May 11, 2021 • 12 mins
Hello! and welcome to Everyday Finance and Economics with the Siglers! The podcast where we discuss what you need to know about personal finance and economics and give you practical advice on how to get started and be smart with your money.
This episode is an introduction to the world of credit! Everyone uses credit. It is everywhere in our daily lives. So it's important to know what it is, how to get it and how to use it! Stay tuned for next week's in depth analysis on consumer credit!
Come engage with us!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:10):
Hello, and welcome to everyday at finance and
economics with the Sigler is thepodcast where we discuss what
you need to know about personalfinance and economics, and give
you practical advice on how toget started and be smart with
your money.
We're your hosts, Glenn andChristina.
Speaker 2 (00:28):
So Christina, what's going on today?
Speaker 1 (00:31):
What matters this week in the economy is jobs on
the first Friday of every month.
The Bureau of labor statisticsreleases the employment
situation.
Summary also referred to as thejobs report for the month prior.
So last week, the jobs reportfor April was the least, and the
results were kind ofdisappointing.
Um, economists had predictedthat the U S economy would
(00:51):
create around 1 million jobslast month, but the Bureau of
labor statistics could only find266,000 new jobs added in April,
which is a huge miss people whohad hoped for a speedy recovery
of the unemployment rate mayhave to hold off, uh, as it went
up from 6% to 6.1%.
(01:12):
So while America is reopeningand making an economic recovery,
this is evidence that it's notall going to be straight up and
linear.
It's going to be a little Rocky.
Speaker 2 (01:21):
That was very disappointing news.
Speaker 1 (01:23):
Yeah.
Yeah.
Our economic term for this weekis unemployment, which is when
someone who is activelysearching for work is unable to
find it.
That's a very big distinctioncause you have to be actively
searching for work.
That number is typicallyreported as a percentage of the
population.
And it's used a lot to determinehow healthy and economy is.
(01:47):
All right, dad, I think it'stime we get into this week's
topic.
What are we talking about today?
Speaker 2 (01:52):
All right.
Today, we're talking aboutcredit.
Speaker 1 (01:55):
Hm.
All right, dad, what is credit?
Let's get into that.
Great.
Speaker 2 (02:00):
In short it's money, that's been lent to you by a
financial institution.
It might be in the form of aloan or a line of credit.
Examples of loans are mortgages,car loans, student loans, uh,
and lines of credit typerevolving credit or credit cards
or, um, or store cards with, uh,you can charge up some balance
(02:25):
each month and that'sessentially a mini loan and you
try to pay it back at the end ofthe month.
And for that, for the amountthat you don't pay back, you pay
interest on it and you have topay it back the next one.
Speaker 1 (02:37):
Okay.
So money given to you bysomebody else.
Right?
Right, right.
Absolutely.
What are some of the basic termsrelated to credit?
Cause I hear, I hear a lot.
Speaker 2 (02:49):
All right.
W you know, there, there are alot of terms in this, in this
area, and we'll start out withsome of the basics, the creditor
, financial retailer, or othercompany lending you money.
Um, yeah.
Uh, either a loan or line lineof credit and a line of credit
is a reserve of funds you candraw against.
(03:12):
Um, and, and you pay payinterest only when you use the
line of credit.
So it could be zero.
You don't have to pay anything.
You start, um, uh, makingcharges against it.
And that's when you start toincur, um, some additional costs
in addition to paying back theamount that you borrowed.
Speaker 1 (03:33):
Okay.
So the line of credit is you canlike borrow up to this much
money.
And then after that, you have tostart paying for user.
Speaker 2 (03:42):
All right.
So, so what you'll get is acredit limit.
And it said, okay, you've got tojust think of it like a credit
card.
Oh, you're authorized to spendup to$5,000 on your credit per
well, up to
Speaker 1 (03:56):
$5,000.
All right.
Speaker 2 (03:58):
So they're not, they're not, they're not going
to just say, Hey, you can havean unlimited amount of money to
spend because they may not feelyou can pay all that back.
Oh, I see.
Well, you know, you know, sowhat they'll do is they'll start
you out with a low limit andthen work you up to a high
limit.
So you'll, you'll, you know, if,if you don't use the credit
card, you're not paying, you'renot paying anything.
(04:21):
You're not paying any of theprincipal back.
You're not paying any interest,but say I bought some clothes
and I spent a thousand dollarson clothes.
And if I pay it all back withinthe month, I paid a thousand
dollars.
There's no extra charges, but ifI only pay back 500, and then
the next month I had to pay back500 plus interest on the 500
(04:47):
that I did.
Speaker 1 (04:49):
And then really quickly let's go back.
What is principle?
Speaker 2 (04:54):
Principal is, um, the amount that you have borrowed.
Okay.
Speaker 1 (05:01):
But that's what, that's what the interest is
going on.
Right.
If you don't pay it back.
Oh, that's exactly right.
All right.
You can continue with
Speaker 2 (05:09):
Right.
Uh, credit report.
This is a report that shows whatyou've done in all your credit
and all your accounts, whetherit be mortgages, student loans,
uh, all, you know, if youdefaulted at all, um, if you've
had any late payments, this isreport that shows, Hey, how good
(05:30):
of a credit risk is Glen?
And, and all the lenders want tosee that.
And you need to see it too,cause you need to make sure that
there's no, no mistakes in it.
Okay.
This is a critical to this.
History is critical todevelopment of your credit
score, which we'll discusslater.
(05:51):
These reports are done by creditreporting agencies, companies
that gather and reports on, onall of us, anybody that uses
credit, uh, the there's threemain ones and they're
experienced TransUnion andEquifax.
Speaker 1 (06:06):
Wait.
So do you choose who makes yourcredit report or no, they all.
Oh, so they're just tracking,they're all out here and got it
Speaker 2 (06:16):
Or not the customer of these things.
The, the companies that lendsyou credit or offering your
credit are the people that wantto know your credit history,
right?
They want to know if, Hey, isGlen Sigler a good credit risk?
Should I give him, should I loanhim money or give him a
revolving line of credit?
(06:37):
And so they use these reportsand something called a credit
score that synthesizes thecredit score, synthesizes your
history into a number.
And the number ranges typicallytypically range from a score of
300 to eight 50.
(06:58):
And the higher you are on that,on that range, the better off
you are.
A score of seven 50 isconsidered great.
And you get the best offers.
If you have a credit score overseven 50, if you're over 700,
it's good.
You start getting below six 60and 600.
Now you've got some challenges.
(07:19):
You might not be able to getcredit all the time, or when you
do get credit, you have to payhigher interest rates because
people want to get compensatedfor
Speaker 1 (07:27):
Risk.
Okay.
Speaker 2 (07:30):
All right.
And so phyco and vantage scoresare two, two versions of credit
scores, um, uh, and creditscores model by, um, by the, the
credit reporting agency.
And they're going to bedifferent, uh, uses of credit
scoring in various or models invarious countries.
(07:52):
And then there's somethingcalled the fair credit reporting
act, which mandates that creditcard agencies, um, are, are, you
know, they have an obligation toreport factually correct
information,
Speaker 1 (08:07):
Credit card agencies or credit report, credit
Speaker 2 (08:09):
Reporting agency.
Sorry about that.
And so, um, if you find that,Oh, you know, they said, Oh,
you, you didn't pay this bill,you know, two years ago.
And you say, wait a minute, Ipaid that bill.
You show the credit reportingagency that you paid that bill,
they have to change it in theirreporting.
(08:29):
And that will end up beingreflected in your credit score,
which should improve your creditscore.
So there is, there areobligations to them,
Speaker 1 (08:38):
Right.
Okay.
So who provides credit?
Where do you, where do you getthis from?
Speaker 2 (08:44):
In, in most cases, um, the traditionals are banks
and credit unions, and now youhave a, uh, a whole slew of
online lenders and otherfinancial, um, you know, like,
so Phi and, and places likethat, that aren't traditional,
um, consumer lending places, butthey, they, they do it now too.
(09:08):
And, but the other thing we needto remember is, you know, a lot
of people get, uh, loans throughfriends and family.
Speaker 1 (09:15):
Oh, that's true.
Yeah.
Um, so there's types of creditthere's categories.
What is, what is that about?
Ah, I didn't know.
That was a thing until rightnow.
Speaker 2 (09:26):
So I'm going to give you four for most of us, we're
going to start with, with the,the major categories secured
versus unsecured.
And, um, secured is a type of,of loan.
When the borrower, the personwho borrows the money puts up
some collateral.
Speaker 1 (09:47):
Oh, that's like, when they talk about movies, they're
like, Oh, I get put up thehouse.
Speaker 2 (09:53):
Yeah, yep.
As collateral.
So the lender may be worriedabout your risk of, of ability
to pay.
So in order to, to, um, tomollify or, or ease their, their
concerns about the risk, youhave to put some skin in the
game.
And if you don't pay, you loseyour house, you lose whatever it
(10:17):
is that you, you put up at risk.
And so secure CA uh, credit iswhen you put up an asset or, or
money that, you know, as anoffset to essentially guaranteed
that, you know, they getsomething in return, um, versus
unsecured, which is, Hey, I I'mgiving you this loan based on
(10:42):
your credit history and not anyasset.
And so, you know, that usuallythat usually cost more in terms
of interest rate secured,because they have that, that
guarantee as a backup, usuallythere's lower interest rates,
but unsecured is more flexible.
(11:03):
Okay.
Speaker 1 (11:04):
Yeah.
What are the primary loan types?
Speaker 2 (11:08):
Okay.
Um, there's open-ended and Crowclosed ended loan types.
So an open-ended loan type is arevolving credit line or credit
card.
It's all, you know, it can bealways open.
A closed in is one where theloan is, you know, the loan ends
(11:30):
when you make the last payment.
So when you pay off a house oryou pay off a car, or you pay
off your student loans, oncethat is done, and all the
paperwork gets filed, that loanends and history that goes with
that ends.
But with a credit card, you canalways keep that open and, and,
(11:52):
and keep movement in order to,to close it.
There has to be, I mean, youhave to say, I want to close it,
or because of inactivity, thecredit card company said, Hey,
you haven't used our credit cardin three years.
We're going to shut you down.
Speaker 1 (12:06):
Okay.
All right.
All right.
That's our show.
Thank you so much for listeningand be sure to join us again
next time when we continue ourseries on credit.
And if you have any questionsfor us, you can email
us@efespodcastatgmail.com andfollow our Instagram at EFBs
podcast.
Thank you so much for listening.
Take care, everyone.
Hello, and welcome to everyday at finance and
economics with the Sigler is thepodcast where we discuss what
you need to know about personalfinance and economics, and give
you practical advice on how toget started and be smart with
your money.
We're your hosts, Glenn andChristina.
Speaker 2 (00:28):
So Christina, what's going on today?
Speaker 1 (00:31):
What matters this week in the economy is jobs on
the first Friday of every month.
The Bureau of labor statisticsreleases the employment
situation.
Summary also referred to as thejobs report for the month prior.
So last week, the jobs reportfor April was the least, and the
results were kind ofdisappointing.
Um, economists had predictedthat the U S economy would
(00:51):
create around 1 million jobslast month, but the Bureau of
labor statistics could only find266,000 new jobs added in April,
which is a huge miss people whohad hoped for a speedy recovery
of the unemployment rate mayhave to hold off, uh, as it went
up from 6% to 6.1%.
(01:12):
So while America is reopeningand making an economic recovery,
this is evidence that it's notall going to be straight up and
linear.
It's going to be a little Rocky.
Speaker 2 (01:21):
That was very disappointing news.
Speaker 1 (01:23):
Yeah.
Yeah.
Our economic term for this weekis unemployment, which is when
someone who is activelysearching for work is unable to
find it.
That's a very big distinctioncause you have to be actively
searching for work.
That number is typicallyreported as a percentage of the
population.
And it's used a lot to determinehow healthy and economy is.
(01:47):
All right, dad, I think it'stime we get into this week's
topic.
What are we talking about today?
Speaker 2 (01:52):
All right.
Today, we're talking aboutcredit.
Speaker 1 (01:55):
Hm.
All right, dad, what is credit?
Let's get into that.
Great.
Speaker 2 (02:00):
In short it's money, that's been lent to you by a
financial institution.
It might be in the form of aloan or a line of credit.
Examples of loans are mortgages,car loans, student loans, uh,
and lines of credit typerevolving credit or credit cards
or, um, or store cards with, uh,you can charge up some balance
(02:25):
each month and that'sessentially a mini loan and you
try to pay it back at the end ofthe month.
And for that, for the amountthat you don't pay back, you pay
interest on it and you have topay it back the next one.
Speaker 1 (02:37):
Okay.
So money given to you bysomebody else.
Right?
Right, right.
Absolutely.
What are some of the basic termsrelated to credit?
Cause I hear, I hear a lot.
Speaker 2 (02:49):
All right.
W you know, there, there are alot of terms in this, in this
area, and we'll start out withsome of the basics, the creditor
, financial retailer, or othercompany lending you money.
Um, yeah.
Uh, either a loan or line lineof credit and a line of credit
is a reserve of funds you candraw against.
(03:12):
Um, and, and you pay payinterest only when you use the
line of credit.
So it could be zero.
You don't have to pay anything.
You start, um, uh, makingcharges against it.
And that's when you start toincur, um, some additional costs
in addition to paying back theamount that you borrowed.
Speaker 1 (03:33):
Okay.
So the line of credit is you canlike borrow up to this much
money.
And then after that, you have tostart paying for user.
Speaker 2 (03:42):
All right.
So, so what you'll get is acredit limit.
And it said, okay, you've got tojust think of it like a credit
card.
Oh, you're authorized to spendup to$5,000 on your credit per
well, up to
Speaker 1 (03:56):
$5,000.
All right.
Speaker 2 (03:58):
So they're not, they're not, they're not going
to just say, Hey, you can havean unlimited amount of money to
spend because they may not feelyou can pay all that back.
Oh, I see.
Well, you know, you know, sowhat they'll do is they'll start
you out with a low limit andthen work you up to a high
limit.
So you'll, you'll, you know, if,if you don't use the credit
card, you're not paying, you'renot paying anything.
(04:21):
You're not paying any of theprincipal back.
You're not paying any interest,but say I bought some clothes
and I spent a thousand dollarson clothes.
And if I pay it all back withinthe month, I paid a thousand
dollars.
There's no extra charges, but ifI only pay back 500, and then
the next month I had to pay back500 plus interest on the 500
(04:47):
that I did.
Speaker 1 (04:49):
And then really quickly let's go back.
What is principle?
Speaker 2 (04:54):
Principal is, um, the amount that you have borrowed.
Okay.
Speaker 1 (05:01):
But that's what, that's what the interest is
going on.
Right.
If you don't pay it back.
Oh, that's exactly right.
All right.
You can continue with
Speaker 2 (05:09):
Right.
Uh, credit report.
This is a report that shows whatyou've done in all your credit
and all your accounts, whetherit be mortgages, student loans,
uh, all, you know, if youdefaulted at all, um, if you've
had any late payments, this isreport that shows, Hey, how good
(05:30):
of a credit risk is Glen?
And, and all the lenders want tosee that.
And you need to see it too,cause you need to make sure that
there's no, no mistakes in it.
Okay.
This is a critical to this.
History is critical todevelopment of your credit
score, which we'll discusslater.
(05:51):
These reports are done by creditreporting agencies, companies
that gather and reports on, onall of us, anybody that uses
credit, uh, the there's threemain ones and they're
experienced TransUnion andEquifax.
Speaker 1 (06:06):
Wait.
So do you choose who makes yourcredit report or no, they all.
Oh, so they're just tracking,they're all out here and got it
Speaker 2 (06:16):
Or not the customer of these things.
The, the companies that lendsyou credit or offering your
credit are the people that wantto know your credit history,
right?
They want to know if, Hey, isGlen Sigler a good credit risk?
Should I give him, should I loanhim money or give him a
revolving line of credit?
(06:37):
And so they use these reportsand something called a credit
score that synthesizes thecredit score, synthesizes your
history into a number.
And the number ranges typicallytypically range from a score of
300 to eight 50.
(06:58):
And the higher you are on that,on that range, the better off
you are.
A score of seven 50 isconsidered great.
And you get the best offers.
If you have a credit score overseven 50, if you're over 700,
it's good.
You start getting below six 60and 600.
Now you've got some challenges.
(07:19):
You might not be able to getcredit all the time, or when you
do get credit, you have to payhigher interest rates because
people want to get compensatedfor
Speaker 1 (07:27):
Risk.
Okay.
Speaker 2 (07:30):
All right.
And so phyco and vantage scoresare two, two versions of credit
scores, um, uh, and creditscores model by, um, by the, the
credit reporting agency.
And they're going to bedifferent, uh, uses of credit
scoring in various or models invarious countries.
(07:52):
And then there's somethingcalled the fair credit reporting
act, which mandates that creditcard agencies, um, are, are, you
know, they have an obligation toreport factually correct
information,
Speaker 1 (08:07):
Credit card agencies or credit report, credit
Speaker 2 (08:09):
Reporting agency.
Sorry about that.
And so, um, if you find that,Oh, you know, they said, Oh,
you, you didn't pay this bill,you know, two years ago.
And you say, wait a minute, Ipaid that bill.
You show the credit reportingagency that you paid that bill,
they have to change it in theirreporting.
(08:29):
And that will end up beingreflected in your credit score,
which should improve your creditscore.
So there is, there areobligations to them,
Speaker 1 (08:38):
Right.
Okay.
So who provides credit?
Where do you, where do you getthis from?
Speaker 2 (08:44):
In, in most cases, um, the traditionals are banks
and credit unions, and now youhave a, uh, a whole slew of
online lenders and otherfinancial, um, you know, like,
so Phi and, and places likethat, that aren't traditional,
um, consumer lending places, butthey, they, they do it now too.
(09:08):
And, but the other thing we needto remember is, you know, a lot
of people get, uh, loans throughfriends and family.
Speaker 1 (09:15):
Oh, that's true.
Yeah.
Um, so there's types of creditthere's categories.
What is, what is that about?
Ah, I didn't know.
That was a thing until rightnow.
Speaker 2 (09:26):
So I'm going to give you four for most of us, we're
going to start with, with the,the major categories secured
versus unsecured.
And, um, secured is a type of,of loan.
When the borrower, the personwho borrows the money puts up
some collateral.
Speaker 1 (09:47):
Oh, that's like, when they talk about movies, they're
like, Oh, I get put up thehouse.
Speaker 2 (09:53):
Yeah, yep.
As collateral.
So the lender may be worriedabout your risk of, of ability
to pay.
So in order to, to, um, tomollify or, or ease their, their
concerns about the risk, youhave to put some skin in the
game.
And if you don't pay, you loseyour house, you lose whatever it
(10:17):
is that you, you put up at risk.
And so secure CA uh, credit iswhen you put up an asset or, or
money that, you know, as anoffset to essentially guaranteed
that, you know, they getsomething in return, um, versus
unsecured, which is, Hey, I I'mgiving you this loan based on
(10:42):
your credit history and not anyasset.
And so, you know, that usuallythat usually cost more in terms
of interest rate secured,because they have that, that
guarantee as a backup, usuallythere's lower interest rates,
but unsecured is more flexible.
(11:03):
Okay.
Speaker 1 (11:04):
Yeah.
What are the primary loan types?
Speaker 2 (11:08):
Okay.
Um, there's open-ended and Crowclosed ended loan types.
So an open-ended loan type is arevolving credit line or credit
card.
It's all, you know, it can bealways open.
A closed in is one where theloan is, you know, the loan ends
(11:30):
when you make the last payment.
So when you pay off a house oryou pay off a car, or you pay
off your student loans, oncethat is done, and all the
paperwork gets filed, that loanends and history that goes with
that ends.
But with a credit card, you canalways keep that open and, and,
(11:52):
and keep movement in order to,to close it.
There has to be, I mean, youhave to say, I want to close it,
or because of inactivity, thecredit card company said, Hey,
you haven't used our credit cardin three years.
We're going to shut you down.
Speaker 1 (12:06):
Okay.
All right.
All right.
That's our show.
Thank you so much for listeningand be sure to join us again
next time when we continue ourseries on credit.
And if you have any questionsfor us, you can email
us@efespodcastatgmail.com andfollow our Instagram at EFBs
podcast.
Thank you so much for listening.
Take care, everyone.
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