Podcast Summary
Understanding the rules of the credit score game: Learning the real rules of credit scoring can help you make informed decisions and potentially boost your score.
Understanding and improving your credit score is a game that can significantly impact your financial situation, and the rules aren't as difficult to follow as they may seem once you know what they are. Tiffany Aliche, also known as The Budgetnista, emphasizes that credit is the easiest financial tenet to manipulate with legal tips and tricks. However, the credit industry may not be in your best interest to share these rules, as it can benefit financially when people are less informed. By learning the real rules of the credit score game, you'll be able to make informed decisions and potentially boost your credit score. Remember, knowledge is power, and understanding your credit score can lead to better financial opportunities. Additionally, the sponsors of this episode, Whole Foods Market and Apple Card, offer resources to help you celebrate life's moments while keeping costs in check. Whole Foods Market provides wallet-friendly options for hosting a celebratory brunch, while Apple Card offers daily cash rewards on purchases. By incorporating these sponsors' offerings into your financial strategy, you can enjoy life's moments while working towards financial growth.
Understanding Credit and Building It Wisely: Credit is a tool that influences your financial GPA (credit score) and can be built wisely from late teens by using someone else's card responsibly. Use Apple Card smartly for higher rewards and manage credit responsibly.
Credit is a powerful tool that can help build your financial life, but it can also cause significant damage if misused. Your credit score, which is like a financial GPA, is based on your ability to repay debts and is influenced by your financial history over the past two years. It's essential to start building your credit as early as possible, ideally in your late teens, by becoming an authorized user on someone else's responsible credit card account. However, it's crucial not to take on credit unless you're confident you can manage it responsibly. Apple Card, issued by Goldman Sachs Bank USA, offers different rewards based on how you use it, with higher rewards for Apple Pay purchases and lower rewards for using the physical card. Remember, credit is a tool, and how you use it determines whether it helps or hurts your financial situation. So, start building your credit wisely and responsibly.
Using someone else's credit to boost your own score: Paying off your credit card balance in full each month and maintaining a mix of credit types can significantly improve your FICO score.
Being an authorized user on someone else's credit card with a consistent payment history can help boost your own credit score. However, it's important to note that this isn't the original intention of authorized user status. Instead, it's being used in a "hacky" way. For young people trying to build their credit, focusing on a good FICO score is crucial, as it's the most commonly used credit scoring system by lenders. FICO scores range from 300 to 850, and payment history (35% of your score) is the most significant component. Paying off your credit card balance in full every month significantly improves your credit history. Contrary to what credit card companies may suggest, carrying a balance doesn't help your score and only benefits them by generating interest payments. Other components of your FICO score include credit mix (10%), length of credit history (15%), and new credit (10%). Maintaining a mix of credit types and keeping your oldest credit account open can positively impact your score.
Factors affecting credit score include length of credit history and utilization rate: Maintain a good credit score by limiting new credit applications, keeping utilization rate below 30% and having a long credit history.
Managing your credit score involves several key factors. Fifteen to thirty percent of your score is determined by the length of your credit history and new credit applications, which can affect your score negatively each time you apply. Thirty percent is based on your utilization rate, or the balance versus limit ratio on your credit cards. It's recommended to keep your balance below 30% of your limit to maintain or improve your score. Credit card companies monitor high utilization rates, which may signal financial instability and result in a lower score. By understanding these factors and implementing strategies like limiting new credit applications and keeping your utilization rate low, you can effectively manage and improve your credit score.
Statement and due dates impact credit differently: Paying before statement date won't report to credit bureaus, while paying after due date negatively affects credit score. Be aware of potential biases in the credit scoring system.
The statement date and due date for credit card payments are not the same, and the statement date is the one that impacts your credit score. If you pay off your credit card balance before the statement date, the credit bureaus won't know you used your card, and it won't affect your credit score. However, if you want your on-time payments to be reported to the credit bureaus, you should pay off your balance after the statement date. It's essential to always pay your credit card balance by the due date to avoid late fees and negative impacts on your credit score. Additionally, the credit score system can be unfair and biased, and factors like race and gender have historically affected credit scores negatively for people of color. It's important to be aware of these biases and work towards building a strong credit history despite any potential disadvantages.
Understanding Credit: Its Impact and Priorities: Credit is a tool, having three lines of credit recommended for mortgages, credit scores determined by 5 components, focus on managing existing credit for excellent scores.
Credit is a tool, not inherently good or bad. In communities of color, access to traditional banking and credit building resources can be limited, leading to different financial priorities. When considering a credit card limit increase, it's essential to understand the potential impact on your credit score, as a hard inquiry can temporarily lower it. Generally, having three lines of credit is recommended when applying for a mortgage. Credit scores are determined by five components: new credit (10%), length of credit history (15%), credit mix (10%), amounts owed (30%), and payment history (35%). A credit score of 740 or above is considered excellent, and focusing on managing existing credit responsibly may be more beneficial than striving for a perfect score.
Understanding Credit and Capitalism: Effectively managing credit and navigating capitalism can lead to financial success. Listen to NPR's LIFE KIT and Choiceology podcasts for practical tips and in-depth discussions.
Managing your credit effectively can help you pay off your balance in full each month. This involves understanding the statement date, which is not always clearly stated, and treating credit as a game that can be won with the right knowledge. However, it's important to remember that capitalism, which influences our financial systems, can bring both success and failure. For more practical tips on personal finance and other topics, check out NPR's LIFE KIT podcast and sign up for their newsletter. Remember, your tips and questions are welcome – leave a voice mail at 202 216-9823 or email lifekit@npr.org. Capitalism is a complex force that can be both successful and detrimental. It's a system that many of us feel uncertain about, and the fear of losing jobs is a common concern. Yet, it's essential to understand its rules and learn how to navigate it. For more in-depth discussions on the psychology and economics behind our decisions, listen to the Choiceology podcast from NPR sponsor Charles Schwab. If you're starting a business, consider partnering with JPMorgan for expertise and connections. Lastly, for inspiring stories of how successful companies were built, tune in to How I Built This from Wondery.
