Season 2, Episode 7: WTF Is a Credit Score and Why Is It So Important?
How “they” decide what your credit score is, how to get a good one, and how to find out what it is and why that’s a good idea even though it seems like a total hassle
Your credit score is one of those things that you don’t have to care about…until you really do. It’s a system that kind of makes sense, but also can be crazy unfair.
In this episode Sara and Caitlin (but mostly Caitlin) grill Lending Tree credit expert Matt Schulz on how credit scores are calculated and what it actually means. Do they stay the same for all of our lives? Can we make them better? Do they get worse if we check them every week?
He tells us some very bad news about how bad credit can cost you a ton of money over your lifetime, but also hopeful news about how to build up your credit score so you can get out of the cycle.
Here are some of the resources we mentioned in the episode:
The government’s consumer watchdog website: Consumer Financial Protection Bureau
You can check your credit report at AnnualCreditReport.com - it’s a no strings attached website that you can trust.
The three big credit bureaus where you can check your credit score and freeze your credit so no one can open up a credit card or line of credit on your behalf:
And to find out more financial tips from Matt, follow him on Twitter @matthewschulz and subscribe to his newsletter. And watch out for his book in 2024 that promises to help people pay less, earn more and keep more of their money by asking the right questions in everyday situations.
Oh! And do you have a passive income story? A success? A failure? Tell us about it in a voice memo and e-mail it to: womenonthevergepodcast@gmail.com
Ask us your dumb investing and finance questions for Season 2 on our Ask Us page!
This episode was edited by our co-producer Kelly West. Music by Bad Bad Hats and Devmo.
Transcript for Season 2, Episode 7: WTF Is a Credit Score and Why Is It So Important?
Caitlin Welcome to Women on the Verge of a Financial Breakthrough, figuring out finance, one dumb question at a time. I am Caitlin Meredith, a mediator and coach based in the Bay Area. And I'm the dummy and this is our expert.
Sara I am Sara Glakas. I'm an investor advisor and founder of Black Barn Financial and the Austin Women's Investing Group, which can be found on Meetup.
Caitlin Hey, before we start, Sara and I want to do an episode on passive income. Do you have a passive income story, a big success or even better, a big fail? Would you tell your story in a voice memo and then email it to us at womenonthevergepodcast@gmail.com? Thanks.
Caitlin So today we're going to talk about something we have I don't think we've ever talked about it. I don't think we talked about it all last season. And it's credit. Spoiler alert, it's credit. What the fuck is credit? And why is it so important? And yet I don't know anything about it. And so we have a guest because Sara knows somebody who knows all about credit. So, Matt, do you want to say what your deal is and why you're so smart about credit?
Matt Sure. Well, first of all, thanks for having me. It's great to be here. My name is Matt Shultz, and I my official title is chief credit analyst at LendingTree. But essentially what I am is like personal finance expert guy for lending tree. My focus has primarily been helping people make smart decisions about getting credit and using it wisely. And I talk primarily about credit cards and personal loans and that sort of stuff, and not so much about mortgages and that sort of thing. But I also do spend a lot of time talking about credit, credit scoring and also just kind of consumer debt sort of issues. So that's kind of that's kind of my wheelhouse.
Caitlin Okay. And you're writing a book about credit right now. Or you already wrote it?
Matt I am. I am in the process of writing a book about it. It's largely about questions that can help people save money, earn money and keep a little bit more of their money when they ask them in everyday situations. And including everything from, you know, splitting the bill at a group dinner so you don't get stuck paying two thirds of it.
Caitlin You mean a whole episode about that, that. Oh, my God, we have a lot to talk about there. Okay. Yeah, got it.
Matt And and then but also credit is a significant thing because it's a big deal. People tend to overthink credit. For one thing, people think that it's a little more complicated at a base level than it actually really is. Really, it's about doing some simple things over and over and over again. And your credit is going to be generally just fine. But but people do tend to overthink and kind of get intimidated a little bit by the idea of credit.
Caitlin So funny that you call it overthinking because I think I do a lot of under thinking about credit. Like I will not think about credit because I don't understand it and I don't really... Like it seems like one of those, like a lot of things in capitalism, completely invented systems that you happen to missed that day of civics and you're like, Oh, I guess I don't understand credit that was made up by a bunch of people making up rules. Like a literal game that there's a score for. And so, but you can't really opt out.
Matt Yeah, yeah. I mean, the first thing that people need to understand about credit is that consumers aren't who credit was created for. Credit was created because banks and lenders want to know who is a risky person to lend to and who is not. So the primary customers and the primary people that credit companies, credit bureaus, credit scoring formula companies are beholden to are lenders, not consumers. And so once people kind of understand that it clarify it can clarify some things a little bit. And the the analogy I always make as a as a dad who with a 16-year-old who we just we just bought my son's first car this past weekend. So it's a whole thing. But I compare it to a compare credit to borrowing the car keys from your parents. So the first time you borrow the car keys from your mom and dad, they're going to put all sorts of restrictions on you, make all sorts of rules, not let you drive anywhere outside of like a mile from the house and make sure that you are you keeping straight and narrow. But if you do that successfully and then ten more times you would come back, you meet curfew. You fill up the tank. You don't have scratches on the car. The tenth, 15th, 20th time they borrow the car keys, it's not really going to be any big deal. And that's that's a lot of what credit is about. It's just proving to lenders that you can handle your business if they lend you money.
Caitlin Okay. So the first question I had for you is, what the fuck is credit? And I feel like your analogy, like eventually we got there that it's like a credit is like this, your standing, whether it be good or bad with people that might give you some money. And it means that how how good of a bet are you that you'll pay us the money back that we're going to lend to you?
Matt Yeah. Yeah. All those formulas, the point of those formulas is so so the Nissan dealer that we bought my son's little Ford Fusion at can know how likely or can feel comfortable about how likely we are to be able to pay them back with the financing. Okay.
Caitlin So wait a second. I get I get that I get what you're saying. But and this is I'm getting ahead, but I can't stop because so many people are in crazy credit card debt that they should never have been allowed to take all that money with insane interest rates. So it feels like a setup to fail at the credit test. And so I feel, like I know you said we're not talking about mortgages right now. We won't get there. But like so many people, when interest rates were really low qualified for much bigger mortgages than they should reasonably take, given like financial insecurity, the instability of the market, whatever, like they shouldn't have taken those, but the banks were willing to give it to them. And so it seems like a double, it's like they use a credit score against you, but then they also can use it to set you up to get in a situation that actually realistically you can't get out of financially.
Matt Well, it's it's not so much using it against you. I mean, they the the banks in most times want to lend and they want to find more customers out there who are responsible into who they think will pay them back. And that's that's kind of the whole point of the thing. The the the other point that you make is, is kind of a separate one almost where one thing that I always say is that just because somebody will lend you money in feels that you will be able to handle it responsibly doesn't mean that you should take it. And in in that's true in the credit card space where that 100,000 points 100,000 point and sign up bonus that you really want that you can probably get is sounds great but it doesn't mean that you should take it if you don't feel comfortable managing that card and in in that sort of thing. There definitely is some responsibility on the consumer side for saying no sometimes. Yes, absolutely positively. Banks should be more responsible sometimes about who they lend to and recognize the situation that people are in. But the truth is that consumers need to be willing to say no as well and understand again that just because somebody will lend you money doesn't mean that you should take it.
Caitlin I understand that. And Sara and I have talked about this before, that I get really confused. Like I'm like, apply for a mortgage, I apply for a loan, apply for a credit card. I'm like, it feels like an audition. Am I good enough for them to accept me? And if I am, then I feel like I've passed through this rigorous test that they have rationally analyzed. If I can handle it and if they have, that's the test. And so I Sara has said this is, as I said, come up before that they do all their testing. But that's not independent of the testing we need to do ourselves about what what the limits of what we can safely, how we can sleep at night with how leveraged we are. But the other thing that I'm getting from this is the problem with not paying back right when you're supposed to or when you've agreed to is one, interest - you're going to pay more money than you would have otherwise. But the other is that you're being graded on how well you do it. So you're both spending more and you're getting you're you're in, you're negatively impacting your score. So it's a double whammy. It's not just you owe a nickel more, it's your nickel more. And I might not lend it to you the next time or you'll have a bad grade on it, too.
Matt Yeah. No, that's that's 100% correct. And, and that's that ding that you take to your credit will cost you or can cost you hundreds or thousands of dollars over the course of your life. It's one of the things I've said a million times in interviews. There are very few things in life that are more expensive than crummy credit because it's going to it's going to cost you thousands and thousands of dollars in a mortgage. It can cost you hundreds or more on car loans and credit cards. It can keep you from getting the getting an apartment that you want. It can raise your insurance premiums. It's it's it touches. Is all aspects of our lives practically. And it's one of those things that isn't always really important. But when it is important, it's really, really, really important.
Caitlin Yeah, that is definitely my experience that I can swan around my whole life, never knowing what my credit score. But the second I wanted to buy my car or you know that, I'm like, Wait, what is a credit score? How does that work? And I needed to know exactly where I sat there, but it didn't really occur. I thought of it as a black and white, like, either my credit's good enough to qualify for a car loan or it's not. But are you saying that, like, if your credit is bad in a certain way, you might still get a car loan, but it will be a much shittier loan. Your interest rate will be higher.
Matt Yes.
Caitlin They're like, Oh, you had trouble paying this last thing. Oh, you're going to have to pay more for this thing than. It doesn't make sense.
Matt Yeah, well, from it from the bank's perspective, it does. Because if you because they're all about managing their own risk and if they're lending you money and you stumbled over, you know, the last thing you borrowed, they're concerned that they're not going to get paid back. So they end up charging you more money to protect themselves.
Caitlin In the sense.
Matt For the consumer. But I mean, from the bank's standpoint, that's that's business.
Caitlin But is it good business? I mean, this is beyond the scope of this. But I'm curious if you then give me an interest rate that's so high, I'm destined to fail. Don't. Isn't that bad for them, too? Whereas if they gave me one that I could be more successful with that was lower. It would be good for both of us. Like How many years would you have to be paying them off the really high interest rate before you just, like, lost your job and then fell off completely?
Matt Well, well, here's. Here's the thing you have. It's like you said, it's not kind of all or nothing. And within credit, within mortgages, within car loans, within any type of loans. You also have. You also have you also have lenders who may specialize in lending to people who don't have great credit. Or you may have credit. You certainly have credit cards which are targeted towards folks who have really good credit, spend a ton of money and all that sort of thing. So really, it's it's it's important. It's important for folks to understand where they stand. But it's also kind of important for them to understand that debt bad credit isn't a life sentence and that there are things.
Caitlin That are nodding vigorously at that. I'm assuming you've had that come up with client Sara. Like it feels like the end of the world and then you get to coach them through. It's not.
Sara Yes. I mean, I think it's come up with clients and in the women's investing group as well. And I'd love to hear more about kind of what, you know, what Matt's experience is, because I think there's often this sense that. A system that you can't learn and that you can't dig out from. And sometimes that is the case. But I don't know. I like to think of credit as it's another tool in your toolbox and you can get better at using the tool through education and knowledge and time. Right. Time can work to your advantage, like Matt said. Pay your bills on time, get a track record and your credit score will improve. And that is something that you can do regardless of what the stock market is doing or like what's happening in other areas of investing or kind of your day to day life. If you just commit to paying the bills, you can get that positive wealth effect simply from raising your credit score, getting better offers to refinance your debt, refinancing at a lower rate, being able to pay more. And that that is the type of thing like that said that that I do think can change lives and make a situation that seems impossible to get out of it makes it possible but you do have to kind of know how it works. I think especially from the lenders perspective.
Matt Yeah. And and there are also, again, the idea of it not being kind of a lifelong penalty. It is is important to understand because there are plenty of things out there that cater to folks who are either brand new to credit or who have done some damage to their credit and just need to kind of get their feet back under them again. There are cards out there that have just bananas, interest rates that no one should ever pay. But what those what those cards do is they give an opportunity to people who have wrecked their credit to get back kind of to get their feet under them again and to be able to make payments and to see their credit score edge up from 580 to 620 and in in things like that. So so it is there are definitely things that you can do out there to help you improve your credit. But it ultimately credit comes down to kind of doing the right things over and over and over again. Lather, rinse, repeat for for a long time.
Caitlin You know, it's so crazy. I a so I worked in Africa a long time and I've worked with a lot of refugees and a family that I'm very close to in Austin. When they first came in 2007 and I was sort of showing them the ropes for a lot of things in American society that I had never thought about before. You know, anything from like what is breakfast cereal to how do you save for a car lot, you know, for a car? And they paid for everything in cash. They earned money through their jobs on pay through cash, which I thought was like, that's amazing. You're living within your means. And I had to sort of learn through other people that they needed to start not paying in cash for everything because they had no credit then. And so even though they were being like extraordinarily financially responsible and everything they did were not leveraged fancy word in any way, they had their the advice of a social worker was to like lease a TV or like have some contract that I was raised to like completely disapprove up. Like you do not buy something that you don't have the money for all to be players in this larger system so that they want it when they did want to get buy something that you know, a house or something like that that they would be able to have credit. It sounds crazy.
Matt It's it's it does until you again kind of take it back to the the purpose of credit, which is helping lenders know who is safe to lend to. And if you've never and if you've never borrowed from anybody, you don't have any track record, you don't know you don't know how you're going to do it. New kid on the basketball team and nobody's seen play. You don't know if the kid can shoot or not. But until you until you put them in and play. So. So there is certainly that there's there is there is definite risk in getting credit just for credits sake, depending on what type of credit you get. I always recommend that folks get what's called a secured credit card when they're starting off with credit. And what a secured credit card is, is it functions pretty much exactly the same as any other credit card, but you have to put a little security deposit down to get it. So if you put $250 down with Capital One or whoever, that sets your credit limit on that credit card as $250, and you can use that card the way you would any other credit card. And if you use $200 this month, pay it off, your credit limit resets to $250. It's not like it's a prepaid card or something like that. So with with something like that, that's kind of an ideal way to start because it, it, it minimizes the risk for everybody. Mom and dad don't have to put down a ton of money to get it started. The kids can only go so crazy spending the bank has zero risk at all because they've got your security deposit and if you don't pay, they just keep the deposit. And with that card you can use it and use it responsibly and start building your credit slowly from from the day you walk into to college or something like that. And and another thing that I always recommend for folks who are just getting started is, is that they can do something like just putting a Netflix subscription or a Spotify subscription on that one card that they have and set up auto pay to pay that recurring that little recurring subscription. And that way, even if you never use the card any other way, you're building a track record of being responsible, paying that card off while avoiding debt at the same time.
Caitlin So you don't have to go out of your way to lease a bunch of crap you didn't you don't need you don't want just to get your like on the credit map, you can set it up in a way that it's covered your building credit while just covering your normal expenses, assuming you can rein yourself in like that's a big part of it. And so you're building credit, just spending your money in a more creative way. Like instead of it going from your debit card, it goes onto a credit card, but it's still the money. You're not spending money you don't have still.
Matt Yes. Yeah, exactly. And there there are training wheels, credit cards. And and I mean, you can think of it like if you go to the bowling alley with your kid and the bumpers come up in the gutters, right. You can't really make a mistake. And instead, there are there are products that are basically designed to be that kind of thing for folks with credit, with no experience, with with credit. And again, a secured credit card is a is a really good way to start. And not just for folks who are new to it, not just for college students, but for folks who may have may have made mistakes and can't get any other credit and want to start kind of building themselves up again.
Sara All right. This idea of the trajectory of your credit score first, what's the lowest credit score?
Caitlin Oh, yeah. What's the range?
Matt 300 350? I'm embarrassed. I should I should know that off the top of my at the top of it is, is 850. And I think it's either three or 350.
Sara Okay. And so if in the past you had a 350 credit score and now you have an 800 credit score, do lenders look back in time to see your history or do they only care what your score is now?
Matt That's a that's a good question. Well, to start with, you have to really have messed up pretty substantially to get to the very, very bottom of the credit spectrum. The average Americans credit score is a little over 700. It is so. So you really do have to have made some mistakes or whatever the circumstances was. Bad things have to have been done to really get your credit to that level to start with. To. To answer the main part of your question. First, we're starting to see credit scoring companies look at what they call trended data. So looking back to see what your you know, what your balances were, what your information was six months ago versus what they are now and kind of, you know, integrating that into their formulas to kind of give people credit for improving themselves, but also to kind of knock people down who may have been kind of headed the other direction. And again, that's something that lenders would want to know, too, because that's that's often a signal of something. So generally speaking, your credit score is kind of a snapshot of a moment in time or traditionally has been kind of a snapshot of that particular moment in time. And there aren't really places that I know of where you can go back in, like the Wayback Machine online. You can't go back to October of 2019 and see what your what your credit score was then. It's more of a snapshot of a moment of time kind of thing. But what lenders like I was saying are starting to do more is to look at that data on your credit report as a you know, looking at looking at that information on a trended basis to see whether things are getting better, things are getting worse, whatever, and factoring that in to their scores as well.
Caitlin What date range would be in that? Is that like over the past year or two years, your entire life? Like, what do they have access to? I have this idea that it's seven years. I have no idea what that's from.
Matt Seven years is how long a negative mark lasts on your credit report. So if you paid late for three, if you're 30 days late with a payment, it's going to generally stick on your credit report for seven years. It gets progressively less impactful on your score as those seven years go along, but it stays there for seven years. Good information stays for ten. So doing us a solid that way. But but in terms of trended data, exactly what the what the timeframe is, I'm not 100% sure. I don't know the answer to that question. But my my understanding is that, well, I know for certain that it's not like the lifetime of of your of your experience, but I don't know specifically what the time frames are.
Sara It sounds like you just mentioned the things that happened more recently have higher weightings and the highest impact is paying your bills on time, making payments on time, not missing payments. Can you talk about some of the other high impact events that impact your credit score?
Matt Yeah, absolutely. The three biggest things that matter to your credit score or the three biggest things to keep in mind with your credit score are paying your bills on time every single time, keeping your balance as low as possible, and not applying for too much credit too often. If you do those three things over and over and over again, your credit's going to be just fine there. And and then those balances are the the second most important thing after after paying on time enj there's a, there's a concept called credit utilization, which is a really important thing when it comes to when it comes to your credit score, especially as it relates to especially as it relates to credit cards in the idea of credit utilization is that if you have a $3,000 balance and $10,000 in available credit, your utilization rate is 30% because 3000 is 30% of 10,000. And that's what's known as your utilization rate. And that is something that the lenders track to basically kind of keep an eye on how close you are to maxing out your credit card, that sort of thing. And for for many years, the rule of thumb has been that you want to keep your utilization rate at 30% or lower.
Caitlin Okay. So let me make sure the credit card company tells me that I can spend $20,000 a month or $10,000 a month. They've said that's your credit limit. And yet, I can only pay off 3000 a month. So you're under using the amount that's available to you.
Matt Correct.
Caitlin Okay. And that's a good thing.
Matt And that's a good thing, generally, because it shows that you are that you are responsibly managing that available credit. And so that utilization rate is a significant thing. If you are using that $10,000 number, if you have eight or $9,000 in debt with a $10,000 credit card balance, then that utilization rate goes up to 80, 90%. That's going to damage your score. And in the end, that's something that's that is that is pretty significant. It's something that you can you can change both sides of the equation. Obviously, what you want to do is pay down the balance. But if that's not possible, you can also ask your your lender for additional available credit, too, to kind of change that end of the equation.
Caitlin Oh, I see. Okay. So I have $7,000 in debt on my 10,000 limit, and I know that that looks bad for my utilization rate. So I say, can you increase what I can my credit limit to 20,000? Because at least then the ratio is better even if I still can't pay it.
Matt Yes. Yeah, that is. Yeah. And and again, that's one of those things that comes with a giant Everest sized caveat of don't spend, don't use the available credit. It's the same thing. I talk a lot about balance transfer credit cards where you can take the money from one card, where you're getting charged 20% interest and put it on another card and get 0% interest for a year, 18 months, whatever. Those are awesome, except if you just see that new card as an excuse to go spending more and and running up what you owe. So there is always going to be a personal responsibility, a discipline aspect to all of this. And that's that's something that that that really can't be overlooked.
Caitlin I appreciate that you're highlighting that. And I think, like, we talk about that all the time. Like what? That's why we want to become educated so we know how to be savvy about all this. But I just know of so many scenarios. I also work in criminal defense, the number of women that are in debt because of boyfriends or husbands that they were cosigners on a car loan and someone went, you know, M.I.A. Or a huge medical bills like just that have a level or job loss. Like there are a million, I want to say legitimate, like just absolutely out of your control reasons for your credit to be wiped out. You know, getting educated means we know what it means to cosign with somebody on a loan like that as part of what we need to know. But I'm just thinking about the number of people whose credit has been affected by situations or relationships. That really was not because of their, you know, something they did.
Matt Well ends and it even gets it even gets more difficult than that to a degree because sometimes there are mistakes on your credit reports that are just clerical errors. And somebody put something in wrong when they were inputting your information at the credit bureau and they marked you down. Is having a late payment on a credit card in 2020 that you didn't do, and because you've never paid late, you would not have any real reason to notice. But your credit score might have been knocked down 50 plus points because of that payment. So there are there are so many different things that can knock people's credit down. And and having having good credit is really hard. And it's it's credit is credit's pretty unforgiving for one thing. Yeah. It's it's it's definitely kind of a the bigger they are, the harder they fall sort of thing where if you have an 800 credit score and you're late with a payment, you your score is likely or could potentially drop farther. Because of that payment, then a and then it would if you had a 650 credit score because you're going from really, really good to wow, that was a big mistake. Now we have to mark you down as opposed to one mistake alongside a series of a few others. Wow.
Sara Yeah. Can I piggyback off that? What Caitlin brought up about, like, cosigning on a loan? Because one of the questions I had was kind of in the the game people play to increase their credit score. I think I've heard about the tactic of adding a user like maybe a user with no credit, adding that user to your card so that they can basically piggyback off of your credit score, assuming, okay, my credit score is good, my daughter's doesn't have any credit. Do you think that people should add folks as users? And does it work with their credit cards? And is a legitimate strategy?
Matt It's absolutely a legitimate strategy and it definitely can work. In there, there are a few ways to go about it. And the first thing to know is that if you are going to do this, then you need to make the decision about how the person you're making the authorized user will be able to access that card. So if you are mom and dad putting your teenager because it's one of the few things that you can do for somebody who is under 18 in terms of getting them credit and helping them build. You can add them, you can add them to your card. But it's important that you make the decision either to add them to the card and just not give them the card to kind of protect everybody involved. Or you add them to the card, give them the card, and make absolutely sure that you have the conversation in laying out the consequences of mistakes, laying out the responsibility of what happens when somebody spends money on that card. And just make sure that you know what the expectations or everybody involved knows what the expectations are. Because the may maybe the most important thing for people to know about authorized users is that the authorized user legally bears no responsibility for paying those balances back. Oh, it's all on the price.
Caitlin They have no skin in the game. So, like, they walk away and their credit isn't affected negatively either if or is it? If.
Matt No, it would be. It would be if. If something goes wrong with the car, then it would be effective negatively. But. But we added Lending Tree and previous companies that I've worked at, we've done reports on people who have made family and friends authorized users. And it's something that can wreck relationships. Yeah. And can really drive some wedges in some families. And um, and so it really is important that you communicate and that you tread lightly and that you trust the person that you are making an authorized user. Because if you don't, the consequences can be pretty significant.
Caitlin Well, I'm curious for, you know, we're talking about how to get good credit. We want to pay all our stuff off. We want to, you know, be good financial citizens only buy what we can afford. All that all the best-case scenario that counts on financial stability, you know, just a health, you know, a bunch of different factors that we may or may not have control of, depending on our circumstances. Curious about the families or the individuals that are like, I would. Everything was going great. I lost my job. I'm not going to be able to pay my credit card on. Someone got cancer. Someone had to go to the E.R. like I in this moment have accrued debt unexpectedly that I cannot pay. So we're not talking about like repairing credit down the line or like in this moment, my credit card statement is tomorrow and I can't pay it. Like, is there anything people can do to mitigate the damage that's being done in real time? I mean, I know my reaction is just to not open the envelopes, not look at the little red notification, just to be like, put my head down because your hand over eyes because I'd be so afraid. Like, I can't do what they're asking me to do. And so my tendency might be to hide and run away from it. I'm curious for those of us who might be brave enough to be like, help, what could we do in the moment while it's all happening to make it less bad?
Matt Well, I mean, it's it's a little bit like we've all probably told our kids, right? I mean, as soon as you know that there's a problem, tell somebody. And and it's really similar thing with with what you just described. And we saw it on a global scale in 2020 as everybody lost their job in the span of a month. And what what happens is or what can happen is you can call your credit card issuer, you can call whatever lender and say, look, this just happened to me. I just lost my job. My income just reduced by 50%. I've we just had this huge medical bill because of X, Y, Z. Is there anything you can do to help me out in in the short term? And the truth is that most lenders will have some sort of program that they they can kind of kick into gear that offers them some options that they can give to you to help you get through that short term issue, whether it's being able to skip a payment or to whether it's boosting your credit limit to give you a little bit more room to work with, giving you a slightly lower interest rate. Waiving fees with this stuff like that. I mean, your mileage will vary depending on which lender you're talking about. But. But long story short is that if you know that you're in some financial trouble, and especially if it's just of kind of the short term variety, call your issuer, call your lender and let them know. And don't be afraid to be vulnerable with them and say this is kind of what we're going through. Because even though, you know, banks are this giant, faceless, you know, monoliths, they can be really intimidating. It's just another person on the other end of that line. And chances are they've probably had some issues that they've gone through at some point and they've needed somebody help. And those folks are in those roles. At least to a degree, knowing that they're going to get calls from people who need help. And so it is it is important to take that step and take it as soon as you can, because the more the more advance notice you can give, the better.
Caitlin It's so relieving to hear that, because I think in my mind it's like a binder, like the less communication, the better, because any communication would be like, you owe us this money. You need to pay up. And I'd be like, But I don't have the money. And I wouldn't want to let them know I didn't have the money. So I have to reverse that. But actually, more communication in this situation can help you. And that isn't so black and white. Like, no, it's due tomorrow. There's no ifs, ands or buts about it that they do have some options that could, at least in the short term, ease whatever the next big deadline is for you.
Matt Yeah. I mean, if you if you were just with your buddies in Vegas and you lost the mortgage, then that's one thing. But if you lost your job and you know, or you're your wife or your kid just went into the hospital and you got a truckload of bills that you know, are waiting. That's that's something else.
Caitlin Okay. Can I run past some I don't know if they're myth like things that I've heard about credit or credit scores. Okay. If you check your score,it makes it go down.
Matt That is definitely a myth. People should check their credit score as often as they want to and it's a good thing. And in fact, if you check your credit score, it can be a really good indicator of whether you've been a victim of fraud. Because if somebody opens an account in your name and you never see it, but they run up $10,000 in debt and never pay it off, that is going to go on your credit report and damage your credit score. And unless you have looked at that credit report, the only way that you may know that you've been a victim is that your credit score may fall 100 points. So if so, if you see if you see a significant drop in your credit score at any given point, it's a it's a really good idea to check your credit report.
Caitlin So there's no downside for checking your own credit score. No. Okay. Literally how do you check your credit? I don't like how do you what what do you do what does that mean?
Matt Well, if you do two different things just to two different aspects of it, there is checking your credit score. Yeah. Which you can do at lots and lots of sites. You can if you sign up at LendingTree, you can get your your Vantagescore credit score and you can track your your TransUnion credit report on a regular basis. A lot of credit card issuers will provide you with a credit score if you log in to their websites, that sort of thing. But if you're talking about getting a credit report, where you need to go is a site called annualcreditreport.com. And that site is the federal government mandated no strings attached site there where you can go and you can get your credit report from all three of the major bureaus, Equifax, Experian and TransUnion, and and review that report to see what's in there. And that's a that's a really significant thing, because as much as a credit score is a good thing and a useful thing, all it really is is a grade for what's in your credit report. And and you won't in you can't you can change your credit score without checking your credit report. But the most meaningful way and the way to have the biggest impact on your credit score is to use your credit report as a guide and to see, wow, I have a lot of I have a lot of these accounts or I owe a big balance on this one account. Or while that that says that there was a late payment there, I didn't make that or wow, there's an account on this that I don't recognize. And so all of those sorts of things and a thousand other things can impact your credit score, but you won't really know about it until you look at your credit report. And one of the good things that came out of all of the financial chaos of the pandemic is that you can now check your credit report at annualcreditreport.com on a weekly basis.
Sara And, oh, my gosh, that's awesome. It used to be annual, right? Like once a year for free and now it's.
Caitlin Weekly ERL.
Matt Annual.
Caitlin Credit report.
Matt Yeah. Wow. And and honestly, nobody needs to check their credit score once a week. I mean, their credit report once a week. But just the fact that you can do it is great and can be and can be really helpful.
Caitlin Okay. Here's another thing I heard and I acted on it. So I just want to let you know the stakes are big. So I heard that one. If you only do one thing with your credit is to freeze it so that you can't be a victim of identity theft. So over Thanksgiving, I Googled the top four credit. And credit bureaus. And I went through for myself and my parents and froze all of our credit. Is that necessary, appropriate, advised?
Matt Depending on your circumstance, you can be fine if you're not planning on getting credit any time soon. There's there really aren't many reasons to not do it. It's essentially the the nuclear option when it comes to fighting, fighting identity theft and credit card fraud and all that sort of thing. Because what it does is it slams the door shut on anybody being able to access your credit report. So if somebody use your name or your information to try and get credit fraudulently, in theory, they wouldn't be able to do it because you have a credit freeze. So the. The conventional wisdom had been previously kind of in the in the earlier days when these were just kind of getting started a little bit more, was that you needed to be cautious about getting them if you were planning to apply for credit fairly soon because it could take a little bit of time to thaw the freeze. Yeah, but now these things happen so quickly that it's that it's less of an issue. Yeah.
Caitlin On each of the ones I did, there's a little toggle switch where you're just like, Freeze, unfreeze, freeze the unfreeze. So with all four, it didn't seem like it would be a big deal. I had just log back on and say, unfreeze if I'm applying for something and then go back and freeze. So I have to say, it was a pretty easy process.
Matt Yeah, that's that's something that has changed over the years. And that's that's a good thing.
Caitlin Are you shocked, Sara, that I did that?
Sara Yes.
Sara That's what you did. That's what you did over thanksgiving?
Caitlin That was my family bonding. Yeah. It's like we're freezing. You know, I just feel like my parents, who are totally savvy and manage their find fine with the Internet, texting, with that amount of scams that are going on all around us where I can barely tell if I should respond to something, if it's actually my bank calling to verify or if it's a scam that it's a it's really hard to protect ourselves from identity theft and and just being scammed, like giving someone our information. And I just wanted for all of us to have, like, a layer of protection so that somebody can't open a credit card or get a loan in our names. We'll, see, as we've talked about, I think of credit is just something that like I don't need unless I'm doing something big. And so I, I hadn't focused on it at all. But the idea that someone else could ruin my credit or some other thing that would take and people who had identity theft took years to prove they are who they are and that they didn't open these credit cards. So I've been influenced by that.
Matt Yeah, there's just so much money involved and there's so much opportunity for bad guys in there's so much data out there that can be used to get at that money that the the problem of identity theft and fraud is never, ever going to go away. And it's something that it we just need to get doing something like a credit freeze is a good idea, even just kind of integrating fraud checks into your weekly, monthly, whatever financial routine is a really good idea, too. And it's it's really just as simple as when you sit down and do your bills, check your online statements for your bank account, your credit card, your savings account, whatever, and just look through and see that there's nothing on there that looks unusual to you. And the first time you do it, it may take a while because you got to cover a lot of ground, but if you're doing it once a week, once a month or whatever, it's pretty quick because there's only so many transactions that we all do. And so there's only so much to review. But it's it's definitely worth your time.
Caitlin Okay, I have three more quick ones.
Matt Sure.
Caitlin I'll tell you the way that I'm using my credit card right now and then and I'm influenced by YNAB you need a budget. Their whole thinking that you never leave a balance, so you know whenever my credit card payment is due, let's say December 1st, I pay everything that is outstanding. Not what they tell me in the statement. I just like every dollar I've spent up into including December 1st, I pay them, so they're not lending me money that I spent from before. It makes sense for me psychologically, financially, just so I know that I'm always paying it off completely. Does it matter in terms of credit if you just pay the bare, bare minimum? Is there any strategizing if you have the money?
Matt Well, the the the short answer is that what you're doing is good because because you're not accruing any interest. And that's really the biggest thing. And what you're doing is also good because because if you if you can knock that balance down to zero, that's good for your for your credit score. And and like that really the main thing, if people have a question of how much they should pay on their credit card, the answer really is the job number one for anyone with a credit card is to pay their balance down as soon as they possibly can. If you can't pay it all down in full every single month, then you should pay as much as you can. And you should certainly pay the amount, the monthly statement balance, the amount that if you don't pay that amount, you'll get charged interest going forward. Some people argue that with to to help your credit that it can make sense to pay multiple times in a month. You pay on the 15th. You pay on the 30th. The idea being that when that snapshot of your credit is taken, if you pay twice, odds are that the balance, whenever that snapshot is taken, is going to be lower than it would be if you only paid once. Okay. So so that may be something that kind of goes into it, but but really what's what's most important is just making sure that you're paying on time and you're paying such that you are not causing any interest to accrue. Everything else is kind of gravy.
Caitlin Okay. And we have talked about bankruptcy and we I think we'll do a whole episode on bankruptcy. Sara I'm going to paraphrase here that, like, people are really afraid of it. They think it's like the worst almost they would almost do anything to avoid that. But that, like in some people's financial circumstances, it really might make sense to start over that way. I'm curious the impact on credit then, if you just are in a hole you cannot get out of and decide that bankruptcy is right for you and your family, whatever. Does it ruin your credit forever? Is it seven years? What is what's something people can think about or try to get more educated about in terms of credit?
Matt Yeah. First of all, I would never claim to be a bankruptcy expert, so here's starting with the starting point that I can talk to it through the through the lens of credit. But beyond that, it's a little it's a little beyond what I do. So the short answer is that bankruptcy will wreck your credit. If it's if you have talked to advisors and you've spoken with professionals, and their advice is that this is something that works for you. That's that's fine. It's, you know, credit can be something that factors into that decision, but there are lots of other things that go into it. There are times in life where credit's even, where even if, you know, that's something that you have to do isn't good for your credit, you still have to do it anyway. And a lot of people are seeing this now where we did a survey talking about how people are struggling to pay utility bills because those costs are going so high. And if the question is, should I pay my utility bill and keep the lights on in Austin, Texas, in February and certainly in Madison, Wisconsin and Boston, Massachusetts, in February, even if that means I won't be able to pay my credit card off. Pay your utility bill.
Caitlin Yeah.
Matt Same thing as if you can't. If you're not sure, you'll be able to put food on the table or things like that. As important as credit is, sometimes credit doesn't matter as much as just handling your business in life. And I think that that's a really important thing for folks to understand.
Caitlin Yeah, I, I, yeah, I like where survival is first and figuring out our financial standing, but I, it also sounds like whatever we destroy, we can rebuild. It might take years, but there are things like secured credit cards where you can build up, people have done it. And so not to just think you've blown it forever and you need to live it and you know, shame and a dark cloud like there is a million ways people's credit can get destroyed for things beyond their control. But it's not the end of the story.
Matt It is not the end of the story with something like bankruptcy. Not going to sugarcoat and say that that's something that you can that you can awake from pretty easily because it's not yeah it's a really big deal. But again, credit isn't always the the the prime factor in that. So. Yeah.
Caitlin Matt, I'm curious. I know that people with bad credit, I feel like it's such a ripe area for scams. You referred to, you know, companies that say that will repair your credit and you pay them money or whatever. If when you're advising people where to learn about how to improve their credit, what are some sources that are trusted, either websites or a book or a personality? They can Google on YouTube. I just feel like people need to know what like are legitimate sources of information about improving their credit scores.
Matt Yeah, I mean, obviously, I'm a little biased. I'm going to say that. And it's true. We've got a ton of information on credit scoring and such at LendingTree. And if you sign up for our site, you can you can get suggestions that will help you build your credit and you can kind of keep an eye on your score as you go. Stepping out from that, it can make sense to go to to kind of the source on a lot of this. You can go to the credit bureaus, Experian, Equifax and TransUnion. All have volumes of information as super basic as you want to get or as nitty gritty as you want to get in terms of credit score information. You can go to my FICO, Ecom and and see information from the folks who created the fake go score, which is still basically the gold standard for credit scoring. There's vantagescore, which is kind of the the Pepsi to FICO's Coke in the in the credit scoring space. And and they'll have a ton of information there as well. But then you can also go to you can go to credit card issuers. There's there's a lot of information. It's as as anybody who spent 10 seconds on the Internet knows there's a million sources of information. But generally with something like this going to the source and hearing from the folks whose business it is to educate folks on, this is is really the best way to go. Okay. And I guess also the other the other place that I would add would be the Consumer Financial Protection Bureau, the federal government consumer watchdog website. They've got helpful information in there as well.
Caitlin I thought you were going to say TikTok.
Matt Well, you know, it's it's it's funny as I mean, as you know, as guy who's a little older than I care to admit and is certainly older than the the tick tock demo, I never really spent that much time in there until kind of looking for information, researching my book, looking for people to maybe talk to about various things. And to be perfectly honest, there was more decent information on Tick Tock than I expected there to be. God knows there's a lot of garbage. Yeah, that is that is absolutely. Make no mistake about that. But there are people on there who are giving information that is that is useful. It can be hard to kind of know what's what's weed out. Yeah, everybody is popping up in your timeline. You're like, I don't know. But but coming from an outsider standpoint, somebody who talks about this stuff for a living, not on tick tock, I was a little surprised to see that there was a little more good quality stuff on there than I expected there to be. Doesn't I couldn't give you a ratio of like 90% crap to 10% good right over. But the percentage good was a little higher than I expected it to be. But that's happens.
Caitlin Sara, what's your last question?
Matt Sara's going. Really?
Sara Yeah, I didn't know. That was the shock at the end. I was not expecting that. Caitlin and I do something it's like, what's one thing a woman on the verge can do today to make a positive financial impact in her life? If you had to pick one and be the person who talks about the the one thing someone can do today, what would you suggest is the takeaway from from this talk whether we already talked about it or not?
Matt We haven't talked about it, but it's it's super duper simple as it relates to credit. And it is set up autopay on all of your credit cards tonight. And autopay isn't perfect. Sometimes technology messes up, but there's nothing more important to your credit than paying your bills on time every single time and setting up autopay, ideally not setting it up to just pay the minimum, but paying some sort of predetermined amount that you can tweak on a regular basis if you want to, is a really big deal because we've all got to do lists that are a mile long and if we know that life goes crazy and we forget to pay our credit card bill, but we know that we've set up autopay. We're set.
Caitlin How do you do that, though, if it's a variable amount?
Matt Well, that's that's what I was saying, where you kind of pick the number that you're okay with. Okay. As as as kind of the the one amount and and kind of go from there. It doesn't mean that you never go back to check autopay. Maybe you have it as a $100 and you go back in every month and say, okay, wow, it looks like I charged $500 this month. Let me bump that up. That sort of thing. That can that's that can be a way to do it. And and different issuers may treat autopay a little differently, where they may give you different options of how much to pay. So so your mileage may vary by, by, by card issuer. But yeah. Make technology your friend. Rely on autopay and that can really that can really cover up a lot of a lot of ills.
Sara That's really good, Matt, because it sounds like if you pay, if you have the auto pay set up to just pay your minimum, that the interest expense that you accrue that month where you forgot to pay your credit card bill is probably less than the impact to your credit score. So it's like the it's the safety net, like. Okay. All what we're really trying to do is not miss a payment. And most of the time, we go and pay our statement in full or whatever, you know, that looks like. At just in the event that you're out of town or you get mixed up or life happens, at least the minimum gets paid so you have all those green boxes on your credit score of paying on time.
Matt Exactly. As long as as long as something above the minimum, ideally, is going to the the card issuer, it's going to protect your credit.
Caitlin Okay. I like this and I'm going to do it. And I'll tell you, I feel like I should say it in a whisper because life keeps happening and I keep forgetting to pay my balance. But I call them and if it's within 24 to 48 hours, they take the money, they take off the late charge. And I don't get any interest for that month.
Matt Have you have you have you done that multiple times?
Caitlin Yes. Yeah.
Sara It's Caitlin again!
Matt I mean, frankly, that's one of the one of the things that I'm going to talk about in my book. I've done millions of interviews talking about how 70% of folks who ask for a lower interest rate on their credit card get one. But way too few people ever ask.
Caitlin Yeah.
Matt And that number is even higher when it comes to getting a late fee waived. It's more like 80 or 90%. And the truth is that most credit card issuers have policies, whether they're unwritten or otherwise, that if you're you know, if it's your first time late, then all you really need to do is call and ask nicely. Once it gets to be a few more times, there may be an issue there. But. But yeah, it's just really important to to ask because I mean, you could talk I mean, can be anywhere from 30, 40 bucks.
Caitlin It's 40 bucks and they don't even have to ask their supervisor.
Matt Yeah.
Caitlin They just say it as a one-time courtesy we'll remove that I get the money, that money they take all my money. I don't mean to do it everybody. I don't mean to, it's just, keeping it. I have Google calendar alerts, I have all the things. But sometimes it just it doesn't happen the day of I realize it, the next day I call and it's okay.
Matt Well, and and and one of the things that I've spoken with people about in the book is, you know, we talk about autopay, but we also talk about things like text alerts and notifications and that sort of thing of when when bills are due. And and those are the kind of things that you hear people recommend, rightly, for people who may be struggling to pay their bills. But you speak with people who may be suffering from acute ADHD or things like that, and they set up those those notifications and that sort of thing, and they get it and go, Oh, I need to pay. I can sit down and pay that bill. Yeah. And then 1000000 seconds later, it's gone. Yeah, right. And with, with autopay, you're kind of taking, you're taking yourself out of the equation and in helping yourself out a little bit.
Caitlin That's great. Okay. Thank you so much that this was so there's so much more to understand about it. But I feel like we chipped away. Of getting to like not fear it completely appreciate that it's important and have a few more tools to do something about it.
Matt Yes. Thank you, Matt. And and I'm just going to throw out that it is definitely worth a follow on Twitter for Matt's Twitter handle, where he'll kind of update us with data and reports and tips and tricks and all that stuff. So definitely Twitter.
Caitlin Still on.
Matt Twitter and.
Caitlin The next few months.
Matt That's right. This is this is December 2022. So.
Caitlin Yes, we'll put it all in the show notes so people can follow you and on the transcripts on our website.
Matt Awesome. Yeah, this was a lot of fun. Thank you, Sara. Thanks for having me.