0:17 good afternoon and welcome to people making money I'm your host Kevin bemel and we are here every Wednesday at 12:30 p.m. Pacific 3:30 p.m. Eastern with an hour in for and mountain and we talk about all things related to professional success and wealth building so um sometimes um I have a guest who has a who who who has achieved professional success um largely as they Define it so um I I had a guest recently
0:52 um uh who um he did not define success in uh monetary terms um he he's comfortable financially um but he really measures his success by um the amount of the number of people that he's able to impact um positively other people uh you know they're they Define their sex their their success um in terms of uh financial success so I you know one of one of the challenges of uh contemporary life is
1:27 you know what does success u mean to each of us um there was there was an article in the uh I think the Wall Street Journal I think it was this morning although maybe I saw in something online that said um no I take that back it wasn't in the journal it was in a um a newsletter I get from a friend of mine every day and it was saying that um young people I I think Millennials um they will um they're absolutely willing to make tradeoffs in their professional lives um whereby um they're able to do something that they
2:04 feel is important and worthwhile um even if it means U making less money or they're they're willing to they will they value um flexibility in their working situation over more money so you know that that's that's a a shift in in a definition of of success certainly from from My Generation Um where success was largely defined in financial terms although I I would hasten to add that I think um you know the baby boomer generation was um uh kind of at the
2:40 Forefront of of um thinking about success in in kind of um broader terms if you will um but in any event um I I digress a little bit but I I I think it's important to talk about these larger issues from time to time um today we're going to talk about credit scores so um I think there's there's a lot of um potentially misund potential misunderstanding about credit scores um there's certainly a lot of um mystery
3:17 around credit scores and and and we'll talk about that um today um but the reality is that um for most uh certainly most consumer Lending decisions uh a credit score the lender is going to uh look at your credit score now if you're young and you haven't established credit yet so um you know you may need to look at some alternative way of establishing credit okay um I know uh when I was when
3:52 I was um well I was I was very young when I started my first savings account I think I was 13 with my B Mitzvah money um and then um I think when I was 16 I had my first checking account now those don't those don't go on your credit profile but um you can see that you know at at a fairly young age um my parents were preparing me um to to gain financial literacy if you will um I got my first credit card when I started college as a freshman um in in 19 78 so
4:31 at the time uh Bank of America um which had a branch right across the street from from where I went to college which is USC they had something called a um I believe it was a college credit card or something like that um but basically um they approved me uh and and pretty much I think anyone who applied for a credit card I think it was a um a Visa card or maybe a Bank America card back then uh with a $100 limit now you know today that would probably be the equivalent of
5:06 maybe I don't know3 $400 because that was 1978 so that was you know almost 50 years ago 45 years ago what has inflation been in that time um but I mean I I I will tell you $100 seemed like the world I was very popular with my friends because I could charge a pizza you know um and um and that's where I started um building my credit was was when I was 18 years old um and and it built from there now that was way before credit scores
5:42 they weren't around then um but nonetheless um it it is a good idea um if if you have not established credit yet but you do think that you know you you want to buy a house um and or you want to buy a car and you're not going to pay cash for the car um it is a good idea to establish credit as as soon as you're able that's one of the things I'm I'm I'm looking at with my daughter is um how how we can do that so um H you know having having said that all um you may need to look at an
6:20 alternative way of establishing credit okay either because you know for whatever reason you don't qualify for a credit card right now or maybe you you had some credit difficulties in the past um and now you need to reestablish credit um I know um again this is going back a lot of years now I was uh I was probably in my 30s so we're we're going back you know a good 30 years ago um I was dating a young woman who did not have good credit and she needed to get a
6:55 car and and so we found a um car dealer that was willing to um use things like utility bills phone bills um that sort of thing in order to base a credit decision and I imagine um you know that's that can still be done today um and and and while typically um you know the the electric company and the water company and the gas company and such typically they don't report credit information um you can certainly um use
7:31 them um to I mean I would encourage you you know if if if you're you know young and starting out then you know start these accounts and and and and get get at least in the habit of you know paying monthly bills um because that is in the end that's what establishing credit and it's it's it's having someone extend money to you for a period of time even if it's only for a month um and seeing to it that you can pay off now now these days it's it's so much easier um than it was when I started out in the sense that
8:07 um you can for almost any uh creditor whether it's a utility company whether it's a credit card company A morgage lender a a school loan um uh servicer you can go online and you can set up to have the monthly payment made automatically um either directly from your checking account um or you can have things charged to your credit card like with with your cell phone so that's another way of of of starting credit so if you're a young person getting started
8:42 maybe right now um your parents are paying for your cell phone um directly so one of the things you might want to do is start paying put the put the cell phone account in your name even if your parents want to still pay for it and lucky you right um have them give you the money so that then you pay the bill each month and that will allow you to establish credit okay and and in something like that you may be able to do that even while you're you know still in in high school so um these are all things to consider
9:17 in terms of establishing credit so that you will build enough of a credit history in order that you there you will have a credit score so when the time comes for um shall we call it a a serious credit decision a credit card an an auto loan a home loan you will have your your credit score established and that won't be a hindrance to to achieving that goal so I'm we're going to talk about a number of different aspects of of credit scores um and I I because it's kind of a complicated uh
9:53 topic I did prepare a uh uh a a um a PowerPoint um so that um you you can see these different aspects and um if you do want a copy of the PowerPoint slides happy to share it with you um after the show is done it'll post to our YouTube channel and you'll see all the different ways to contact me feel free to send me an email I'll be happy to send you a copy uh you know of the slid so you know you can have that that was weird Okay so so anyway here we are
10:30 people making money and there okay it's there we go and everything we do on the way to wow shows revolves around this concept of the three pillars of attainment um we're we're dealing here in in the Pursuits pillar in the finances realm and that's generally where we hang out okay but often times when we we're talking about professional success Andor Building Wealth that's going to connect into um relationships and when we talk about you
11:05 know when I was when I was talking about well each of us has to Define what success means to us so that's really part of our identity you know what um how do we see success in a way that um supports the person we want to be okay so um the definition of a credit score if you will it's a numerical representation of credit worthiness okay so the most well-known and which which you'll see in an upcoming slide is something called a FICO score and it's a
11:41 three number uh three-digit number that um says that that says you know this is basically um how good a credit risk you are so they range from three at least FICO scores range from 300 to 850 and the higher the number the better the credit the better the credit risk you are the more credit worthy you are so that and that's the idea behind credit scores um there was FICO is a um shrinking of um Fair Isaac
12:17 company and it was the Fair Isaac company that originally came up with this concept and the way of doing it they eventually and they called it a FICO score and they eventually um Chang the name of the of of their company to FICO because it was um you know such a well-known um thing and you know FICO score is kind of like Xerox copy um in the sense that a Xerox copy came to mean any kind of photo copy so people talk about FICO scores there are other companies that generate credit scores um they have different ranges um I'm going
12:53 to be talking about FICO scores because it is the most common um but just recognize that there're are other ones out there okay so what a FICO score does is it um it gathers information about you and it turns it into this three digigit number okay and you see here the five um aspects of your um borrowing life I guess we'll call it um that that
13:29 go into a credit score now how much each one of these is weighed and all of that kind of stuff FICO doesn't say okay that's a proprietary that's propri a proprietary software program that they have um that that that spits out that credit score and so they you know I I can't tell you you know is each one of these weighed 20% and words it's given equal weight um I I have no idea um and and far and FICO is is is not saying so um but let's go through each one of these so you
14:04 understand what they are okay and and and and then you can get an idea of how it might play into your FICO scol so first and foremost is payment history in other words have you made your payments on time number one and number two for how long have you been making payments okay and and three do you pay your balance in full or do you carry a balance okay um and and and depending on the type of credit it is that you know
14:40 carrying a balance can be you know good or bad okay so um if it's a mortgage it's it's or an auto loan it's assumed you're paying off a loan you're paying off a you know a credit balance so it's no surprise that after you me after you make each payment there's still you know a balance left on the loan that's there's no big deal with that on the other hand credit card so it really depends um you know you you in general don't want to borrow um a high
15:18 percentage of a credit card's limit so let's say that you um have a $10,000 limit on a a Visa card okay if you are carrying a balance consistently of about you know $99,000 okay and you're not and and you're carrying that month after month after month that's that's not a great thing okay on the other hand if you're carrying a balance of you know5 $600 on a $10,000 credit limit you know not not any particularly big deal in general okay so payment history is is the first
15:54 thing that um you know the first type of information um or or one typee of I shouldn't say the first it's one type of information um that's used in determining your credit score another is credit utilization okay so that gets back to what I was just saying a minute ago let's say you have a credit card with and let's say you just have one credit card okay and and it has a $10,000 limit and you have a $9,000 balance so your utilization in that case is
16:29 90% okay now that high a credit utilization rate it would tend to would tend to lower your credit score on the other hand if you're using ,000 of a $10,000 B uh $10,000 limit so that's a 10% uh credit utilization rate and and that's not going to have any kind of negative impact on your um credit score okay now many of us um have more than one credit card so we may have the ability
17:05 across all our credit cards to borrow say you know $70,000 or something like that so but even even when you've got multiple so when you have multiple cards okay one of the things you want to be careful is make sure that overall your the amount that you're carrying in balances on the card is Le is about 30% or less than the total of the credit limits so let's just take a situation where you have four credit cards with total credit limits of $770,000
17:41 so if you're carrying total balances of about $20,000 that's less than 30% 30% of 70,000 is $21,000 so you're below the 30% you're probably okay all right now keep in mind though that if let's say you you know you've got one credit card with a with a $20,000 limit on it and the entire $20,000 is on that one card so that that high usage of that one card could affect your credit rating negatively even though your overall
18:17 credit utilization um is below the 30% uh level that's generally considered to be okay all right next is the length of your credit history so um and this is what I was talking about at the beginning um you want to establish credit is really as soon as you can especially if you have a goal of um you know maybe you have a goal of buying a house when you're in your you know mid to late 20s so um you want to establish credit as soon as possible because the
18:53 length of your credit history will have an impact on your credit score so if you've if you have a one-year credit history that's not nearly as good as if you have you know a 10-year credit history or you know an old guy like me I've got you know a 40 plus year um credit history actually you not not 50 not not quite 50 yet um but but a 40 40y year plus credit history okay um so you know you do want to establish uh credit history as early as possible keeping in mind that you want it to be something that you can properly managed given
19:29 where your finances are at right now okay and so that you know you not only have a long credit history but you have a good credit history in the sense of you're you know making your payments on time now to go back to payment history for just a minute um generally paying on time means paying by the due date however um if if you are a few days later in making a credit card payment generally speaking that will not get uh
20:04 reported to the credit bureaus and in fact in general um creditors tend not to report um a late payment until it's 30 days late okay now that's in general now this is not you know permission to pay your credit cards late it's only that you know if if you're in a a Ty bind and and and people are these days um you know Economic Times have been tougher the last couple of years so you know if if you have to pay a credit card a
20:39 couple of days late because you know you're not getting your paycheck in until you know Friday and and the bill is due on Thursday well you know you're better off um waiting a day um to till the money is in your account and then making that payment then you know trying to monkey around with paying it in advance and hoping it'll clear and then if it doesn't clear so if you if you have a bounced payment that will affect your credit history um you know no matter what okay so it's
21:14 something to think about as you manage your finances especially if you're kind of strapped you know you you do have a little bit of leeway there in in most cases okay credit mix so credit mix um means you have different types of credit accounts so there's there's what are called credit cards so a Visa or Master Card those are those are cards where you can all you have to do is make a minimum monthly payment um and and if you want to carry a balance that's that's really
21:49 up to you okay then there's something called a charge card so American Express is the most well-known charge card and I mean there there used to be others there was Diner's Club um and some others I don't even know if they're around anymore frankly so with American Express it's generally speaking you're gonna pay off the balance at the at at the end of each month well well I shouldn't say at the end at the end of each credit period because it's rarely does it coincide with the end of the month now American Express does have a feature called pay over time so if if a a if if something
22:26 you charge is of a certain size I think it's I think it's over $200 if I remember correctly or $300 something like that so then you can carry a balance for those larger charges if you want to but generally speaking with an American Express card you are going to pay off the balance um at the end of the credit period okay so that's that's what a charge card is um and mo I mean I don't this is probably not the case anymore um but in the early days of department store credit cards do do do
23:02 you all know what department stores are anymore I mean they were you know when I was younger that that's where you went to shop for clothing thing places like Robinson's May Company Macy's Bloomingdales um Barney uh sax fith Avenue Barney and sax fith Avenue those were high-end department stores Macy's and and um uh um blooming Dales were kind of mid-range and same with Nordstoms and then there were placed JC Penney Sears so these were department stores and they issued what were called charge cards um and in the beginning you
23:40 paid them off at the end of the month so you could go in the store and you could buy whatever you want you use your charge card and then at the end of the month they'd send you a bill and it was expected you would pay off the the entire bill so I mean nowadays most first of all there's very few department stores left and second of all they tend to have a lot of them well a lot of them there's only a few but I think they they tend to um cooperate with like Visa Mastercard in terms of their their credit the you know offering uh credit to their customers but in any event you have credit cards you have charge cards and then you have um what might be kind
24:17 of grouped together as term loans okay so an automobile loan right generally speaking an automobile loan um h is for a specific length of time could be three years could be four five six or even seven-year car loans now available um uh especially for for very expensive higher-end cars in order to bring the payment down okay so that's a Term Loan you're borrowing the money for a specific period of time you're making monthly payments until it's paid off now by the way um a car lease is while
24:54 you're not buying the car you are still find financing the car and that is a CR that is a type of credit okay um and and and leasing agencies um you know will report that um information um to the credit bureaus which will we'll talk about what those are in a minute okay so just because you're leasing a car doesn't mean somehow you're you know the the keeping up of the payments is not as serious if you will it definitely is okay so um so that's another form of of
25:29 credit is is is a like a car lease okay but a car loan to buy the car um is a Term Loan so is a a a home mortgage okay or a home loan so generally speaking you're borrowing that money for 30 years or maybe 15 years um there are 40-year home loans I think now um but you know the typical home loan is 15 or 30 years and again it's it's got you know monthly payments that you and at the end of the term the loan has been paid off now it is the case that very few people um actually pay off their their home loans
26:06 um although nowadays because of how uh interest rates have gone up so much mortgage interest rates have gone up so much people are staying in their homes longer than they used to it used to be people moved roughly every seven years whoa um but um now I think because people have these very low rates they're UCT an to to to sell their home and move somewhere else because they can't afford um a new home with with the higher interest rates so you know we may see we may return to a time when people you know bought a home and and and lived
26:42 there and paid off the mortgage okay so so credit mix can also impact your credit score okay and that's not to say if you don't have a credit mix you're going to have a bad credit score it's just those with a credit mix um who also have positive um length of credit history credit utilization payment history they're probably just going to have um a higher credit score than than people with with without a credit mix okay and then finally new credit inquiries will also affect your
27:17 credit score so when you apply for credit okay the um the the you know company that you're applying to is going to check your credit they're going to pull your FICO score they're going to pull your credit reports and that they did that um ends up on your credit reports okay and um I mean to have a new inquiry once in a while not a big deal but if you have a whole bunch of inquiries over a short time that can impact your credit score so um one of
27:54 the one of the places where I've seen this happen because used to have a real estate company is um where people are um where someone is looking to rent an apartment okay and they apply to multiple Apartments um uh you know to see if they can you know get approved to live there and so they'll have you know three four five credit checks in a very short period of time so that can negatively impact um their credit score so I I I did deal with tenants from time to time who you know brought a copy of their
28:32 credit report with them when when they came to see an apartment and they would ask um you know can I just give you a copy of of my credit report so I don't get another inquiry on my record because I am looking at several and and my you know my response would be that's fine for now however um if you decide that you know you do want to live in this building I am going to have to run uh a fresh credit check um you know to in order to make the final decision so um I
29:07 can't make a final decision off of off of a credit report that you hand me that was the the policy of my company um and and the reality is you know did I think these people were being dishonest no I didn't um you know I I I had no reason to think they were but standard of practice is um you know for that one time in a 100 or a thousand where someone would you know have a a fake credit report um I couldn't uh you know I couldn't take that chance on my client's behalf that wouldn't have been prudent and so um you know I I I had to
29:43 insist on you know doing doing my own credit check so so CR credit inquiries um again can have a an impact on um your credit history and and and therefore on your um on your on your credit score okay let's let's uh next one all right so I mentioned earlier um FICO scores okay fair Isaac company they are the the best known I'm gonna go to their website I don't know what's going on here okay I'm going to go to their website so um you we can see some
30:18 information there yes here we go okay okay so this is you know fico's website they call it my FICO okay um you can see it's the most widely used credit score um they were credit scores were created by um fairis in corporation I mentioned that and 90% of top lenders use fic score so this is you know this is some marketing stuff on their part but you know they want you to um uh to believe that you know they're the best they're the biggest all that
30:54 kind of stuff I mean you know I they're certainly the most well-known I I'll give them that okay so what I want to focus on here is this part what is a good credit score so I mentioned earlier that the range of of FICO scores and I'm G to call them FICO scores now because other credit scoring companies don't necessarily use the 300 to 850 scale so a fic score ranges from 300 to 850 okay and the again the higher the
31:29 number the better the better the credit risk okay so FICO considers a good credit score and they put that in quotes to be 670 to 739 okay that's good so and and you see here in this chart how they rate various credit scores okay so anything below 580 is considered poor now that doesn't mean that you can't get credit and we're going to talk about that um in in a in a few minutes um it just means that you
32:05 know you don't have a lot of creditworthiness and so your ability to get credit is going to be different than someone and and the terms of of the credit are going to be different than someone who has a higher credit score okay so a fair credit score is 580 to 669 okay okay so there's a what 119 Point range there and that's that's fair okay and again just because you have a fair credit score doesn't mean you can't get a loan you you you you certainly can
32:40 okay we already talked about a good credit score so 670 to 739 um and uh you can see by the way that the gaps are getting smaller so this is a 70 uh sorry a 69 point gap this was a 119 this was six this goes down to 69 okay so a good credit score is one that's nearer slightly above the average of us consumers and and and again most lenders consider this to be a good score okay very good is 749 to 799
33:15 again the Gap is 50 or 49 actually uh no I'm sorry 59 the Gap is 59 and this is an above average um of of uh us consumers and then finally anything over 800 so 800 to 850 which is a 50 point range is an exceptionally good credit score it means that you're an exceptionally an exceptionally low risk okay so how does this work in practice so let's say that you want to get um a car
33:51 loan so in general um if you have a FICO score um in the you know very good to exceptional range okay so that may be all the car lender looks at in order to approve you okay that's why it's so valuable to have um a good credit score so I remember um this is going back a number of years now but FICO scores did exist and um I was looking to buy a new
34:28 car I think this is when I bought my Jeep um my first Jeep because I have I have another one now um and I I called up the credit union that I um that I was at um it was a USC Credit Union um and and I I said you know I'd like to um uh you know see if I can get a car loan and they said okay well do you have a few minutes I'm like um yeah they said okay we can do it over the phone I'm like really you know and I mean now you could do it on the internet um and so you know the person asked for just some basic
35:04 information my name um my address and I think my social security number and my birth date as I recall um and like five minutes later um came back on the phone and she said okay well how much do you want to borrow I said what do you mean and she said well you know how much do you want to borrow I said well I'm getting a Jeep I think it's you know I think it's going to be around you know I think at the time what $25,000 whatever it was and she's like yeah okay no problem so I said to her I said you mean if I want to buy a Rolls-Royce you're gonna lend me money for a Rolls-Royce she's like yeah give
35:40 given your credit score I'm like do you know that I can't afford a Rolls-Royce she said well presumably you know that and you wouldn't buy a Rolls-Royce and that's why you have such a great credit score right I mean it really kind of blew my mind this was the first um uh you know contact if you will that I had with credit scores um but I mean it it made you know getting a car loan so much easier really kind of like I said it really kind of blew my mind so um that's why again and I I I I stress this you want to be in the very good to
36:15 exceptional range okay and and and so um you know you really want to be targeting a FICO score of of of like you know 750 and above let's say um probably puts you in a in in in in pretty good you know pretty good shape okay so let's go back to um our PowerPoint now um and and continue with some other issues that's weird okay so um all right let's talk now for a few minutes about credit bureaus okay because this is
36:52 basically where uh FICO and other credit scoring companies get their information so there's there's three main credit bureaus in the United States Equifax Experian and Transunion and they all do basically the same thing although there are differences um in in in how they do what they do um and so um if you ever were to pull say your Equifax and your Experian credit reports you would see that you know something
37:27 sometimes you'll see something reported on one that's not reported on the other okay so that just has to do with um the the uh periodicity um um how often they um update um your file and and and other you know policies that they have so um essentially what happens is creditors periodically report data on everyone who's borrowing who's borrowed money from them to these three uh credit credit bureaus and they compile all that
38:05 information into what amounts to a credit profile for each person okay so um let's say you've say you've got a um a City Bank visa okay well I mean I don't know how many people have City Bank visa cards but it's Millions upon Millions so it's not that City Bank report your data individually um what what City Bank does is um I believe monthly they transmit all the payment data on all of their C holder card holders to ex Equifax
38:41 experience Experian Transunion and then these companies take that and basically separate it all into individual credit profiles okay so that's really what their function is is to take all this um sort of uh um what's the word I'm looking for um this these large data groups and sifting it so so that it's usable for creditors when they want to make decisions about whether to issue credit
39:18 or not okay now um all of these all three credit bureaus are required to give you a copy of your credit report for free so that you can check them periodically I think they have to do it once a month okay they can't charge you for it nor can they ding you on a credit inquiry for sending you a free copy of your credit report so that you can see what's on it and make sure that it's correct okay so you're going to see in a
39:53 few minutes one of the things I'm going to recommend is you do periodically check your credit reports um you Absolut we absolutely we all need to do that me included um to make sure that they're accurate and we can and and there there are laws that govern what the credit bureaus have to do so that by you know keeping up with our credit profiles we're not also you know damaging our credit scores okay all right so that that's enough for credit Bure um I want to move on because I I don't want to run out of time okay so um what um so what the credit bureaus
40:32 compile is your credit history or your credit profile okay and if you pull one of your credit reports first of all it's going to have personal data okay so your name any and and if youve if you've um um if you've lived under more than one name you will oftentimes see more than one name on your credit Port so if you're a woman who got married and you um took your husband's last name so you may see that um you know both your maiden name and your married name are on your credit report okay it's GNA have your date of birth it's going to have
41:08 your social security number um it's going to have addresses okay um and uh addresses I think go back I want to say for 10 years I could I could be mistaken about that um but they're going to have they're going to be addresses at which you received um mail in particular well these days credit card companies don't you know they don't send bills usually there all that stuff happens online but you're still going to have a have to have a physical address um the any any any credit card company or any company that extends credit is going to is
41:44 required to have a physical address for you and so any add any of those addresses that you've given to any of your creditors that's all going to be compiled in your personal dat data okay next is um consumer debts now I want to be clear consumer debts are debts that you owe personally okay so let's say that you own a business and that and that business is a separate entity so it's not what's called a a um sole proprietorship a business that's a sole proprietorship it's really just you okay
42:21 um but if you have a business that's an LLC or that is a corporation okay that business is a separate entity and if it if you have a credit card if your business takes out a credit card that's not going to be reported on your consumer debts because it's not a Consumer Debt it's a business debt okay so your business is g to have its own credit history Its Own Credit profile okay so these are consumer debts so it's going to include all the ones I mentioned before credit cards charge
42:56 cards auto loans um Home Loans okay and it's not just going to have ones that are open it's going to have ones that are paid off or ones that are closed okay so if you have a credit card that you haven't used for a period of time um in fact this this just happened to me I had a credit card where um the the the credit card company um they they closed it I had I I think I had forgotten that I had it frankly um they closed the account because it hadn't been used for years okay so that closed account is
43:32 going to show up on my credit history okay and it's just going to show us Clos it's going to show closed for nonuse okay there nothing bad about that per se however and here's here's the however remember we were talking about credit usage so if that account was open and let's say it was let's let's go back to that example of $70,000 in total credit available okay and let's say that account that was closed by the Creditor because for non-use was $10,000 of that
44:08 70 and let's further say that you have $2,000 in outstanding um balances when that card is closed bang now you've gone from $70,000 of available credit to 60 it's lower and now the 20,000 represents a third or 33% of your balance not less than 30% of your balance okay so can you see how having um a an account closed automatically for non-use could
44:44 still potentially affect your credit score by raising um your credit usage percentage okay so that's why you want to kind of keep an eye on all this stuff um and and um and and just be aware of how it might affect uh your credit score okay so all all your consumer debts um both um open and and closed um okay um payment history so that's just what we talked about but four that's your history of payments and generally um
45:19 it's gonna you're going to have paid is agreed which means paid on time 30-day lates 60-day lates 90day lates charge offs okay um and then by the way bankruptcies will also show on your credit report at least for a period of time okay so if you had debts that were wiped out by bankruptcy those debts are going to show as being wiped out by bankruptcy they're not just going to show zero okay and that obviously that will at least for a time um negatively impact your um your your uh credit
45:54 history now Bank ancies stay on your credit history for 10 years um and after that they're supposed to fall off automatically although not always mistakes get made okay but they don't necessarily negatively impact your credit for 10 years um most people even after two or three years can reestablish credit and as long as their credit is Good from that point going forward over time the bankruptcy even while it's still on on the record will have less and less of a negative impact on on
46:29 their credit score okay um credit application activity so those are inquiries okay and again those will show up and if you get a whole bunch of them over a short period of time that can negatively impact your credit score so you just want to be aware of that and be careful of that by the way opening up a whole bunch of new accounts um you know over a short period of time um even though you've been approved so wow I have great credit I got approved for all this new credit still opening up a whole bunch of new credit over a short period of time can that can also negatively
47:06 impact your credit history okay so I want to before we get off of credit history I want to deal with two um specific cases one is Sally May and the other is the IRS okay so Sally May is um the the federal um school loan program okay okay so if you have school loans Sally May does um submit payment history on your school loans okay now there are forbearance programs there's all kinds of stuff that you can do um
47:42 with with Sally May and there are all kinds of payment programs where um even if you know you're you're struggling to make your payments um you can you know deal you don't you're not actually going to deal directly Sally May you're going to deal through your loan serer okay um and and and they have programs to help you um keep current with your student loan payments so that you know they don't have to report negative information so I believe payments started up this month October 1 I think it was so people haven't had to make uh
48:17 school loan payments for about two or three years whatever it's been okay and and I can imagine that in the meantime you know people have taken on other um um you know um periodic payments monthly payments and they're they may be hard pressed to make their school loan payments don't just let it sit and do nothing contact your serer and see what programs may be available to you to keep them current because it does go um on your credit history now the IRS is different so um in general IRS the IRS does not um
48:56 uh report tax payment information to the credit bureaus um so you know if if if you um you know are late paying your income taxes they're not going to report you to the credit bureaus however after at the point where you have a tax lean placed on you so that lean will be in the public records and at that point that information can be picked up from by the credit bureaus so it's not really
49:32 that the IRS is reporting you per se it's just that now that your tax problems if you will are a matter of public record because the tax lean is filed so the credit bureaus do collect public publicly available information okay so let me let me just distinguish for a minute so you understand the difference when let's we we were using the example of City Bank when they report the payment information on their card holders to the credit bureaus that is not public information that's private
50:08 information and it is not permitted for them to publicly disclose that okay they have to keep that information private now the exception is they can report it to the credit bureaus but the credit bureaus too have to keep that information private um to a certain extent and only under certain circumstances can people get access to that information so I can't just go online and get you know the credit information from you know somebody living you know John Smith Living in Virginia okay that that that
50:44 um is I can't do that okay but um issuers of credit they they are able to get access to other people's um credit information because they have the authorization of those people to get access to that information so the potential creditor can make a decision as to whether to give them credit or not okay so all of that information is private but there are pieces of information that are public and anything any kind of lean that's filed that
51:19 becomes public information okay so for example um let's say that um um you get sued and unfortunately you lose okay so as part of the process of collecting that court judgment um the um the person who to whom you owe the money they can file a lean against all of the real estate that you have in a particular County okay that lean now is a matter of public record and it can be picked up by the
51:56 credit bureaus in the same way that an IRS filed tax lean can be picked up okay so again it's not the individual or the IRS reporting it to the credit bureaus it's the credit bureaus picking it up out of the public record okay and indeed anyone can find information that's in the public record that's why it's called the public record right um so um just be aware that there is a difference between the two okay so that's credit history I think we got one more okay lender use I
52:31 think this is the last one okay so how do lenders then use um the information they get uh or I mean use the credit score so the the credit bureaus compile all this information and FICO or the other credit scoring companies they pick it all up and they give you your your your you know your credit score okay so the bottom line is they're going to look at that credit score to assess credit risk okay you know How likely are you know as the the you know again you use City Bank we've been using that as you
53:07 know City Bank credit card company you know whatever or whatever they call it um how how risky is it for me to give a credit card to you know with a let's say a $10,000 limit to this individual okay that's what they're looking at okay so based on your credit score um the Creditor or the potential creditor we'll call it will will approve or not a loan or a credit card or a charge card or whatever okay now there are some numbers at which for the most part they're just going to say no so if
53:43 you've got a you know 400 credit score it's probably GNA get be pretty tough to get approved for any kind of credit okay um having said that if we're we if we're looking at mortgages so in general if you've got a 620 on a mortgage I mean a 620 credit score FICO score okay you will be able to get a mortgage now um we'll talk about interest rates in terms in a minute okay but look with FHA okay you with with 580 you can get a
54:19 home loan with a three and a half% down payment and with a five 100 credit score FHA loan you can get a loan with a 10% down payment okay now those are pretty low remember that a good credit score is uh what around uh 610 or so to 739 I believe it was so um the FHA scores are are in the fair range okay and nonetheless um um you know you're able
54:54 to um you're able you know potentially able to um uh you know qualify for a loan in fact the 500 is is is below the fair range that's in the poor range okay now by the way in getting a home loan it credit score isn't the only thing they're going to look at they're going to look at income um Etc so um but you can see that these These are these are pretty you know pretty low relatively speaking okay now with an auto loan you can get an auto loan with a credit score even at 500 not not unlike you know an FHA and in fact you can get them for
55:30 even lower than that um but you you're probably going to be facing some pretty um honorous terms okay so in general to get a car loan um a used car loan you need to have a credit score of at least 675 and a new car loan of 730 however again you may be able to get a new car loan with a credit score as low as 600 okay so just because you know just yeah just because you don't have a 730 credit score you know don't you know throw up your hand and say oh I you know
56:06 I'm not going to be able to get a car loan okay do some investigating okay now the reality is in many cases the the lender is not going to say no what they're going to say is well based on your credit score we'll offer you alone on the F with the following interest rate and terms and the fact of the matter is if you've got a very good to um excellent credit score so you're going to get the best interest rate in terms that the
56:41 lender has to offer okay once you get start getting below that though then what's going to happen is the lender is going to look for a higher interest rate and better terms so better terms May mean more cash up front or some cash up front there are lots of 100% um uh auto loan programs for example um but if you if you have a um a credit score below whatever that lender has is their cut off they may not say no but they may say well look if you can put 20% down um
57:16 then we will give you a loan with the following interest rate for you know maybe three years okay and the other thing they they'll do is um if if you've got a a a kind of uh you know subg good credit uh score so they they may offer you credit but for a shorter period of time because that at least in theory reduces the risk that you know you won't you won't pay it off because you're it's not extended for as long a period okay and so you say well wait a minute if you know anything about loans the shorter the the the term of the loan the higher the payment and that
57:52 is generally speaking that is true and what they're going to do to offset that is um require a larger down payment in order to keep the you know the loan payment affordable to you okay so that's in practice how lenders use credit scores now again keep in mind um while for an auto loan if you have a you know an excellent credit score that may be all they check um if you don't have that they may require additional information on for example um what your income is
58:27 and etc etc they may you know require you to submit an income tax return so they can verify your income um especially with a mortgage loan you're more likely to have to um submit um proof of income whether it's bank statements or whether it's um tax returns whatever it is and that can vary a lot I don't want to get into that today especially because we're we're almost out of time here okay but the again this is generally how credit scores are used okay last thing and this is how to improve your credit score um and and from everything we've talked
59:02 about these should be um you know pretty obvious so pay bills on time and in full each month right just make your payments okay cre keep your credit use low that's your utilization rate under 30% okay I mentioned this before avoid opening many new credit accounts in a short time okay for for the reasons I spoke about before and then finally regularly check your credit reports for errors do you have to do it every month Maybe not maybe once a quarter um would be would be fine but you do um especially if you you're
59:38 planning on U you know looking for you know a major loan maybe you're going to get a car loan or you're gonna you know you're looking to buy a house maybe in the next you know six months or a year so um at least six to 12 months out I would encourage you to um get a copy of your credit reports and and make sure they're accurate and if not then you have time to get any inaccuracies corrected so they don't negatively impact your abil your credit score and therefore your ability to um get the loan that you're after okay and I I do
60:15 think that's the last one yep so um as always here's places to get uh information ask questions again if you want a copy of these slides you can send me an email to the way to wowow atb.com happy to send them to you and then I think we have yes the legal stuff so I'll go ahead and stop sharing and that is credit scores not too painful was it um hopefully a lot of good information um so that you understand them better and that's that's really the key is just understand what it's all about so that you can deal with them effectively and you can make your credit score work for
60:51 you instead of working against you so that's the show for today um thank you for being with me I appreciate it and and in fact um this is the last show for the week um so um next week on Monday at 10: am Pacific um is trust and Estates weekly um I'm I'm having a guest Von Marie Thomas she's an accountant who specializes in trusts and Estates based in New York city so I invite you to to join me um to Jo to join Von Marie and and me um she is um very very
61:29 knowledgeable and and a really terrific Communicator so um please uh you know if you possibly can uh you know join us for that show on Tuesday business lessons from the military at 11:00 am Pacific we're going to continue our discussion of the use of intelligence in the business world that's spy versus spy intelligence as I've been joking for the last uh uh week or so um we started that yesterday and we're going to continue with it next week and then uh seven days from today will'll be the next um Edition the next episode of
62:06 people making money and to be honest with you I don't remember what it's about but uh but do uh do tune in and we will have another discussion um as we look to improve our professional success and build wealth together so thanks again for tuning in I appreciate it very much wishing you a wonderful rest of the week and signing off Marie you are my bell all the best folks