different credit scores that you have. And so I think
we can give some good general advice without getting too
specific as to what it looks like to have a
good credit score. Yeah, so let's give some solid numbers now,
but we're not going to give specific numbers, but we
(18:24):
will give some ranges of credit scores, right, just are better? Yeah,
So generally speaking, if you're it's kind of like horse shoes,
you know, like it's close and close. Getting close matters, Yeah, exactly.
Uh So, Like broadly speaking, right, if your scores below seven,
that's when it's time to get more focused on getting
that score higher. You don't want to be in the
five to six hundred range because it will negatively impact
(18:46):
you in a lot of different ways, like you know,
like we just mentioned, however, you know, if you are
in poor shape, that doesn't mean that you won't be
able to do things like buy a house. Right. The
average credit score of first time homebuyers last year was
six eight four, Joel, I mean, I was surprised to
see that number. It's actually a good bit lower than
I was expecting. But know that you you know, you
might qualify for say alone thirty year loan, but you'll
(19:09):
be paying a lot more an interest. Uh. This is
obviously this has to do with risk. If if a
bank or a lender is gonna lend you money and
your credit score is a lot lower, well they have
to account for that risk, right, and like you are
risk your borrower, and so because of that, they're going
to charge you higher interest to make sure that it's
worth their time. Yeah, now that we're getting into the
(19:30):
ranges here, and I feel like you just gave a
good line of demarcation there. Though, if your score is
below seven hundred, it demands more of your time, more
of your focus in order to to beef that up
because of the many ways that that lower score is
going to impact your life. Right, And so let's talk
about another range your If your scores in the seven
to eight hundred range, that puts you in pretty good shape.
I'd say really good shape. Like if you're in that range,
(19:51):
like you can just end this podcast now specifically, don't
end the podcast specifically though, If you can get above
seven forty, that's kind of the really important number um
in so many circumstances, that's typically going to qualify you
for the best rates available. That typically seven forty and
above is top tier. But if you're above seven hundred,
it just means you don't have to fret as much,
(20:11):
that's for sure. This tends to be the sweet spots
seven forty and above when it comes to your credit score.
If you're in that range, then your credit score should
be taking up minimal space in your brain. Continue obviously
to make your payments on time or early, but it
doesn't necessarily need to be constantly on your mind. You
don't have to be thinking often about how you can
improve it and get it better. You're at the point
where your score is essentially in the good enough range,
(20:33):
and expending more energy to send it higher is mostly
wasted energy. And again we're giving ranges because I mean
it varies from lendard to lender, right, it depends on
the loan that you're applying for. Uh, it depends on
how closely an HR manager is looking at your credit report,
you know, like again that they don't see scores, They
just see kind of generally speaking, how it is that
you're handling your money. And so it's difficult to give
(20:55):
specific numbers to say that this is the exact number
you need, because really it does vary from person to
person and from institution to institution. So Joel, you you
took it from seven to eight hundred. So of course
if you're above eight hundred, then you're you're pretty much golden, right,
But remember that the you know, the benefits that you
receive from being above eight hundred and getting it, say,
(21:15):
from you know, eight hundred to eight fifty, the benefits
are going to diminish greatly at this point, Like no
one really cares except for you. Uh maybe in your
mind you've kind of got this leader board going and
you're just kind of competing against yourself, like nobody else
really cares. Lenders don't care all that much. It's kind
of like finishing up college and you got an A
in the class, but you want to tell your future
employer that you got a ninety nine on the final
(21:36):
and they don't care. They don't care. I mean I
remember interviewing four jobs like after college, and like like
they don't care if you're kum lade or magna um laude,
Like maybe not for the jobs you and I were
applying for. At least very true. That is true, but
it is one of those things where above a certain point,
it's like, great, I see your g p A, I
saw what you put in. I see the basics on
your resume. I don't care about the specifics. And that's
(21:59):
what That's what you're gonna into when you're between eight
and eight fifty is the specifics. Nobody cares. Yeah. Yeah,
there are so many other things to focus on that
would have a bigger impact on your ability. Like just
like when you're interviewing, there's a so many other things
that you can focus on, whether it comes to like
having good eye contact and making sure that you're listening
to whoever is interviewing you and that you're asking good questions,
Like all those things matter so much more than just like, oh,
(22:19):
yeah I got a ninety nine on that final. Uh.
There are so many other things that we talked about earlier,
that when it comes to our personal finances, we need
to be looking at those things rather than having the
perfect credit score. But that being said, if you are
above a hunter, that's great. Continue to work on maintaining
that great score, but just put the idea of achieving
perfection just way out of your mind. It really is
(22:41):
a fool's Errand and so with all that mind, you
need to ask yourself, like, do you even know what
your credit score is? You might be listening to this
conversation that Joel and I are having and you may
not even know your score at all. And so that's
an important first step in monitoring that score and knowing
how to proceed. So we'll get to that and how
to easily improve your credit score right after the break. Alright,
(23:11):
go back from the break, and Matt, that is a
big problem, by the way, if people don't know what
their credit score is, true, because how do you know
what ranger and how do you know whether or not
you have a credit score that either needs to be
improved upon or you're cool to not think about too much. Well,
let's talk about where to go to get updated on
that score. First, three weekly credit reports are still available
(23:32):
on annual credit report dot Com through April one. That's
only a site where you can get your credit report
for free, though as authorized by federal law, those aren't
gonna help you see your score, although they will give
you insight into what's dragging your score down. The credit
score is essentially a translation, a numerical translation of the
things that are happening on your credit report behind the scenes. Yeah,
(23:52):
maybe it's sort of like if you go to the
doctor and you get a physical and they kind of
like looks you over and really looks into like everything,
and she's like, yeah, you're a six out of ten.
You're above average, but but not doing so great, barely
above average. But but the thing is, what if she
doesn't give you a score, you know, like what if
she's just like, hey, like you're you're you're generally speaking,
you're in you're in pretty good health, but she doesn't
give you your weight, or she does maybe she doesn't
(24:13):
give your blood pressure. Like, sometimes it's helpful to have
these numerical scores and touch points so that we know,
you know, basically where we are and then where we
need to go from there. Right, that's kind of how
I see the report versus the score a little bit.
The reports like the deep dive and you can see
what's going on, but the score gives you yeah that
perfectly easy to understand, um numerical translation. Yeah. Yeah. So
(24:33):
that's where you can go to get those weekly free reports.
But then beyond that to credit Karma and Credit score Card,
which is a product or a site run by discover Card,
are two of our favorite places to check your actual
credit score. Most people that have a credit card will
notice that they are offered a free monthly credit score
there as well. If you go to your summary page
oftentimes like where it'll have a link and it'll link
(24:55):
out and you can, you know, easily see your credit score.
But one of the coolest things about Credit Karma the
dashboard feature, which really helps you to to see where
you're falling short and where to turn your focus in
order to improve right and so. And this is helpful
because staying updated, uh, you know, on what your score is,
maybe every month or so, will help you to stay
(25:15):
on top of it, you know, hopefully without obsessing over it.
It's something that you want to be tuned into, but
you don't want it to be all consuming and so
that way, if you see uh significant drop that can
tip you off to something that may not be right,
it's good to keep tabs on it. Yeah, So if
you don't know your score, go to one of those
two sites we mentioned, or check out the score provided
to you buy your credit card company. That will at
(25:36):
least help you know where you stand. And then if
you have a score that's hurting, that's not looking so good,
that is in that sub seven range. Um, here's what
you need to do in order to see that score
go up. First off, you need to be consistent, and
this means making payments on time, hopefully in full, every
single month. The more consistent you can be in paying
your debts in a timely manner, the more your score
(25:58):
is going to react positibly. For most people, Matt, it's
late payments that are holding down their credit score. So
getting on top of that and making sure you're paying
on time is a huge component in working towards fixing
that score. Yeah, that's right. It's important because on time
payments make up of your PHICO score, So this is
a big category to keep in mind. Um. And then
(26:20):
something else, you know, if you're looking to improve your
your credit score. Don't completely avoid debts. You know, sometimes
the knee jerk reaction might be to to avoid debt altogether,
maybe to close accounts and credit cards that you've had
around for years, because uh, you know, you don't want
to get into maybe some bad habits, that kind of thing.
But that's actually the exact opposite of what you need
to do in order to improve your score. You need
(26:41):
to keep those accounts open, uh and active. Because old
credit boost your score, it doesn't have nearly the impact
that on time payments does. But yeah, you're the length
of your credit history does have a pretty large effect
on your credit score. But of course you do need
to ensure that you are using that credit card sparingly,
that you that you are you ing those accounts in
a way that that you're being responsible. You know, like
(27:03):
you don't want again, you don't want to have achieve
a nice credit score while you know, at the same
time you are going into debt, while you're maybe overspending.
You don't want to fall into the trap of of
not saving money for the sake of improving your credit score. Yeah,
and I think that's one thing, Matt, that sometimes people do.
They do close credit cards in order to prevent going
into more debt because they know that they just can't
handle credit cards. And I think that's okay, knowing full
(27:25):
well at the same time, that's going to have a
negative impact on your score, right, But that's a worthwhile
trade off to prevent yourself from going into more debt
to have a lower score. But what we're trying to
address is people closing their credit cards thinking that it's
actually gonna help their score, but it has the opposite impact.
So yes, in a perfect world, keeping those credit cards
active and continuing to use them in a responsible manner
(27:46):
that's the way to go. And you also want to
avoid maxing those credit cards out, even if you can
pay off that full balance at the end of the month.
Really you want to go not even close to maxing
them out. And that's because a huge part of your
credit score is also the utilization ratio, and the best
credit scores are gonna mean that you're using essentially less
than a third of your available credit, and using less
(28:09):
than ten percent of your available credit is going to
get you into the best score range. So, for example,
let's say you have a credit card with a five
thousand dollar limit. Spending up to fills a month on
that credit card is that's pretty good. Yeah, that's that's
in a healthy range. But spending five on that credit
card every month, that's even better. And that's gonna be
(28:30):
the best possible usage amount for you when you're looking
to boost your score. Yeah, or according to Fico, like
we talked about earlier in the episode, if you want
to get into those rarefied eight hundred plus waters, it
takes seven percent or less. You know, if you're trying
to hone in on a seven percent utilization rate every month,
though you're you're you're trying too hard, You're putting too
much effort into It's probably true. Another consideration, too, when
(28:51):
you're looking to boost your credit score is just to
remind yourself that it takes time. You need to be patient.
You know, it takes time for negative items to fall
off of your credit report. It takes time him to
build up a meaningful credit history of on time payments
as well. Some people on the internet that you know,
they pitched that they can get those items removed for
you for a fee. But don't fall prey to those
empty promises. Handling your debt well over time will cause
(29:14):
that score to rise. Please remember that it takes patience
because you're not going to see your credit score just
jolt and jump upwards in a matter of days. You know.
We had a listener question recently, Matt, where where a
listener wanted to increase her credit score rapidly, and she
was asking about different ways to do that. And I
think it's easy to look for a quick fix when
you're like, man, I'm just months away from needing a
(29:35):
loan on a car or on a home. It's like,
I got thirty days, right, that's not enough time. It's
it's a it's a long play here, and it's worth
it to take the time to do this right. So
kind of back to the theme of the episode, Matt,
and we need a perfect credit score well, and how
much time overall should we give to focusing on our
credit score? Overall? I think it partly depends on what
shape your score is currently in. Right. If you're in
(29:56):
a rough spot with your score, we would suggest to
check out episode one of this podcast. We gave a
lot of thoughts on how to rebuild your score when
it's not looking so good. If you're in that position,
your credit score should be a larger focus for the
time being. It's similar to if you've taken years off
from physical activity, it's time to ramp things back up,
and so your credit score and building it up should
(30:17):
take a little more focus. If you've taken some time
off from even thinking about it and you've let it
fall into a state of disrepair, it's probably not gonna
feel natural for you to give it all that kind
of time and energy, But it's likely going to need
more time and energy then you've been giving it, right. Yeah, Yeah,
it's like you need one of those thirty day workout
regimens where you're working out every day for a whole month,
couched a five K exactly. You've got to get started,
(30:39):
and you need something a little more stringent to kind
of get you gone. Yep. And remember too that your
credit score it's only one part of having a well
constructed financial life, you know, while it has an impact
on so many things in our life, Obsessing over a
credit score and seeking perfection is a quixotic endeavor. Which
score do you want to even be perfect? You know,
(30:59):
like we met before, there are so many different scores
to consider. Uh, there's too many to keep track of.
And so like we recommended tracking one or maybe two
regularly via your credit card statement or via a site
like credit Karma is a great step to take trying
to keep your score in you know, above seven forty,
that is awesome, But if you're shooting for perfection with
your credit score, you'll likely spend way too much time
(31:21):
on something that really doesn't mean all that much, that's
not going to have a true impact on your finances. Yeah,
I feel like we near the beginning of the episode,
we said, this is how important your score is. It
influences so much of your financial life. But also at
the same time we're saying, don't spend too much time
on it. And yes, those things are both true. That
it is an important number, but it's something that you
shouldn't obsess over. And I know some of our listeners
(31:43):
who are excited about getting their personal finances together and
they're excited when they hear about their credit score and
it's something they can do to positively influence their financial life. Well,
then they want to go all in. Um And it's
great to be thinking about it, it's great to be
working on it, but going all in could mean going
too hard. After working towards is improving your score, and
there's a limit to the return you're gonna see as
(32:04):
you as you seek to improve it. Yeah that's right man,
Well awesome. Let's let's switch it back to the beer.
This episode, you and I are both enjoying a Nuclear
Sea Horse, which is a New England style pale ale.
This is by Boonshine Brewing Company, who is not surprisingly
based in Boone, North Carolina. There you go, yeah, uh yeah.
Just also, what were your thoughts on this beer, buddy?
So on the label it says caution radioactive hops, and
(32:27):
uh man, the hops were definitely alive. There was a
dankness to this beer that I really enjoyed. In particular,
pale ales can sometimes lack the hot presence or the
hot bite that this one had. So I was impressed
for a five and a half percent pale ale that
this one brought so much flavor. So yeah, I thought
this one was great. Yeah, man, I am a huge
fan of hoppy pale ales. You know, pale ales, they're
easy to drink, but they've got all that kind of
(32:48):
dank hop flavor. But on the label here is describing,
you know, how this beer is gonna taste, and it
said that it's radiant bold and electric, and dude, radiant
and electric are two words that I have never used
to describe an I p a or or a hoppy
paleo like that, but I feel like they are perfect words.
You know, you're talking about how like you feel like
you can taste the freshness of the hops? Uh they're
(33:09):
almost tingly a little bit electric is a great way
of of describing that as well. It makes me think
back to when when I was a little kid and
I would take a little nine bolt battery and stick
it to my tongue. It kind of lie you can,
it's a little tingly feels radiance on your tongue, it does,
That's what I hear, and I feel that that this
sort of what this beer does to a certain extent,
I would not recommend putting uh your mouth anywhere near
(33:32):
anything electric. Yeah, just put that disclaimer in there. But
those are the kind of things that I did as
a kid at least, and that should be a comfort
to our listeners that you can still end up as
a normal, reasonable human being even after doing crazy things
like that. Maybe sometimes I'm too reasonable, so hey, that true.
It just depends you know what kind of person you're
trying to be when you grow up. So but yeah,
(33:52):
I'm really glad that you and I got to enjoy
this beer on the show. A big things to Christopher.
He sent us two really good beers that we were
able to enjoy. So Christie, ever, thank you. Yeah, no
doubt this is a good one, all right, Matt. That's
gonna do it for this episode. For folks who want
show notes and some of the links to some of
the sites that we mentioned during today's episode, you can
go to our show notes and they'll be up on
our website at how to money dot com. Yeah, and
(34:12):
if you enjoy the show, if you enjoy How the Money,
we would be incredibly grateful to you if you went
over to Apple Podcasts and left us a solid rating
and review over there. But you know what, even easier
if you don't want to maybe go through the housle
of doing that, make sure that you are subscribed to
the show. Match that subscribe button to make sure that
you don't miss any new episodes as they are released. So, Joel,
that's gonna be it for this episode, Buddy. Until next time,
(34:35):
Best Friends Out, Best Friends Out,
Welcome to How the Money. I'm Joel and I and Matt.
Today we're asking the question do I need a perfect
credit score? Joel, I wonder if our answer to that
(00:27):
question would be any different if you or I had
a perfect credit score, which we don't. Well, I don't.
I don't know about you, but I do not have
a perfect credit score. Now, man, I'm not even close. Alright, good,
I didn't know, if I know. Previously we had been like,
all right, on three, tell your credit score? Uh, and
I think I think our scores were pretty close, But like,
I don't even know if we're gonna do that this time,
because honestly, above a certain point, having a credit score
(00:51):
that's that's higher than that it might matter some, but
maybe not to the extent that a lot of people
think it would. It doesn't nearly have the impact on
our finances. That's a lot of people maybe wish it
did if you were in that super super upper one
percent of of folks that you know that have a
perfect credit score. Yeah. Yeah, So it's an important thing
to to consider, like how important is my credit score?
(01:11):
We'll talk about that something today and then how high
do I need to make sure it gets in order
to have all the benefits of having solid credit and
doesn't need to be perfect. You know. Well, we'll answer
that question as well in today's episode. But Matt, before
we get there, we recently mentioned that I kind of
lost our competition that we weren't actually in, the one
about keeping your phone the longest the cell phone battle. Yes,
(01:31):
so congratulations again on winning. I recently sold No need
to rub it in. I'm rubbing assaulted in my own
wounds right now. But of course I sold my old
cell phone because I don't want that hunkle junks just
sitting around cluttering up my house when I can make
a little bit of money from it. I made a
whole seventeen dollars, so pretty impressive. And it's from a
(01:52):
website that we mentioned not too long ago called sell
sell dot com. Well, we'll post a link to that
website in the show notes. But it's one of those
things where if you have an old phone lying around
that you're not using anymore because you upgraded, don't forget
to get rid of your old electronics and to make
money from them. Uh. Cell cell was just super easy
because actually send you the envelope, you do a hard
factory reset on your phone. You toss that phone in
(02:14):
the envelope, you mail it off, and then you get
a check or you get a PayPal deposit. So super
chill way to go about, um getting rid of something
that you don't need anymore and making some money off
of it. Yeah, exactly, Well, I'm glad to hear you
got your money. We did the same thing with Kate's
uh most recent phone that she outgrew too big for,
get too big for her photos, did get too big
for Okay, it was only a sixteen gig storage phone
(02:37):
or whatever. But I feel like for me, like what's
difficult when it comes to something like this is I
know that I could get more money by taking a
little bit more time and selling it on eBay right. Uh.
And that's where cell cell dot com that they make
it so easy you hop on there. They've got a
bunch of different sites listed out in what they're currently paying.
It's an aggregator, which is nice. It's it's not you're
selling just at that site. It's like you're seeing all
(02:58):
the sites that want to buy your cell phone, and
and they all make it super easy. Like I mean, basically,
as long as you meet some certain a certain number
of requirements, you send it off, and as long as
those things are met, you get the money. And so
they make it so stink and easy. But for me,
I get hung up on the fact that I know
that we could have gotten more money for her phone
had I sold it on eBay right But after a
(03:19):
quick search, what I quickly learned though, is that yeah,
I would make a little bit more money, but not
a ton more. I think the highest phone I saw
going was like around fifty bucks, and so there's a
chance that we could have sold it for something near there.
Most likely it would have been closer to like thirty bucks.
But then on top of that, yes, I could have
gotten a little bit more money, but there would have
been way more time involved with getting that money. And
(03:39):
that's an important consideration. You need to know what your
time is worth, and in my mind, taking the time
to you know, shine it up, like make sure it's
all nice and clean, getting a few photos of it,
getting that listing up, maybe even answering questions, you know,
like what you post something online. And when it comes
to electronics, people are like, okay, hey, what's the battery
life on that? And they're kind of checking in on
all different sorts of things, even writing the listing, whereas
(03:59):
you don't have to do that with a website where
you're selling it. And so you're right, there's all this
extra time involvement and is something you have to consider
because is it worth you know, an extra hour to
list that phone to make an extra ten bucks? Yeah,
and in this case, no is the answer. And I
would be willing to do it for something that's a
higher dollar item. Like we talked recently not too long
ago about a high end kind of luxury clothing item
(04:21):
that we that was gifted to Kate that we sold
on e Bay. You made like bucks on it, totally
worth it or seven something, Um, but it's your ten bucks.
I've don't move the needle that much exactly. And so
in that case, yeah, we weren't gonna just like send
that off to a site that is just gonna pay
us pennies on the dollar for what it's actually worth.
And so yeah, that's definitely something to keep in mind.
It's better to get some money for for something like
this and kind of get it out of your house
(04:43):
than to sit on it thinking that like, well I
could get more, but what are you actually going to do?
I think for a lot of people taking the lesser
amount of money but actually doing the thing, that's totally
the way to go. Yeah, and especially think about this
too with a cell phone. Every day it sits there,
it becomes less valuable, so it is more and more
obsoletely exactly. So, so if you say you're going to
(05:03):
do it and you finally get around to it three
months later, it might be worth just as much on
eBay now as it would have been if you'd told
the easy way three months earlier. So yeah, it's one
of those things where what are you actually going to do?
And if you're actually going to sell it on eBay
and it's worth that time to you, then do it.
By all means, get the highest dollar amount you can
for your item. But if you're not going to at
least go the easy route and make some money for
your item. Yeah, and the thing is too. Three months
(05:25):
later you look at the prices for it and you're like,
oh crap, it's worth like absolutely nothing now. And then
you go to one of the you go to cell
cell and they're literally paying you like three dollars. So
it's just like i've've already spent way too much time
on this already. Yeah, you're overthinking it kind of I
did recently with my entire inflation, just spending way too
much time thinking about how much money you're paying, which
is almost nothing to play your tigers. You're like, oh,
(05:46):
if I'm not running this area and I can swing
by the gas station, hit it at the right time.
You need to have a dollar twenty five and change
on hand. Yeah, you don't need to overthink it. It's
amazing though, how somebody with, you know, a frugal mindset
can obsess about things that really don't matter very much.
And so yeah, this is one of those things, is
where you can overthink it when you don't need to. Yeah,
and that's the perfect segue. It's a credit scores. I mean,
you know, having the perfect credit score. Do you actually
(06:07):
need to have a perfect credit score? Are you overthinking it?
We're gonna get to that here in a little bit. Yeah,
let's first mention the beer that we're having on the show.
This one's called Nuclear Sea Horse and it's by Boonshine Brewing.
Big thanks to listener Christopher for sending this one our way.
We'll give our thoughts on it at the end of
the episode. But for now, Matt, let's get to the
subject at hand. Let's ask the question and then talk
about it. Do I need the perfect credit score? And
perfection is something that sometimes we we strive for even
(06:31):
though we know it's not achievable. Sometimes it just random
areas of our lives. But it's easy to start to
think about our finances is wanting to get them in
a state of perfection as well, at least for Type
A personalities or indiogram ones, you know, like those are
the folks that are like, I need to have the
perfect score for us seven So, like, we don't really
care about that stuff. I'm not totally sure what I yet. Well, well,
(06:51):
we'll get to the bottom of that one of these days,
one of these days. But but honestly, still knowing that
perfection is impossible doesn't really stop us from trying in
some cases. And then in the case of our credit score,
it's important to note that perfection is is almost impossible,
but at the same time, having a great credit score
is incredibly important in the modern financial age. So how
much effort should we put into boosting our credit score
(07:14):
taking it into the realm of perfection. That's an important
question for us to ask so that we don't put
too much effort into something that won't offer enough of
a payoff for us. Um And that's what we're going
to discuss in today's episode. We don't want it to
be like the cell phone, where we put way too
much effort into something for minimal extra return. Yeah, not
knowing how high the credit score you actually need, uh,
(07:35):
and then how much time you should you know, be
be spending on it and thinking about it working towards
a healthy score. That's the thing that we're gonna you know,
really hone in on today. And some of our listeners
who are digging into their personal finances, you know that
they could actually be attempted to focus too hard on
the credit score. Uh, maybe even leading to their overall detriment,
you know. And so yeah, how do you know when
(07:56):
your credit score is good enough? Let's dig in. But yeah,
us though, we've got some thoughts on why you should
actually be spending less time thinking about your credit score. Yeah. Yeah,
overall you should actually be spending less of your life,
less of your energy thinking about your credit score. When
we spend too much time on our credit score, we
actually lose sight of the bigger picture right in pursuit
(08:18):
of the perfect the unattainable or almost unattainable, which is
the max credit score on the Pico scale. If it
did sound effects like, that's when the uh kind of
like the course of Angels would come in right exactly.
What that's perfection, right, Yeah, that's nirvana. That's the halo
on top of your credit score right there. But if
we're seeking that eight fifty, if we're going too hard
(08:40):
after the perfect score, it could cause us to get
lax on. Actually, other more important aspects of our personal finances,
like our larger money goals and ramping up our ability
to earn more, cutting back on our spending, like those
are the things that have the biggest impact on our
personal finances. Really, when it comes down to it, what's
the point of increasing your score by ten or twenty
points if it's keeping you from being able to focus
(09:01):
on excelling at work and getting that huge race, or
if it's causes you to to go on spending venders
is a way to treat yourself because you've put in
so much effort in in this one particular area. I
don't think we're necessarily defining a huge segment of our
listeners amount of people who obsess about their score to
this extent. But I do think it is a problem
because a credit score can be so tangible and it's
(09:22):
so easy to track. Now, some people do get a
little too obsessed about it um and it can cause
them to put less emphasis on the things that actually
matter the most. Yeah, I mean, even aside from financial
like the bigger financial goals, to just like personal life goals,
you know. Like I think there could be some instances
of maybe some super nerds out there who are letting,
like their credit score maybe get in way of like
their personal life like relationships where they're just like, oh, sorry,
(09:44):
I need to I don't I can't go on this
trip because I need to make sure I'm I've got
to put that charge on this this other credit card,
you know, like as far as manipulating and making sure
that your ratios are all right and things like that, that,
coupled with just the additional stress of having to think
about it not worth it right, striving after higher scores
could also just make you vulnerable to scammers. There are
a lot of services out there touting their ability to
(10:06):
immediately boost your score. Credit scores were sort of like
this low hanging fruit that companies are going after to
get their hands on your money. And so you know,
while you are working on your score, do you do
want to make sure that you avoid anyone asking you
for money to help you with your score. Working to
raise your credit score, it's a long road, and it's
not something that you should just throw some money at
(10:26):
force some immediate results. Yeah, it can be tempting, but
at the same time, those people usually take your money
and run and your score stays put um and and
so to highlight the fact that it takes a while,
Matt I thought it was actually important for us to
talk about what's usually involved to get a credit score
that's over eight hundred. And I think this will highlight
for our listeners maybe the futility at least in seeking
(10:48):
a perfect credit score. Typically you need to use less
than seven percent of your available credit limit, have no
late payments in the last seven years, and have a
twenty five year credit history. So for our younger listeners
in particular, it's really not even possible unless you know,
when you were a baby, your parents may do an
authorized user on a couple of credit cards and they've
been handling it well. I mean, it's just like we've
done recently with for our kids. We want to set
(11:10):
them up for having good credit in the future. But
that's one of those things. Yeah, that, Uh, it's almost unachievable.
It's essentially impossible for a lot of people unless for
a couple of decades or longer you've been handling your
money really, really well and been paying special attention to
that credit score. Yeah. So while striving after that perfect
credit scores and something that we would recommend your your
credit score, like, having a healthy credit score is still
(11:31):
an important piece of the personal finance puzzle, you know.
So even though a lot of listeners might be years
away from maybe even getting into the eight hundreds, Uh,
it's still really important to start working towards a healthy
credit score. And so why is it actually really all
that important? After the break, we will dive into it.
(11:57):
All right, we're back from the break, and Matt, we
just kind of made a point for why people should
be spending less time thinking about their credit score. Now,
let's quickly make the opposite point. That's what I love
to do. Point counterpoint, go back and forth, Obviously, there
are several reasons why you should be working to increase
your credit score, even while at the same time perfection
isn't something you should be striving for. First of all,
(12:19):
a higher score really does show that you're doing a
decent job managing your money. Your ability to make payments
on time demonstrates that you're at least avoiding late payments,
plus those awful penalty a p rs, you're not paying interest.
So that credit score is essentially a snapshot picture of
the kind of person you are, how reliable you are
when it comes to handling your debts and handling your money. Yeah. Yeah,
it's a good indicator for what you're doing with your
(12:40):
money now, although it's not like a like a comprehensive report, right,
and like it makes me think of like maybe a
good metaphor is like a speed limit, and so if
you follow the law, you stay within the speed limit.
That doesn't necessarily mean that you are an excellent driver,
but at least you're doing this one thing, right, Like,
there's a good chance, like you're less likely to get
an accident if you're going to speed limit versus twenty
(13:02):
or thirty over. But having a good credit score, just
like in the same way that following the speed limit
doesn't make you a great driver. Having a great credit
score doesn't mean that you're doing a really good job
saving four retirements, that you're achieving your your financial goals.
But it is kind of a like you said, like
a snapshot. It's a good indicator for us to kind
of measure ourselves up against here and there. It can
mean that you're just not totally screwing things up. Yeah, exactly,
(13:25):
which which honestly, like, if you're a lender, that's what
you want to know. Does this person screw things up?
And the credit score is a good indication of that,
You're right, it's not always an indication for the positive
that this person is like doing awesome with their savings investments,
when it just means, man, this person is not completely
ruining their life when it comes to Debton credit. Yeah, Yeah,
they're good enough right now. Yeah. And obviously aside from that,
you know, one of the most straightforward benefits of having
(13:47):
a higher score means better interest rates when borrowing. Hopefully
you aren't borrowing too much money, but when you do
need a loan, having a top tier credit score will
ensure that you get the best terms, which means that
you'll pay less. And so getting a more favorable interest
rate is actually a big deal here, right, And so
for example, on a three thousand dollar home, having a
(14:07):
higher credit score could easily mean scoring an interest rate
that is maybe a half a percent lower, which means
paying about twenty five dollars less over the life of
a thirty year mortgage. Uh. This is maybe just a
way for folks to see that, Like, no, your credit
score impacts interest rates that you pay, and the interest
rate that you have directly correlates with the amount of
money that you're going to spend for something like this,
(14:29):
And so this is real money. It has a real
impact on our finances. Yeah, and when you're talking about
dollars over thirty years, that's closing in on a thousand
dollars a year or a hundred dollars a month. Let's
say it's ninety bucks a month. I mean, who couldn't
use that back in their back in their life. And
so much of that comes down to your credit score.
What you'll pay for insurance is also affected by your
credit score, to at least in most states. Some states
(14:50):
don't allow or at least severely limit the usage of
the credit score and factoring premiums. If you live in
like California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, in Utah, those
are the only states where your credit score won't impact
what you pay for car or homeowners insurance, or is
at least legally not allowed to impact it. But in
in most of the other states it is a factor.
(15:11):
And so your credit score will partially at least determine
in addition with other factors like your age and driving history, right,
it will determine the rates that you're paying. And again
we talked about ninety bucks a month maybe for your
home mortgage, This could be ninety bucks or more a
year on your homeowners and car insurance. So it's one
of those things that having a good credit score will
save you money in that realm too, right. Yeah. In
(15:33):
addition to that, your employment can even be subject to
having a good credit score. Stats show that twenty of
human resource professionals that they check your credit history when
hiring for a position. Uh, they won't have access to
your actual score, but your report is what they have
access to, and that is what essentially informs your credit score.
Right and so you're responsible handling of credit or or
(15:55):
like thereof could have an impact on the job offers
that you receive, in particular jobs that have security clearances
attached to them as well. They don't want you to
be blackmail herble. So all these ways, right, whether it's employments,
the amount you're paying for your homeowners or car insurance,
or the rate that you get if you're buying home,
all these things are are impacted by your credit score
by this one number. So it makes sense that this
(16:16):
is something that, yes, we should be paying attention to,
but doesn't need to be perfect. Joel, No, no, it
doesn't know, it doesn't need to be perfect, But you're right,
it is something that that we do need to pay
attention to. And so I guess it's important now to
start talking about, well what is a good score? What's
good enough? If perfection isn't needed, but we do need
to pay enough attention to make sure our credit score
(16:36):
is in a good range. Well what is a good range?
And first it's important to say it can be complicated.
It's about a nice non answer for you, Well, it's yeah,
it's not an easy answer. And part of the reason
it's not an easy answer is because there are so
many different credit scores out there, right, that there's not
just one. FICO is the main credit score, and it's
(16:57):
the one, Matt, you and I talked about the most
because it's it's the most widely used. But the Vantage
score is another really popular one put up by another
credit scoring company, and and there are other well known
reputable systems as well. But even Fico, Matt, when you're
boiling that down, they've got different versions of the FICO score.
And so you think currently we're on PICO eight nine. Yeah,
it's like it's literally the eighth iteration. I think it is. Yeah,
(17:19):
They're always launching new ones, and different lenders will use
either the most recent or maybe one generation older FICO score,
so we can be confusing. Yeah, I prefer the Legacy
five edition. That was good. It was like Windows Man
so great. Uh, but I think you know all that
meaning said, It can make it kind of crazy for
people to try to understand what their score is and
(17:41):
whether it's good or not. Because there are so many scores,
it's hard to know which one to follow and hard
to track them accurately. Some people will maybe right in
occasionally Mautin they'll be like, I've got one credit score
that's thirty five points lower than the other one. What's
going on? And that's part of it is that they
weigh things differently. There's a different algorithms essentially that spit
out a at score um and they're factoring certain things uniquely.
(18:03):
But this also is not worth getting hung up on.
It would mean expending too much energy thinking about your
credit score to go too deep into all the many
different credit scores that you have. And so I think
we can give some good general advice without getting too
specific as to what it looks like to have a
good credit score. Yeah, so let's give some solid numbers now,
but we're not going to give specific numbers, but we
(18:24):
will give some ranges of credit scores, right, just are better? Yeah,
So generally speaking, if you're it's kind of like horse shoes,
you know, like it's close and close. Getting close matters, Yeah, exactly.
Uh So, Like broadly speaking, right, if your scores below seven,
that's when it's time to get more focused on getting
that score higher. You don't want to be in the
five to six hundred range because it will negatively impact
(18:46):
you in a lot of different ways, like you know,
like we just mentioned, however, you know, if you are
in poor shape, that doesn't mean that you won't be
able to do things like buy a house. Right. The
average credit score of first time homebuyers last year was
six eight four, Joel, I mean, I was surprised to
see that number. It's actually a good bit lower than
I was expecting. But know that you you know, you
might qualify for say alone thirty year loan, but you'll
(19:09):
be paying a lot more an interest. Uh. This is
obviously this has to do with risk. If if a
bank or a lender is gonna lend you money and
your credit score is a lot lower, well they have
to account for that risk, right, and like you are
risk your borrower, and so because of that, they're going
to charge you higher interest to make sure that it's
worth their time. Yeah, now that we're getting into the
(19:30):
ranges here, and I feel like you just gave a
good line of demarcation there. Though, if your score is
below seven hundred, it demands more of your time, more
of your focus in order to to beef that up
because of the many ways that that lower score is
going to impact your life. Right, And so let's talk
about another range your If your scores in the seven
to eight hundred range, that puts you in pretty good shape.
I'd say really good shape. Like if you're in that range,
(19:51):
like you can just end this podcast now specifically, don't
end the podcast specifically though, If you can get above
seven forty, that's kind of the really important number um
in so many circumstances, that's typically going to qualify you
for the best rates available. That typically seven forty and
above is top tier. But if you're above seven hundred,
it just means you don't have to fret as much,
(20:11):
that's for sure. This tends to be the sweet spots
seven forty and above when it comes to your credit score.
If you're in that range, then your credit score should
be taking up minimal space in your brain. Continue obviously
to make your payments on time or early, but it
doesn't necessarily need to be constantly on your mind. You
don't have to be thinking often about how you can
improve it and get it better. You're at the point
where your score is essentially in the good enough range,
(20:33):
and expending more energy to send it higher is mostly
wasted energy. And again we're giving ranges because I mean
it varies from lendard to lender, right, it depends on
the loan that you're applying for. Uh, it depends on
how closely an HR manager is looking at your credit report,
you know, like again that they don't see scores, They
just see kind of generally speaking, how it is that
you're handling your money. And so it's difficult to give
(20:55):
specific numbers to say that this is the exact number
you need, because really it does vary from person to
person and from institution to institution. So Joel, you you
took it from seven to eight hundred. So of course
if you're above eight hundred, then you're you're pretty much golden, right,
But remember that the you know, the benefits that you
receive from being above eight hundred and getting it, say,
(21:15):
from you know, eight hundred to eight fifty, the benefits
are going to diminish greatly at this point, Like no
one really cares except for you. Uh maybe in your
mind you've kind of got this leader board going and
you're just kind of competing against yourself, like nobody else
really cares. Lenders don't care all that much. It's kind
of like finishing up college and you got an A
in the class, but you want to tell your future
employer that you got a ninety nine on the final
(21:36):
and they don't care. They don't care. I mean I
remember interviewing four jobs like after college, and like like
they don't care if you're kum lade or magna um laude,
Like maybe not for the jobs you and I were
applying for. At least very true. That is true, but
it is one of those things where above a certain point,
it's like, great, I see your g p A, I
saw what you put in. I see the basics on
your resume. I don't care about the specifics. And that's
(21:59):
what That's what you're gonna into when you're between eight
and eight fifty is the specifics. Nobody cares. Yeah. Yeah,
there are so many other things to focus on that
would have a bigger impact on your ability. Like just
like when you're interviewing, there's a so many other things
that you can focus on, whether it comes to like
having good eye contact and making sure that you're listening
to whoever is interviewing you and that you're asking good questions,
Like all those things matter so much more than just like, oh,
(22:19):
yeah I got a ninety nine on that final. Uh.
There are so many other things that we talked about earlier,
that when it comes to our personal finances, we need
to be looking at those things rather than having the
perfect credit score. But that being said, if you are
above a hunter, that's great. Continue to work on maintaining
that great score, but just put the idea of achieving
perfection just way out of your mind. It really is
(22:41):
a fool's Errand and so with all that mind, you
need to ask yourself, like, do you even know what
your credit score is? You might be listening to this
conversation that Joel and I are having and you may
not even know your score at all. And so that's
an important first step in monitoring that score and knowing
how to proceed. So we'll get to that and how
to easily improve your credit score right after the break. Alright,
(23:11):
go back from the break, and Matt, that is a
big problem, by the way, if people don't know what
their credit score is, true, because how do you know
what ranger and how do you know whether or not
you have a credit score that either needs to be
improved upon or you're cool to not think about too much. Well,
let's talk about where to go to get updated on
that score. First, three weekly credit reports are still available
(23:32):
on annual credit report dot Com through April one. That's
only a site where you can get your credit report
for free, though as authorized by federal law, those aren't
gonna help you see your score, although they will give
you insight into what's dragging your score down. The credit
score is essentially a translation, a numerical translation of the
things that are happening on your credit report behind the scenes. Yeah,
(23:52):
maybe it's sort of like if you go to the
doctor and you get a physical and they kind of
like looks you over and really looks into like everything,
and she's like, yeah, you're a six out of ten.
You're above average, but but not doing so great, barely
above average. But but the thing is, what if she
doesn't give you a score, you know, like what if
she's just like, hey, like you're you're you're generally speaking,
you're in you're in pretty good health, but she doesn't
give you your weight, or she does maybe she doesn't
(24:13):
give your blood pressure. Like, sometimes it's helpful to have
these numerical scores and touch points so that we know,
you know, basically where we are and then where we
need to go from there. Right, that's kind of how
I see the report versus the score a little bit.
The reports like the deep dive and you can see
what's going on, but the score gives you yeah that
perfectly easy to understand, um numerical translation. Yeah. Yeah. So
(24:33):
that's where you can go to get those weekly free reports.
But then beyond that to credit Karma and Credit score Card,
which is a product or a site run by discover Card,
are two of our favorite places to check your actual
credit score. Most people that have a credit card will
notice that they are offered a free monthly credit score
there as well. If you go to your summary page
oftentimes like where it'll have a link and it'll link
(24:55):
out and you can, you know, easily see your credit score.
But one of the coolest things about Credit Karma the
dashboard feature, which really helps you to to see where
you're falling short and where to turn your focus in
order to improve right and so. And this is helpful
because staying updated, uh, you know, on what your score is,
maybe every month or so, will help you to stay
(25:15):
on top of it, you know, hopefully without obsessing over it.
It's something that you want to be tuned into, but
you don't want it to be all consuming and so
that way, if you see uh significant drop that can
tip you off to something that may not be right,
it's good to keep tabs on it. Yeah, So if
you don't know your score, go to one of those
two sites we mentioned, or check out the score provided
to you buy your credit card company. That will at
(25:36):
least help you know where you stand. And then if
you have a score that's hurting, that's not looking so good,
that is in that sub seven range. Um, here's what
you need to do in order to see that score
go up. First off, you need to be consistent, and
this means making payments on time, hopefully in full, every
single month. The more consistent you can be in paying
your debts in a timely manner, the more your score
(25:58):
is going to react positibly. For most people, Matt, it's
late payments that are holding down their credit score. So
getting on top of that and making sure you're paying
on time is a huge component in working towards fixing
that score. Yeah, that's right. It's important because on time
payments make up of your PHICO score, So this is
a big category to keep in mind. Um. And then
(26:20):
something else, you know, if you're looking to improve your
your credit score. Don't completely avoid debts. You know, sometimes
the knee jerk reaction might be to to avoid debt altogether,
maybe to close accounts and credit cards that you've had
around for years, because uh, you know, you don't want
to get into maybe some bad habits, that kind of thing.
But that's actually the exact opposite of what you need
to do in order to improve your score. You need
(26:41):
to keep those accounts open, uh and active. Because old
credit boost your score, it doesn't have nearly the impact
that on time payments does. But yeah, you're the length
of your credit history does have a pretty large effect
on your credit score. But of course you do need
to ensure that you are using that credit card sparingly,
that you that you are you ing those accounts in
a way that that you're being responsible. You know, like
(27:03):
you don't want again, you don't want to have achieve
a nice credit score while you know, at the same
time you are going into debt, while you're maybe overspending.
You don't want to fall into the trap of of
not saving money for the sake of improving your credit score. Yeah,
and I think that's one thing, Matt, that sometimes people do.
They do close credit cards in order to prevent going
into more debt because they know that they just can't
handle credit cards. And I think that's okay, knowing full
(27:25):
well at the same time, that's going to have a
negative impact on your score, right, But that's a worthwhile
trade off to prevent yourself from going into more debt
to have a lower score. But what we're trying to
address is people closing their credit cards thinking that it's
actually gonna help their score, but it has the opposite impact.
So yes, in a perfect world, keeping those credit cards
active and continuing to use them in a responsible manner
(27:46):
that's the way to go. And you also want to
avoid maxing those credit cards out, even if you can
pay off that full balance at the end of the month.
Really you want to go not even close to maxing
them out. And that's because a huge part of your
credit score is also the utilization ratio, and the best
credit scores are gonna mean that you're using essentially less
than a third of your available credit, and using less
(28:09):
than ten percent of your available credit is going to
get you into the best score range. So, for example,
let's say you have a credit card with a five
thousand dollar limit. Spending up to fills a month on
that credit card is that's pretty good. Yeah, that's that's
in a healthy range. But spending five on that credit
card every month, that's even better. And that's gonna be
(28:30):
the best possible usage amount for you when you're looking
to boost your score. Yeah, or according to Fico, like
we talked about earlier in the episode, if you want
to get into those rarefied eight hundred plus waters, it
takes seven percent or less. You know, if you're trying
to hone in on a seven percent utilization rate every month,
though you're you're you're trying too hard, You're putting too
much effort into It's probably true. Another consideration, too, when
(28:51):
you're looking to boost your credit score is just to
remind yourself that it takes time. You need to be patient.
You know, it takes time for negative items to fall
off of your credit report. It takes time him to
build up a meaningful credit history of on time payments
as well. Some people on the internet that you know,
they pitched that they can get those items removed for
you for a fee. But don't fall prey to those
empty promises. Handling your debt well over time will cause
(29:14):
that score to rise. Please remember that it takes patience
because you're not going to see your credit score just
jolt and jump upwards in a matter of days. You know.
We had a listener question recently, Matt, where where a
listener wanted to increase her credit score rapidly, and she
was asking about different ways to do that. And I
think it's easy to look for a quick fix when
you're like, man, I'm just months away from needing a
(29:35):
loan on a car or on a home. It's like,
I got thirty days, right, that's not enough time. It's
it's a it's a long play here, and it's worth
it to take the time to do this right. So
kind of back to the theme of the episode, Matt,
and we need a perfect credit score well, and how
much time overall should we give to focusing on our
credit score? Overall? I think it partly depends on what
shape your score is currently in. Right. If you're in
(29:56):
a rough spot with your score, we would suggest to
check out episode one of this podcast. We gave a
lot of thoughts on how to rebuild your score when
it's not looking so good. If you're in that position,
your credit score should be a larger focus for the
time being. It's similar to if you've taken years off
from physical activity, it's time to ramp things back up,
and so your credit score and building it up should
(30:17):
take a little more focus. If you've taken some time
off from even thinking about it and you've let it
fall into a state of disrepair, it's probably not gonna
feel natural for you to give it all that kind
of time and energy, But it's likely going to need
more time and energy then you've been giving it, right. Yeah, Yeah,
it's like you need one of those thirty day workout
regimens where you're working out every day for a whole month,
couched a five K exactly. You've got to get started,
(30:39):
and you need something a little more stringent to kind
of get you gone. Yep. And remember too that your
credit score it's only one part of having a well
constructed financial life, you know, while it has an impact
on so many things in our life, Obsessing over a
credit score and seeking perfection is a quixotic endeavor. Which
score do you want to even be perfect? You know,
(30:59):
like we met before, there are so many different scores
to consider. Uh, there's too many to keep track of.
And so like we recommended tracking one or maybe two
regularly via your credit card statement or via a site
like credit Karma is a great step to take trying
to keep your score in you know, above seven forty,
that is awesome, But if you're shooting for perfection with
your credit score, you'll likely spend way too much time
(31:21):
on something that really doesn't mean all that much, that's
not going to have a true impact on your finances. Yeah,
I feel like we near the beginning of the episode,
we said, this is how important your score is. It
influences so much of your financial life. But also at
the same time we're saying, don't spend too much time
on it. And yes, those things are both true. That
it is an important number, but it's something that you
shouldn't obsess over. And I know some of our listeners
(31:43):
who are excited about getting their personal finances together and
they're excited when they hear about their credit score and
it's something they can do to positively influence their financial life. Well,
then they want to go all in. Um And it's
great to be thinking about it, it's great to be
working on it, but going all in could mean going
too hard. After working towards is improving your score, and
there's a limit to the return you're gonna see as
(32:04):
you as you seek to improve it. Yeah that's right man,
Well awesome. Let's let's switch it back to the beer.
This episode, you and I are both enjoying a Nuclear
Sea Horse, which is a New England style pale ale.
This is by Boonshine Brewing Company, who is not surprisingly
based in Boone, North Carolina. There you go, yeah, uh yeah.
Just also, what were your thoughts on this beer, buddy?
So on the label it says caution radioactive hops, and
(32:27):
uh man, the hops were definitely alive. There was a
dankness to this beer that I really enjoyed. In particular,
pale ales can sometimes lack the hot presence or the
hot bite that this one had. So I was impressed
for a five and a half percent pale ale that
this one brought so much flavor. So yeah, I thought
this one was great. Yeah, man, I am a huge
fan of hoppy pale ales. You know, pale ales, they're
easy to drink, but they've got all that kind of
(32:48):
dank hop flavor. But on the label here is describing,
you know, how this beer is gonna taste, and it
said that it's radiant bold and electric, and dude, radiant
and electric are two words that I have never used
to describe an I p a or or a hoppy
paleo like that, but I feel like they are perfect words.
You know, you're talking about how like you feel like
you can taste the freshness of the hops? Uh they're
(33:09):
almost tingly a little bit electric is a great way
of of describing that as well. It makes me think
back to when when I was a little kid and
I would take a little nine bolt battery and stick
it to my tongue. It kind of lie you can,
it's a little tingly feels radiance on your tongue, it does,
That's what I hear, and I feel that that this
sort of what this beer does to a certain extent,
I would not recommend putting uh your mouth anywhere near
(33:32):
anything electric. Yeah, just put that disclaimer in there. But
those are the kind of things that I did as
a kid at least, and that should be a comfort
to our listeners that you can still end up as
a normal, reasonable human being even after doing crazy things
like that. Maybe sometimes I'm too reasonable, so hey, that true.
It just depends you know what kind of person you're
trying to be when you grow up. So but yeah,
(33:52):
I'm really glad that you and I got to enjoy
this beer on the show. A big things to Christopher.
He sent us two really good beers that we were
able to enjoy. So Christie, ever, thank you. Yeah, no
doubt this is a good one, all right, Matt. That's
gonna do it for this episode. For folks who want
show notes and some of the links to some of
the sites that we mentioned during today's episode, you can
go to our show notes and they'll be up on
our website at how to money dot com. Yeah, and
(34:12):
if you enjoy the show, if you enjoy How the Money,
we would be incredibly grateful to you if you went
over to Apple Podcasts and left us a solid rating
and review over there. But you know what, even easier
if you don't want to maybe go through the housle
of doing that, make sure that you are subscribed to
the show. Match that subscribe button to make sure that
you don't miss any new episodes as they are released. So, Joel,
that's gonna be it for this episode, Buddy. Until next time,
(34:35):
Best Friends Out, Best Friends Out,
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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