Managing Credit In A Time Of Crisis. This topic is on a lot of people's minds. I think that when it comes to our debt, especially during this pandemic, it can feel like even more of a burden. It can feel even more like something that we feel like is an even bigger mistake. Something we wish we got rid of sooner.
Managing Credit In A Time Of Crisis. This topic is on a lot of people's minds. I think that when it comes to our debt, especially during this pandemic, it can feel like even more of a burden. It can feel even more like something that we feel like is an even bigger mistake. Something we wish we got rid of sooner.
Like hot grits and hot cakes justice is best served on a hot plate. Welcome to brunch and budget, the show about personal finance and racial economic inclusion with your host, Pamela Capalad, certified financial planner and accredited financial counselor. Here to take the bite out of your budget. Live from our house. Well, wherever we at. Brunch and budget is part of the race and wealth podcast network. I'm your sound provider, Dyalekt and here's your host, Pamela Capaled.
Speaker 2:Hi everybody. Thanks for tuning in. This is our weekly IG live. We have lots of questions to answer and lots of things to talk about.
Speaker 1:Yeah, thanks for bringing in all the questions. If you have questions that come up and are new, Oh, thank you for the love. Peace to y'all, if you have any questions that you just thought of or one that you brought up but you haven't sent to us, please hit us up in the chat and we'll be sure to go through them. When we're pausing for the songs during the lives, we are going to stop to answer the questions.
Speaker 2:Yes, we have plenty of questions, but today we're going to be talking about managing your credit at a time of crisis. We did this workshop on Tuesday with art world conference. Shout out to Art World conference, y'all are the best and we realized that this must be a topic that's on a lot of people's minds, honestly. I think that when it comes to our debt, especially during this pandemic, it can feel like even more of a burden. It can feel even more like something that we feel like i s a n even bigger m istake. Something we wish we got rid of sooner, whatever, whatever.
Speaker 1:When this all started, I know that everybody's like, Oh, I'm going to get this degree and work out and do this other stuff, and I was thinking about all this stuff that I didn't get done that I wanted to have done before now and I know that our finances are definitely a big part of that. A lot of people are like, Oh, I wish I had all my stock and retirement and this and that together. And it's like a big panic now. And especially debt. And this is the thing, it's mad counter intuitive because right now you're feeling like I need to get rid of all these debts, get them off my back. But right now we always say maintain the flexibility and liquidity. Don't have it on your back. Have it in your hand.
Speaker 2:Yes, yes. I love that. And the thing is we're in such an uncertain time right now and the thing about paying off your debt is that money is just gone. It went to the debtor, your savings are gone, the money is gone. You can't get that money back. And so we find that it's actually really important now instead of paying down your debt to save and we're going to talk more about what that means and what will happen to your credit score if that happens. And all of that stuff,
Speaker 1:Yeah, and its also not an amoral thing like you have an agreement with your creditor that you're going to be paying them back in an interval based thing. So that's still going on in the agreement. Still happen. It's going to be all right.
Speaker 2:Well and also let's be real credit scores, the credit scoring system, all of that stuff. Racist as hell anyway. Right? We know the history, well, we're going to talk about the history of credit scores today, so maybe it'll make you feel a little less bad. I also think that when it comes to debt, one of the things that we want to start with is a mindset about it because
Speaker 1:Can I say a real quick thing about the like racist and debt thing that just like saying that like don't feel bad about it. One of the worst tropes that I, I've seen is like when folks are like, people were racist to me so I've spent a bunch of money with them. There's that thing of like Oprah or whoever, like rich black person had gone into a store and they were rude to her, bought up a bunch of stuff just to show, don't g ive them no money, just walk away. Just walk away. Now and I want to start with a mindset about debt because we're taught opposing things about debt. We're taught one, debt is bad. You should never have debt. If you get into debt, then you're in trouble. You're bad at money, you're a failure, whatever, all of this stuff, you're irresponsible at the same time, borrowing money, getting a credit card is so easy, too easy, right? I know they put in laws in place that say you can't like give college freshmen credit cards anymore, but people can still get credit cards at a really young age and get them really easily and borrow money really easily and let's not even go into how much money you let an 18 year old borrow for their fricking student loan education.
Speaker 2:Right. That's the other thing too, is debt is this thing that we're supposed to feel bad about and they just freely give to us. I guess they call it the bursar cause it's an explosion. I've always thought it was anonymous. Oh my God, it makes no sense. I want to already have a question. I love it. All right. Let's see. Okay. We're going to answer the questions during the songs. Please add them to your thing. Thank you for that question. Glowup gang. Hello. Hi Wasida. Okay, so one thing that we want to make a distinction about when it comes to mindset is the difference between being in debt and having debt. Words matter. It feels like a very small, insignificant tweak, but I feel like that when you feel like you're in debt, there's this weight with that word, right? There's this way with that phrasing of, I don't have enough. I can't do it on my own. I'm a failure. I had to take risks a normal person wouldn't. I don't know how to do this right. I did it wrong. I made all these mistakes. I'm in debt. Well, and debt sounds like the way the sentence is structured, it sounds like I am in a trap. Yes, exactly. I am in a trap and also this is now part of my identity, right? Which debt should never be something that you consider part of your identity. Your debt is not you. Your debt does not define you. I'm just going to say that right now. By the way modern rap music listeners, that's why they call the trap the trap. Cause it's a trap that was a trap where people used to trap and now they just make songs about it. Oh it's a Southern hood thing. If you were selling drugs, if you were prostituting that's trapping and you were in the trap, that was a play for that habit is a trap. Debt is definitely a trap. Cause I mean the way that a lot of those industries happen is through pushing down on people in a way that is unfair and so they feel that they have to pay it back and they can't get out of the trap. And so they remove themselves from the d ebt. S o I'm not playning when I say that, I'm just feeling indebted to someone. Even that phrase has a weight to it. Right? Or you can think about having debt. Debt is the thing that you have. Debt is the thing you required for whatever reason. Right? yeah, that's a whole next thing. I know, right? So having debt separates it from you as an identity. It's not a part of your identity. It's not a part of something that defines you. It's a s a tool. I t's something you have right and you use it to get out of a sticky situation. You leveraged it when times were tough, you're paying back past choices you've made. You're buying yourself some time i n a form of interest b ecause really interest is not good or bad either. Just like debt is not good or bad. It is what it is. Interest is just you buying yourself time for whatever reason you w anted to buy yourself time. Whether it was because you were in a sticky situation, whether i t's because you wanted something now instead of wanting to wait t ill later, whatever it is you bought yourself t hat time
Speaker 1:thing where I think a lot of folks think of the idea as you know, I'm betting on myself in the future and I don't think we need to think of it like that cause you know we have weird relationships with our future selves and it's not necessarily that we're betting ourselves on ourselves in the future. When you're buying yourself time, you're setting up a plan where you can take care of the money you need to take care of right now so you can build something for the future.
Speaker 2:Exactly. Exactly. So interest isn't good or bad. It just is what it is. Right? Being in debt versus having it. We want you to start changing your mindset around that now because especially in a time of crisis, having debt versus being in debt feels very different. Having debt is not a bad thing.
Speaker 1:Well, and also the debtors and collectors and creditors and folks right now who are clamoring to get back to work, even if isn't safe, a lot of them don't really care about your situation. They're worried about them losing their money. So they just want to get it all from you. And then they got it and then they're chilling.
Speaker 2:Well and you know at the beginning of this crisis, and unfortunately this is proving to be less and less the case, but at the beginning of this crisis, a lot of credit card companies made a lot of concessions to people because they know they know what they've done. Let's be honest. They know they charge you too much interest. They know they put you in this debt cycle and they know if 37 million Americans lost their job, a lot of them are not going to be able to prioritize paying their credit card debt. If one out of three Americans weren't able to pay their rent, no one is paying their credit card debt.
Speaker 1:Well, and not just the credit card stuff, but like to talk about how little they care about us. We mentioned this before when we were talking about credit scores, but yo, if you are trying to get a loan from bank t hat you didn't already have a loan with, they weren't messing with you. PPP loans. If you had a loan with the bank and paid it off like they asked you to, they were not helping you out with the PPP loan. Thanks Bank Of America. Thanks. Y eah, I'm glad we got your money now we out c ause we don't have a business relationship anymore. And it only, honestly, so bank of America did that with t he P P P loans and it took straight up Twitter. Shame for them to reverse that policy. Y eah. Massive amounts of Twitter shame for them t o be like, okay we'll do the PPP loans, even if you don't have a loan with us in general, they're not rocking with i t. Do you? If you're not already spending money with them so don't be worried about ending this relationship. They want to keep that open.
Speaker 2:Yes. They want to keep it open. So right now, just to ease your mind a little bit, the CARES act put a stipulation in place that said if you got on a deferral program, any kind of deferral program with a creditor or like a credit card company, then they are not allowed to put a negative or delinquent Mark on your credit score for 120 days starting in April. So at least through the summer if you're on a deferral program with a credit card company, you should not see any negative marks on your credit. Everything is supposed to stay current, so call your credit card company. It may take a couple tries. I've been hearing that sometimes people wait for an hour and then get hung up on just like the unemployment office. Everything is so impacted right now but it is well worth it to get on a chat to get on the phone and defer your payments if you need to get your payments reduced, if you need to get your interest rate reduced if you need to. I've been hearing unfortunately over the last month that some people have been having trouble actually getting their credit card companies to agree to remove the interest. That's something that I've heard was happening early on with clients and I think that credit card companies are kind of hitting their limit of saying like, wow, there are way too many people asking for this. And I will say even if you can't get your interest deferred, if you need to pause your credit card payments, that is okay. Right now we want you to prioritize savings. What we're saying right now, prioritize food, shelter and sanity, right? We are in a global pandemic. Food, shelter and sanity are the things that matter right now and if your credit card debt is driving you insane, put it on pause. If the only thing you do or the minimum is you can do the minimum, the minimum is like, cause I know I could hear in the ether people freaking out about like wait, what the interest accruing with everything. You know the my credit all that. Feel free to pay the minimums if you can swing that. Yeah. Yeah. If you want to swing that, if you couldn't get the interest deferred, but don't feel bad about only paying the minimum right now. Because the important thing is there are a lot of bills including rent, including basic utilities that don't accept credit. And don't accept credit cards. So you do have to pay, you have to pay with cash. And right now we need cash. So, okay, we've talked about the mindset stuff. We've talked about all this. Let's jump into the history of credit scores. Yay. So this is fun. By fun, I mean racism from before and also racism from today. Yes. And the reason I want to talk about this is because Covid-19 is exposing a lot of the structural and systemic racism that has been going on for hundreds of years in this country for real. So the history of credit scores, anyone in case you were surprised, it's hella racist. So way back in the day in the 1800's this company called the mercantile agency was trying to systematize. It was around civil war time, buyer's credit worthiness. And the tricky part about this was the stuff was super subjective. There were literally notes in people's credit files that said prudence in large transaction with all Jews should be used. Yeah. So to explain in a nutshell the process, it was rumors. It was rumors straight up it was like this, yeah, this shop is run by a Negro. Or like there was a one like even not just about the race stuff, there was like, I saw this one said this person has a poor reputation socially but has consistently paid off debts. So we'll give them like a B minus kind of thing.
Speaker 1:Yeah, he paid his debts but people don't like him. So I don't know what's up with that. But let's give him a worse score. And then if you're black, you get a worse score. If you're a woman, you get a worse score if you're native, something like that. There's all those other prejudices they throw in too because of course, yes. So if you've heard of Dunn and Bradstreet, they were one of the first people to really try and systematize it and try and turn these rumors into facts. And so how it all happened, the mercantile agency that she was talking about, they became the one known as Dunn and then their competitor, Bradstreet and them merged cause you know how that goes, you know that's what happens. So they wanted to create a financial identity for all of these people who are trying to borrow money.
Speaker 2:So Dunn and Bradstreet were the first people to do that. But for a long time credit was just a commercial thing until the 1900's of industrialization. And then the idea of a worker and consumer life started separating for the first time. Right. Again, another big life changing war that happened. Yes. Huge. Oh yes. World War One. Yes, exactly. I just thought it was really ill that around the civil war and the industrialization around that is where this first happened and then the modernization coming around world war one. And so the modern credit system that was based on consumer spending was built on three pillars that we see today. Private sector, mass surveillance. Hello everyone. Do we remember how Equifax who many of us had never heard of until they lost 145 million people's data, everything. They are master availing us on a private level without our consent. Anyway, that was one bureaucratic information sharing, so sharing information and our personal information with each other is another one and a rating system that made information actionable. That was the third thing, and actionable means, not just rumors, not just character thing, but Hey, based on their actions here, we're going to decide whether or not we're going to move forward with them here. Yeah, they mean actionable on their end, not on our end. Yeah, exactly. They don't care about us. Anyway, so the first major consumer credit reporting system was called the retail credit company, so this RCC is what they were known as. Also included information about a bar's race, disability, social, political, and sexual lives. Again, remember this was entirely based in rumor. Rumors! From what we read when we were digging through the research, it kind of sounded like some cat went from town to town and was like, I talked to the local gossip about these people. And so at this point, like 1950s 1960s they try to really find a way to systematize it. And the fair credit and reporting act was the thing that actually removed all the information about someone's race, disability, social, political, and sexual lives. Just so you know, the fair credit reporting act happened in 1970. That's not that long ago at all. That was not that long ago. Right? So 1970 fair credit reporting act forum, they expunged all personal and character identity-based data from the credit reporting system and RCC rebranded as Equifax. Yeah. Yeah. Equifax was RCC who was doing all that crazy shit before. So 1975 RCC is Equifax and they're soon joined by Experian and TransUnion to form the three credit bureaus, Equifax, Experian, and TransUnion. Still no real reason why we needed 3 of them. No idea why there's three except that they all were doing it and t hey're g oing t o whatever. Yeah. So the tricky part is these were just the credit reporting systems, right? There are these long reports that told people what their credit was, but there was no way to actually just like codify and quickly say, Oh, this person is credit worthy to sit there and read a whole bunch of stuff. You'll see like when people are talking about getting loans in like a 1950s movie, there's like them coming in and having a meeting and an interview and a whole thing about that because it was about your whole life. Yeah, and it was about your character and your reputation in the community. So what they did was they were like, okay, we need some kind of algorithm. We need some kind of computer to tell us. Like if this person has credit where they really quickly, right. Because remember they don't want to think about people as people. If people can be numbers, then that's a lot easier. Totally. So they enlisted a company in the 1980s called fair Isaac and company, also known as FICO. FICO you may have heard is the main credit scoring system that exists in the United States. Most major lenders use them. Mortgage companies use them. Your credit cards are more likely to use them. FICO or fair Isaac and company were the first people to actually create a credit score. And if we're talking about etymology, remember that fair doesn't mean equitable. It means light-skinned. Yeah, for real. I'm just saying. Yeah. So by 1989, FICO fair Isaac and company had codafide everything and it codafide what they're calling a codafide financial identity. This was the closest attempt and it was the best system at the time. And it's still a system today to actually determine as objectively as possible, I'd say whether someone should be able to access credit or not. I want to say as an educator and all my educators out there know, there's a difference between doing something objectively and creating a standard.
Speaker 3:This is standardization. And I don't think that i t is an objective method of relegating people's credit worthiness. I think it is a standard w ith people can be bounced up against a nd that's easier for them. But that doesn't make i t objective at all. Not at all. Because as we know, credit scores are racist as hell. So our credit s cores next. Next. That's a whole next episode, but let's talk about that a little bit, right? Because income is a major factor in determining whether someone issues you c redits. This is the old racism stuff. Yes. Workers of color are historically paid less than white workers. Your family's credit history is another determinant of whether or not you're going to be able to get c redit. So this generational stuff, as much general wealth is generational wealth is important. Generational credit scores are just as important for access. I mean, if you've got a good credit score and you can put your kid as an authorized user on your c ard, that's going to help them out.
Speaker 2:If you have a terrible credit score, that's not even an option. And then the final thing is your location, your location, based on your zip code, you can most likely predict what someone's credit score range is. So here are the stats, but again, sounding like red lining, right, exactly. Because the stats are people of color are less likely to have access to credit than white Americans. So 20% of white Americans don't have access to credit compared to 47% of African Americans and 30% of Latinex people of color all started less like half of us, half half do not have access to credit compared to white Americans, only 20% so people of color also tend to have a lower credit scores in white Americans, 64% of white American borrowers have a FICO score of higher than seven 20 versus 41% of Latinex borrowers versus 33% of African American borrowers.
Speaker 3:Ooh, yeah, I think credit scores are racist. So just a little bit. Also if this puts your mind at ease, maybe, maybe not. The average credit score in America is around 647 so having a 700 credit score is very much above average. Do not feel bad if you do not have a 700 and what's funny is to have considered good or okay or just passable credit, you need 650 so the average Americans just below. Yeah, look at that. It's like I talk about a lot with the credit scores and how these things are based off scams is one of the other things that scams love to do is leave you just, there just treading water drowning a little bit, you know. Oh my God. Okay. We got to go to a stop. He's got all worked up. I found a really dope song from 10, well 11 years ago. Like this song is uh, is so old that the uh, the website that the artist has is a my space. I can't even exactly find out where they're from, but a manager stuff makes me seem it's around Miami area and they got a dope joint called credibility check.
Speaker 4:Song break-
Speaker 2:I have one really great question about credit. If we stay on topic here, the question we have is I'm in the process of preparing to move. Oh, and there's questions. That's right. I'm in the process of preparing to move into a new home hopefully by year's end and as I have credit to pay down. My question is this, I'm hoping to take out a personal loan to consolidate my credit debt so that I can lower my utilization score in hopes to boost my credit score, which is a strategy that's definitely worked in the past for people. Is this one of the best options for this purpose or is there a most more feasible approach to take with my timeline of wanting to move by the end of 2020 beginning of 2021. Okay. So there's a lot going into this. This is a pretty tricky question. One of the main reasons why is because the timeline is so short. So one of the factors that affects your credit score is trying to open a new line of credit. So it affects two parts of your credit score. One is anytime you take a hard inquiry or anytime you try and borrow money, a hard inquiry shows up on your credit report, which affects 10% of your score. And then if you actually open a new line of credit, it affects 15% of your score. So in total opening a new line of credit affects 25% of your score right off the bat. It affects it negatively. And if your timeframe is less than a year away, then you may run into an issue when you need to move. If you take out credit now. So if you have a year, you have 10 months, if you have 11 months even then that is a good enough time. If you're trying to move by the end of 2020 then I wouldn't recommend taking out a personal loan now unless your credit is already pretty good cause otherwise you may run into an issue where your credit drops below a limit where they're going to let you actually be able to move. I wish we could give a better formula, but they simply haven't released the numbers to like say like if it's this many moms you can do this amount and your credit score will drop this much. When we say if your credit is pretty good, it's about how confident you feel that even if your credit drops after taking this hit, it will still be above the needed number, which again is a bit of a crap shoot. Yes. And please ask questions if you have any further questions. We have a question from glow up gang to ask the questions in the question.
Speaker 3:You think if it's easier for you to just put it in chat, we'll answer that exactly. Let's see. Glowup gang, is it worth paying collections for an account that I have a derogatory mark on? It was sent to collections by cable company from a while ago. Oh boo. Oh, that sucks. Okay. So couple things here. Collections definitely affect your credit score negatively, but it also depends on how old the collection account is. So collections stay active on your credit report for seven years. But as the collection gets older and older it affects your score less and less. And so as time passes, part of the fair credit reporting act stated that you can't let debt follow you forever. Right? You can't have a debt that you owe. And that's why there's a seven year stipulation for things to fall off and they just added it to my account as you say 7 years.
Speaker 1:Cause this is a real stuff because whenever people hit us up with this, there's always the different caveats. There's a lot of terrible loopholes that people use to add time. So this is new also one, yes, that is very true. So we have heard situations where the seven years almost passes and then what ends up happening is they sell the collection to another debt collector and that seven year cycle could potentially start again. What you're talking about in this situation, Glowup gang is if they just added it to your account last week, check to make sure it's not a mistake and that you need to dispute it. Because that's one thing to think about as well is is this collection actually something that you owe? If it's brand new and its a mistake then I would go ahead and dispute it and all you have to do is Google dispute plus whatever credit report is showing on. If it is not a mistake and it's a small enough bill than it is absolutely worth just going ahead and paying it. The first thing I would do though before you do that is to get it in writing that you actually owe this debt. Whenever a
Speaker 2:debt collector calls you up and a lot of debt collectors will just hit you up. The thing is they're selling debt on spreadsheets for pennies on the dollar to random whoever's. These aren't like official, licensed anything. They're just random cats who think that they can harass you out of some money. So if they have the spreadsheet, it may be something you've already paid and they are not getting the updated version or totally, they may just not have the information. So if they can't provide it to you in writing, you don't owe it to them straight up. Yeah, it has to be in writing. That is also one of the rules about collections agencies is if they're trying to collect money from you, they have to prove that you actually owe this money period. So check that first before you pay it. And then once you do, make sure that when you pay, get in writing that it was paid and you can also negotiate with the collector and say one. Sometimes if you can pay it in full, you can actually ask them to remove it completely from your credit report. And that's rare. But they might agree to that. I've heard that happen. The other thing is you can make sure that they Mark it as paid and not just settled. That's super, super important. So the difference between paid and settled in collections is if you settle, that means that you paid off the debt for less than you all. Like let's say the debt was a thousand dollars and you agreed or settled to paying only$500 that shows up a settled. If you paid the full thousand dollars that you owe, that showed up as paid and that actually affects your score less negatively than if it says settled for reasons, I bet you can figure it out. So if you can negotiate with them and say, this is how I want it to show up on my credit report as a way to pay the debt, then that's another thing to think about as well. So there are ways to kind of finagle in the collections world how it actually negatively or positively affects your credit score. Great questions. I love it. All right, let's get back into it. Since we're talking all about credit scores and stuff, let's talk about what makes up your credit score. It's a convoluted system that makes no sense, but here we are. Here are, this is fun and I want to say too that your credit score is not you. We're talking about debt, doesn't define you. Please do not let your credit score define you.
Speaker 1:We've joked before about, and I guess it's not even really that much of a joke when people talk about having credit score requirements on their social media for dating apps and stuff like that cause people are really like, it's a measure of your responsibility and it's treated as such. I love this question from Denba,
Speaker 2:how often should you be checking your credit report since we're not quite back into it? Great question. So right now I actually recommend that you check your credit report at least once a month because there's so much activity going on, right? So annual credit report.com which is the only website that gives you free credit reports without selling your information, annual credit report.com nothing else has recently allowed you to check your credit report as often as every week for free before you could only do it once a year during Covid you can check your credit report every week. I know I learned that from on my own financial follow them, shout out to them. You can check your credit report every week. We don't recommend doing it that often because usually reporting happens to credit bureaus every 30 days, so you don't need to check it every week.
Speaker 3:You can just check it every 30 days and see what goes on from there. So when you check your credit report, you're looking for these things. There are five factors that affect your credit score. 35% of your score is your payment history. 30% is the amount that you owe. 10% is a new credit that you try to open 15% is your credit history and 10% is your credit mix in uses what they call it are basically just like how many different lines of credit you have. Now the reason why your credit score and your credit report is so important is because it's not just creditors who are checking your credit, right?
Speaker 2:Yup. It's everyone. Not for everyone, but it's really bad. I was just saying it's your Tinder date. Hopefully they're not actually checking, but no, it's definitely your landlord is checking, checking your credit. Your employer can check your current employer, your potential employers. When you go on an interview, they have looked at your credit score. They know about that thing and you didn't pay it back. When did credit scores become a sign of responsibility. It's not just a sign of responsibility. It's also a sign of manual dexterity and eye coordination because if you have a low credit score, your car insurance is higher.
Speaker 3:Yes, your auto and home insurance can check your credit score and you pay 91% more in premiums and you have bad credit straight up. It is horrible. I don't know how they're allowed to do that. It's open. The website is annual credit report.com
Speaker 2:yes, yes I will and I think that the way they're allowed to do it, it's kind of based in the history that we gave is like it comes from rumor and just sort of whatever, so a lot of those remnants are still in there. It's one of those things when you look at these systems that were built from white supremacy and people tried to say, well like, Oh those industries, that's not their focus now. It may not be the focus of these industries now, but they haven't dismantled the actual things that make that go and that take care of us. Yes. Yes.
Speaker 3:Best way to pay your bill to boost your score. That is a great question. So hold on, let me finish real quick. In terms of who checks your credit cell phone company, check your credit as well and determine whether or not they're going to actually give you that cell phone plan where you can pay off your phone over two years. Or do you have to put a bigger deposit down? Banks can check your credit score now to determine if you can open an account. Charles Schwab, I know for a fact checks your credit score before they let you open an account. And utility companies can check your credit score if you have a low credit, they can require a deposit. Okay. So going back to credit scores, and going back to your question, what are we actually, I haven't seen how much of those numbers are in the deposit. Cause I know like landlords, when you have low credit, it'll be ridiculous. They'll say something like, I've seen your bank account, how much you need for the book. I have no idea. So your question, what is the best day to pay your bill to boost your score? So there is no best day. We don't know the day that creditors report there are 30 days cause they're all, they only report every 30 days, only worth it to them to report every 30 days. What we actually recommend is if you're actually using your credit, is don't pay attention to the date on the bill. Pay attention to how often is your credit card. And if you use your credit card pretty often, we actually recommend paying it down more than once a month. For a lot of clients we say, Hey, pay down your credit card every time you get a paycheck. Pay on your credit card every week so that you know exactly how much cash you have in your balance doesn't run up. Yeah. One of the big things is keeping it below 30% I'm keeping it at 30% or below of the limit that you have and paying it off more than once a month off It makes it easier to do that. Yeah, exactly. So going back to what makes up your credit score, 35% of your score is based on your payment history. This is the biggest chunk of your credit score is have you made any late payments or not? If you have made any late payments like any, we didn't plan that any late payments, then it can affect your credit score negatively for up to seven years, seven years, and that's 30 days late. Not like three days late, but if it's 30 days late, especially with credit cards, they are quick to report that negative Mark. Now if you did accidentally forget to pay a credit card one month, you can usually call them and have them reverse it or write a Goodwill letter as well and they may be able to reverse it. Customer service stuff. I know we talked a lot about money, personalities and tendencies and a lot of us don't feel like we should call customer service when we made a mistake cause we're like it's on us and all of that. But remember how unfair the system is and all the crap that we just explained to you. So whatever you can get, go ahead and get and call up a place. And if you can get a customer service person to help you out, get them to help you out. Do it, do it. There are people too on the other end, they know how this goes. They're not the CEO, they're not worried about the bottom line. They just want to get you off the phone so they can get through their day. And it doesn't cost them anything to reverse a negative late payment mark. So if that was a mistake that happened once, do it. A Goodwill letter. That's a great question. A Goodwill letter is basically a letter saying, Hey, I've been a really great customer and I'll actually, Ooh, I have a template that I can share, I can share. I don't know how I'm going to share it via IG live. I'll let you know. Like I'll post it, I'll post that on Instagram somewhere. But a Goodwill letter posted on the brunch and budget site, not wherever. I'll post it on the, the five tips to protect your credit. I'll post the link. Yeah. But Goodwill letter, that's such a great question. A Goodwill at our basically is a letter that says, Hey, I've been a customer of yours for X number of years. I've had perfect payments for X number of years. I missed this payment because X, Y, Z. I was out of the country. I was taking care of a family member, I was out of work, whatever it is. And would you please reverse this payment? And so we have a template that has the language. It's like a conglomerate of like five different templates that we found online that has just like all of the different things you could possibly say depending on what your situation is to send to a creditor to have them reverse that negative Mark
Speaker 2:BS. Or a lot of people talk about the relationship you have with this company and say, Hey, we've got a relationship. I made a mistake. Please don't make it be almost a decade of horror for me because I messed up once.
Speaker 3:Yeah, exactly. Exactly. And in terms of late payments, because it makes up such a huge chunk of your credit score, we recommend that you, if you can set up auto payments for just the minimum payment, so that way no matter what happens, as long as you make the minimum payment on your credit cards, you will not be penalized. And it will count as an on-time payment even if you don't pay off the whole balance.
Speaker 2:Yeah. And for those of you who are afraid of like, Oh, what about having these things and I won't get to approve it and it might, you know, go negative and overdraft protection. And all that kind of stuff. Well, you're weighing$35 versus seven years. Bad luck.
Speaker 3:Yeah. Yeah. Oh, great question. Here we go.
Speaker 2:hi guys. The approach that you gave in this week about making sure that your longest credit card doesn't have an annual fee, should you still keep it if it actually has a monthly fee?
Speaker 3:Oh, okay. That is a great question. Thank you Kay. Um, here's the tricky part. So monthly fees are rough. Um, monthly fees are the kind of thing where if you don't need, Oh no, that's okay. If you don't need to use your credit score in, in the near future, that might make sense to close. If the monthly fee is pretty hefty. The tricky part is if it's one of your oldest cards, it is going to affect your credit score negatively for a little bit. It may be six months, maybe 12 months. Really. Like the thing that reverses you closing old cards is time. It was just waiting it out. So if it's a, it's a card that has a monthly fee that is pretty big and you don't think you'll need your credit in the next year or two, then it may make sense to close it, take the hit and wait for your credit score to build back up again. It's all about the timing of what you want to do with it. So near future is within a year. Yeah. So that's a great question, Lisa. Yeah, so near future usually takes, it takes at least 12 months for a new account. Oh, there's another question there. I love it. It takes at least 12 months for a new hard inquiry to stop affecting your credit score as negatively. It takes two years for hard inquiry to actually roll off. So yeah. Oh, and then we got another question in the box. Let's see. My husband has a debt. Oh, Nope. Nope. That was taken out by his ex wife and he was the co-signer. Oh. Oh. If he's a co-signer, he is obligated to pay the debt, unfortunately. Yeah. Elaborate if you need to. But in general, if you are co-signer on the debt, regardless of what your relationship currently is with that person, then you are also responsible for paying off the debt. There's really no way to get out of the co-sign. Really no way to get out of the co-sign. Unfortunately, the debt does not show on his SSN. Oh, Oh. Oh. It doesn't show. If it doesn't show on his credit report, just ignore the debt collector. Who cares. Yeah, just I would tell him to look out for any kind of summons or court summons in particular. a if he does get a court summons and he should respond to it and just figure out if they can prove it in writing. Cause I don't know how much contact he has with his ex, but uh, this is kind of one of those things where I was just saying this debt collector may have something that's old and, she may have even paid it off. Right. Like if they're not in communication with each other, then who knows where this debt came from and who knows if it's still outstanding, who knows what the status really is, so if he really wants to investigate it, then he should get in writing that this debt still actually exists. Just tell them that, look, I'm not going to talk to you on the phone until you send me something in writing. Yeah, exactly. If someone's calling him or anything like that, then just, yeah, just get everything in writing first and make sure this is real. That's the main thing with collections in general. There's so many fake things floating out there and old things floating out there that we really recommend. Just making sure you get everything in writing debt collective.org yes. Get it in writing. Debtcollective.org will actually help you write these letters to get in writing, so all you have to do is put in the creditor's information, the address to send it to, and they'll send you a template and even mail it the letter for you. It's amazing. So debtcollective.org another really great website. Oh yes, thank you. Yeah. So, um, the next thing is, Oh yeah, they called me because my number was on the contact. Oh no. Then you can just say wrong number. Oh, thanks. Love gang. 30% of your credit is made up of how much you owe. And what this means is you want to keep your credit card balances at 30% of the limit. So for example, if you have a thousand dollar limit, then you don't want your balance to go higher than$300. Otherwise your credit score goes down. I don't know why they gave us a thousand dollars and they're like, but we only want you to spend 300 of it, whatever. But that is the rule. It makes no sense. It's so funny. We teach this exact thing to like high school kids and every time we go through it they're like, is that real? That's a real rule. They gave you this money, but they're like, no, but don't spend the money. What? That makes no sense. So keep this in mind. It's that Marshmallow thing. It's that marshmallow thing. Yeah, so what we do recommend as a pro tip is you can call to increase your limits periodically on your credit cards specifically. So you can call and say, Hey, I might be preapproved for any credit limit increases, for instance, because that way you can still continue to spend the same amount that you're spending, but because your limit is increased, your credit score will increase to, Oh, I wish I had you in high school. Oh, I wish we had us in high school. That's why we teach high schoolers. That's really why we do this. In fact, I'm jumping off right at the end to do a class for middle schoolers. Exactly. Yeah. We're going to have to hop off at like 2:58 okay. The next thing is 10% of your score is made up of new credit. So trying to open new credit, those hard inquiries, and you only get a hard inquiry if, you're trying to borrow money, so the employer checking your score, the landlord checking your score, you checking your score does not affect your credit score negatively. It only affects your credit score negatively if you're trying to borrow money and it affects 10% of your score. Does, u h, does, Oh yes. If a c reditor is checking your score, it does count as a hard inquiry if you're trying to borrow y our money. It's known as a soft inquiry. If you are checking your credit or anyone who is not trying to loan you money is checking your credit and that doesn't affect your credit sc ore a t all. That's something they beat in our he ads t hat anytime your credit gets checked, your score goes down. I think that that's been allowed to be pushed as a rumor. So it scares us into not checking our credit. Oh Lisa, wait, you have a class for Middle schoolers? My kid is 13. Where can I sign her up for this class? Oh yeah. We also have a company called pockets change where we work with youth of all ages. And you can check out pocketschanges.com. I'll put some stuff there. I'll put the website up, we'll put it up there. But yeah, so we're actually teaching, uh, Oh dialect this week is teaching. At a school in Delaware. We're doing virtual classes for this kind of stuff. So, and they are eighth graders, so we teach really all over everybody anyway. I mean if your kid's school is looking for some financial literacy, just let us know and we can, we can come on in there. I guess a lot of this pockets change, brunch and budget like this podcast, all the stuff that we've been doing stems from wanting to help young folks cause we didn't get it when we were kids. I'll think about it. Okay. So Habiba Oh yes, the credit limit increase request. So maybe, maybe not. So sometimes creditors have already preapproved you to increase your limit and you just have to call and take it. If they do that, then it will not affect your score. If you already preapproved for a higher limit. If they do have to check your credit, t hen it does count as a hard inquiry and it does affect your score. But only that 10% of trying to get new credit. D enver, you're in Delaware now. That's amazing. So will the SBA PPP l oan decrease your credit score as well? Yes, it decreased mine but only by four points. So it's not a big deal. But yeah, I saw the SBA checked my credit and I saw my credit score go down like four points or something. So yes, SBA or the bank checking your credit does decrease your credit score, but not a huge amount, not a huge amount. So the next thing is 15% of your score is made up of your credit history. This gets super tricky because, Oh, that reminds me. There's another tricky thing where the 30% of the limit thing is they want your balances to be below 30% of the limit on each card and overall your total balances across all cards also need to be below 30% of the limit. I thought of that because 15% of your score made up of your credit history means that one, the oldest card determines how long your credit history is. The total length of your credit history is based on your oldest card, which is why I hesitate to tell someone to close their cards. Your credit history is also determined by the average age of your credit cards or credit lines in general. So what that means is if you try and open a card and you get approved, all of a sudden you have a card that is zero years old and your credit history, the average age of your credit history goes down because you just added a new card that is zero years old. So anytime you open a new line of credit, it affects not only opening a line of credit but also your credit history. So it actually affects 25% of your score. Anytime you try and open a new line of credit. Jesus is right. Remember, my favorite bop from him is the one where he ran up in the temples flipping over the tables of the creditors because this isn't right. This is ridiculous. And then finally 10% of your score is based on how many different types of credit you have. It's called credit mix in use. And what that means is they want you to really be in the game, right? They want you to have credit cards, store cards, student loans, auto loans, personal loans, mortgages. The more different types of credit you have, your credit score goes up. This affects a very small percentage of your score. It's only 10% of your score, but it's usually what tends to get someone to like that next range, right? That 800 range for instance. Yeah. So you have a card that's two years, another one that's eight that counts as five. Yep. Yeah, yeah, exactly. So they'll count. The total length of your history is eight years, but when they average it, it looks like that you haven't had a long credit history because of that. This is confusing. How long does this effect last? So by the way, this is supposed to be confusing. It is, you're right. They literally contradict each other in so many ways. They're like, we want you to have credit, but we also will penalize you for trying to get credit. I swear there are activists out there in the world working really hard right now o n changing these things and making it so that if you pay your bills and you pay your rent on time, t hat'll positively affect your score. But right now we're living with the thing we got. Oh yeah. Forever. Kind of forever. I mean, here's the thing, FICO changes. FICO put out a new credit rating system called F ICO 10. Credit inception for real. Oh my God. That's what it feels like. Oh, it makes no sense. Every five years or so FICO tends to put out a new guidance basically on how you should calculate someone's credit. For better, for worse, it changes every, it changes every five ish years. The problem is that not every creditor adopts the new credit guidelines. So this is what we know. These are the five factors that we know, but there's so many other little nuances and algorithms that the fair Isaac and credit company decided to come up with and continues to come up with to this day. So this is super confusing. I mean, just like seven ish years ago, they didn't. They were okay with you having 50% of your balance be 50% of your limit be your balance. I would argue that it's not inception. It's a different Christopher Nolan movie. It's probably two of them. It's probably the illusionist and also that man begins where a rich white dude starts punching a bunch of poor people in the face. Oh shit. That is what credit scores feel like. Let's be real. Yeah. What about school debt? Does it negatively impact your score? Okay, great question. Yes and no. That is a great question. Thank you. So school debt. If you don't do anything to it and you just continue paying it down, then it actually positively affects your score as paying down student loan debt because you're making a payment every single month and you're making it on time. Now the problem is that when you pay off your school debt, when you pay off that student loan, your credit score goes down. I'm so sorry, but that's just what happens. Your credit score goes down because you've closed a line of credit. When you pay off your school debt, your credit score also goes down if you consolidate your loan. So if you're like, Oh, I want to go into a direct loan and I'm consolidating, which means I'm closing an old line of credit and opening a new line of credit. Yes it is a total clusterfuck. You are absolutely right. This makes no sense. You paid off credit, you were good. Here's the thing with the credit system, the reason why it is not a marker of your financial health is because all they care about is whether you're in the credit game or not. They don't care about whether you pay your rent on time, they don't care about how much money you have in savings. They don't care about if you're great at managing your bank account, they don't care about whether or not you have investments or for nothing. You know what's messed up with the whole Tinder thing and like the dating of it all? Is that the credit system sort of seems like that manic pixie person who seems interested in you and pursues you and does all these grand gestures and when you finally go out with them, they don't even really like you no more. Oh my God, it's true. It's negging us. 500 days of summer. Question here. Is it ever a good idea to take the hard inquiry and get the increased credit limit? I've asked if they could do a soft pull. Did they claim they can only do a hard pull. So yes, if you don't need to use your credit for anything else in the near future. And when I say near future, in this case I've seen it usually affect people's scores maybe three to six months depending on where your score is. So calling to get an increased credit limit only affects 10% of your score. If you're not opening a new line of credit, it doesn't affect your credit history at all because you're not trying to open a new account. You're only trying to increase something in an existing account so it only affects 10% of your score. And I've had clients who call like every six months to increase their score. They take a little bit of a hard inquiry. I have a client who got her limit to, I think the limit was more than her salary at some point. So it's not a bad idea. As long as you don't need to use your score in the near future. It's annoying cause it's a game and a tight rope. Yeah, exactly. So what you just mentioned about student loans, is it a good idea even to rush to pay it off? I mean, honestly, when it comes to federal loans, let's see what happens. I would, I would put student loans, uh, as a priority to pay off last. We don't know what's gonna happen. Federal loans, specifically federal loans as opposed to private ones as opposed to private ones. Yes. All right. I feel like we've just been doing Q and. A if you want to know. This is great. This is amazing. Yeah. I'm just like, we gotta play another song behind us here. I'll mention, Oh, you know what? I've got a really great one here. Take a breath.
Speaker 6:We will continue answering questions until we get on outta here. If you only got 10 minutes left, cause we got to get to go and teach. But uh, tall Paul is a cat from Minneapolis. Minnesota has got a great joint called protect your spirit. When we leave as humans, we go back to being, being human. Being that really means something, but we live in a reality. Now we're in a time where I would say to anyone, you don't protect your spirit, protect your spirit, because because you're in the place where spirits get eaten,
Speaker 8:Song break
Speaker 3:Yes, let's answer more questions. Oh great. What are your thoughts on credit karma? I was told that they give you lower credit scores. Oh, I have so many thoughts on credit karma. Habiba thank you for that question. So credit karma is technically a free credit scoring system. The problem with credit karma is they're not FICO, they're not an official credit scoring system. They are trying recreate the algorithm that these credit scoring systems have, which is why the credit scores are always a little bit off. So they're taking credit guessing system. Yeah, so credit karma is basically pulling reports regularly from TransUnion and Equifax. And within that they're trying to figure out, okay, so they have this much credit and they have this much, this much in collections and they have this many hard inquiries. We're going to guess the credit score. They're trying to recreate the algorithm. So credit karma is a great tool if you're trying to see if your credit score is going up or down or trying to find out what activities happened in there. The problem with credit karma and we already have it, I found this out after I had it. They sell your information immediately. Immediately credit karma sells your information. You may have seen, you may have seen an increase in your junk mail for credit card offers because of credit karma. So yeah, they definitely sell your information to third party sources for sure. But they're a good tool to have, especially if you already have it. They already sold your information. This is off topic, but w ill you have a podcast on retirement accounts, IRAs? 401k i s, that's a good question. Yes we will. Yeah. The market is so volatile. Should we talk offline? Yes. Yeah, we are definitely going to talk about, also hit us up if you have specific questions. Remember that Pam is also a certified financial planner and has a whole business. Also have brunch and budget. If you do need professional personal digging deep into it one on one advice, please speak to either her or somebody like her right now brunch and budget is doing pay what you can, virtual brunch and budgets and so really literally pay but you can't really pay what you can just because of compliance. Like there has to be something in the system cause of stuff that I don't know. We've had people literally pay 50 cents, you know it's$15 whatever you can afford, but if you need one-on-one advice then we highly recommend scheduling a virtual b runch and budget. I appreciate this from my FICO o ffers credit monitoring, but it's m oney l ike you want your FICO score and you h appen to have chase or American express or B arclay's card, they give you your FICO score for free so you can go into your c redit card app and you can get your FICO score for free. I know for sure with those three companies. Yes. All right, so credit karma. I'm glad you asked about that cause that was something I was going to go into for sure. So we only have a few more minutes and I feel like we need to do a part two, we probably should do a part two. There is a lot more. We didn't get into balance transfers, personal loans, student loans, debt counseling or debt snowball. So I think we'll come back next week and do a part two ca use t his was mostly talking about where de bt c omes from and I guess yo ur c redit score and how to protect it and all of that. Ne xt w e ek w e can talk about the next steps we c an take. So please if you have more questions about any of these things, hit us up either in here you can leave a comment on one of our Instagram posts. You can protect your neck and neck for real, for real. But we do want to leave you with this. We want to remind you that even in the midst of paying down your debt, how can you make sure that you are taking care of yourself first. You are not defined by your debt. What matters is that you are taking care of yourself right now, especially during a global pandemic. Put off your debt payments if you need to. It's totally fine. We will definitely do a relationship segment. When we were doing, we got you. For your married folks for you about to get married folks. Y'all a big up Barry poetry club where we're going to be doing some workshops with them. So yes, we have a financial resilience workshop with Barry poetry. Hi Barry. Little shout out the new executive director. Mahogany Brown. She is a Beast. Oh, in every way possible. Yes. I love it. So we'd love to hear from you. Yeah, I'd love to hear from you. Bring us your questions. We're going to continue talking about this credit stuff and how we can do better with it. You are not defined by your debt. Goodbye everybody. We love you. Next ti me. Peace. Ch eck in next time.
Speaker 5:Thank you for calling the Trek.
Speaker 9:[ Song break.
:I'm trying to get away. I'm trying to get away. get away. I'm trying to get away. I'm trying to get away. My mind has gone down. I'm not trying to be rude in a beat like this. I can't help the lead on leave in my reality. Leaving actuality, leaving possibility, with every sip of Hennessey. Ice cold glass, long n ight, short days work until the body ache. Told them no m istake. I played pro like the grades. I got sharp s hooter aim. Now, how should they remain? Put it in a pot. I know I'm a m aintain. You go tta l ook into delirious. I can't take these jokers too serious. They don't know the gang. That's a mo ther fu cking shame. Dig deep in your brain. You can only make you change. If you fuck with my shit, I'm go nna m ake you change. St ick i n to w hat I know. And if the window close, we bu st i n t hrough the front door. Se e t h at? I'm trying to get away. I'm trying to get away. Trying to get away. Try ing to get away.
Speaker 10:Easy. Be miss on us. A black man growing up. We know what to do. The way to get to take him to make the light diesel for its own place and to get through the day into the bullshit baby. No time to be lazy for the life of the moon. It was about the money to get note on Ben Nicola's hitting curves on my way to catch a swerve murder, pop them, flip them, burns the, ain't nothing but a word. Catch me on the phone to China. Make the Mac and let them get the club and sit and be so crazy that my mind is really missing out. Even have to be here for money to appear because a real n***a feel like I'm going to do what I gotta don't get down to make your money pit for Chaser. So you know the hood got me. I'm trying to get away. I'm trying to get away. O ut o f I' m t rying to get away.