Credit expert Gaby Lapera joins Yas + Dara this week to break down the inner workings of the “big three” credit bureaus and lots of tricks that could improve your credit score.
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Credit score expert/chiweenie enthusiast Gaby Lapera joins us this week to download everything she knows into your ear holes! Okay, maybe not everything, but she does an amazing job of breaking down the super-secret inner workings of the “big three” credit bureaus. Get ready, because Yas and Dara are busting out some shiny new segments (and theme songs, natch).
While you’re learning all about credit utilization ratios, the many factors that go into calculating a credit score and the way some jobs check your credit score before they’ll hire you, we’re clowning on Shaq, shoe size woes, the worst Tinder dates ever, the Addams Family, and a hilarious, galactic slip of the tongue from Yas.
Links mentioned in this episode:
Dara: Hi, I'm Dara N. Wilson.
Yasmine: And I'm Yasmine Khan.
Dara: And this is Money Ha Ha.
Yasmine: Money Ha Ha.
Dara: Money Ha Ha, Money Ha Ha, Money Ha Ha. I like that, I like that.
Yasmine: Haha.
Dara: No, every week?
Yasmine: This is the podcast where smart, funny friends bring money talk out of the shame drawer and onto the table.
Dara: Each week, we discuss one of those money topics that pretty much everyone struggles with, but nobody feels comfortable talking about.
Yasmine: This week, we have Gaby Lapera, she is an expert in credit scores. I met her when I worked at Credit Karma, she is still there. She is here to give us lots of knowledge and food for thought, and we're super excited.
Gaby: Hello, my name is Gaby, as Yasmine already said, and I actually still work at Credit Karma. Just to be 100% clear, PR wanted me to let you guys know that even though I still work for Credit Karma, I'm here in an individual capacity, and I don't reflect necessarily the feelings of Credit Karma.
Dara: How's everyone doing this evening?
Yasmine: I'm caffeinated, and good.
Dara: You are, you're caffeinated, you're napped up.
Yasmine: I took a nap, yeah.
Dara: I'm jelly.
Yasmine: How are you guys?
Dara: I'm okay, I'm happy to be here, happy to be here with Gaby, Gaby's got great glasses on.
Gaby: Hey, thank you.
Dara: Yeah, really inspiring me right now to step up my glasses game.
Gaby: You both have great glasses.
Dara: Thank you.
Gaby: I feel like, "What is my glasses?"
Dara: Do you wear glasses?
Yasmine: Do you have vision problems?
Dara: Because cool kids have vision problems.
Gaby: I got laser eyes a long, long time ago.
Dara: You got laser eyes?
Yasmine: What?
Gaby: I got laser eyes like 12 years ago.
Dara: It sounds like you shoot lasers out of your eyes.
Gaby: Well, the next morning, I woke up and I felt like I damn near could, because I was like, "Trees have leaves on them, and I can see every single leaf, it's amazing."
Dara: You felt like an X-Man.
Gaby: Yeah.
Dara: You're like, "I must save the world, I'm an allegory for racism."
Gaby: "I see all the things," but then a few years ago, it starts to degenerate, so I started wearing glasses again, just to protect the 20/20. I missed glasses a little bit, they're cute.
Yasmine: It's a fashion statement, yeah.
Dara: Yeah, exactly, because I don't like clothes shopping, it's not fun for me anymore, but glasses shopping, super fun.
Gaby: Ditto, right? Glasses, shoes will never make you feel like you can't button a thing up or fit into it. Accessories, that's my reason, maybe I'm projecting on you.
Dara: I've got large feet, I've got large feet.
Gaby: Oh.
Dara: You know what they say about girls with large feet.
Gaby: What?
Dara: I don't know, nothing.
Yasmine: Big shoes?
Dara: Yeah, big shoes. They say, "Ugh."
Yasmine: They will envelop you in their warm embrace.
Gaby: You know what they say? They say, "Easier to find shoes on sale."
Dara: Is that true?
Gaby: Yes, because all the normal sizes, not to shoe size shame, those are the first ones to go.
Yasmine: It's true.
Dara: All the "average" sizes.
Gaby: Thank you, yes, all the average sizes.
Yasmine: Yeah, seven and a halves are always out, they're the first to go, it's true.
Dara: Anyways, we don't need to go into my shoe woes.
Yasmine: Okay, I thought we were going to thread that up with how it might make it easier for you to save cash dollars, but you know-
Dara: Do you want to do that?
Yasmine: Of all the things that we talk about on this show that could bring one shame, I'm just really surprised it's shoe size, is the one where she's like, "Hard line, no."
Dara: No, I didn't mean to shut down a conversation. I do worry if I ever have a child, they say that your feet get bigger and then they don't go back, then I truly will have to custom order my shoes at like wherever Shaq gets his shoes. It's going to be a problem.
Gaby: Then maybe you can meet Shaq.
Yasmine: Yeah, that's my first thought.
Dara: Yeah, but then I have to start making Shaq money, those shoes are expensive. Oh my gosh, Shaq holding a tiny water bottle.
Gaby: Have you seen that picture of Shaq's tiny girlfriend giving him a piggy back ride? Because it's really uncomfortable.
Dara: Oh my gosh, no.
Yasmine: For her?
Gaby: Just for the viewer.
Dara: I have not seen that picture, and also, I felt that in my back, like that made my back hurt when you just said that.
Yasmine: Is she a power lifter, or what?
Gaby: She's just-
Dara: You don't have the history of the picture?
Gaby: I don't know, just Google "Shaq piggyback tiny girlfriend".
Yasmine: I might, I might do that right now.
Gaby: Maybe with safe search, I don't know.
Dara: Maybe with the safe search, oh my gosh. Okay, you know what? It's about time for us to move into our topic for the day, what is our topic for today, Yasmine?
Yasmine: It is credit scores, so sexy, so exciting.
Dara: Oh my gosh.
Yasmine: I know, you guys have been, "When are they going to talk about credit scores?" Guys, today is the day.
Dara: But credit scores are so important.
Yasmine: They are, unfortunately. I know way more about credit scores than I ever thought I would need to, and Gaby knows even more.
Gaby: Same same.
Yasmine: I'm going to let her fly this ship today.
Dara: Before we get into Gaby's spaceship, we wanted to dig into the mail bag. It's the mail bag, mail bag, mail bag, yay! Okay, and for the mail bag this week, we put out a poll on our Twitter asking, "Do you know how your credit score is calculated?" 9% of people said, "My what?" We're going to help you out. 55% of people said nope, they have no idea, 18% said "sort of", and only 18% said, "Yes, and let me tell you more." For the most part, people are, it feels like a black box, and I think I feel like that too.
Gaby: It is a black box, you're not wrong.
Yasmine: It's multiple black boxes, actually.
Gaby: Yeah, there's at least three, potentially 100 black boxes.
Dara: Oh my gosh.
Yasmine: Yeah, it's actually more like if there was a star full of skies, and there's infinite number-
Gaby: You mean a-
Yasmine: There's infinite eyes to draw constellations-
Dara: Keep it, keep it.
Yasmine: And black boxes.
Dara: A star full of skies.
Yasmine: Doesn't that sound nice?
Dara: That sounds like the most beautiful star in the world, it's just full of skies.
Yasmine: I can see it, guys. That's like some ... Yeah.
Dara: It sounds like we need to move into the no judgment zone. We are trying out segments this week.
Yasmine: No judgment zone.
Dara: We're trying out new segments, so this is the no judgment zone, and this is Yasmine's song for the no judgment zone.
Yasmine: No, no, no, no judgment.
Dara: Zone. I love it, I love it.
Yasmine: This is what makes great co-hosts, where they pick up what you forgot to put down.
Dara: In the no judgment zone, this is where Yasmine and I as well as our guests will talk about, you know we're all about letting that shame go, things that are relevant to the topic of the week that we could feel some self-judgment for, but we are choosing not to. This week, as we said, we're talking about credit scores, and so my credit score is something that I share with my mother, who we may get to know soon. When it is going well, I'm always like, "I went up 10 points," and it's super nerdy, but it is my way of being like, "I know I'm thousands of miles away, but I'm okay."
Then I stopped doing that because my credit went off a cliff. We have talked before about this time period where I was not working and was trying to find a job, and the decisions that I felt like I needed to make in order to continue to live. I decided to continue to live, and so in order to do that, I had to make some decisions, and a lot of it was around credit card debt. That is how my scores went down, and it is so much easier for your score to go down than to make it go back up. That's where I am now, I'm bouncing back.
Yasmine: You hid it from your mom, did she like-
Dara: I didn't hide it, I just-
Yasmine: You stopped sharing it with her so much.
Dara: Yes.
Yasmine: That sounds about right.
Dara: I share so many other failures in my life with her all the time, that I feel like I should shield her from that one.
Yasmine: Why that one, of all the failures?
Dara: Because, finances are the most shameful things! It's like I don't mean that they are shameful, the things that we feel the most shame about.
Gaby: I think credit scores especially, because it's like being in school and someone telling you like, "Yeah, here's your F, kid, you suck."
Dara: Right, and it is like, "Hey, how you doing on adulthood? Not great."
Yasmine: "How trustworthy are you?"
Gaby: It's just this outside entity that doesn't care about you passing judgment on you, is what it feels like.
Dara: I don't want to dominate this conversation, but quickly, I had another situation where I had a balance on a credit card that I had stopped using, and a balance of something like $15. Then whatever the time period mark off is where it was like, "Oh, it's been late for this many months," then my credit score also took a dive because of that. I called the bank and was like, "But it's just ... I have the money, and why didn't you tell me?" because I didn't get any communication about the bill being late or anything. That was another time where it got a hit, and I had to make different decisions. I was like, "Maybe I can't look for new apartments now, because I'm not going to look like a credit worthy person."
Yasmine: There's so many things now that check your credit.
Dara: And some jobs.
Yasmine: Yeah. In the last episode, I talked about how like if you don't really care about financing something, maybe you don't care about credit. As I heard myself say that, I went, "Oh wait though, there's a whole new world of things that people check your credit for, jobs, apartments," anything I'm missing? [crosstalk 00:10:07]
Gaby: Even like car insurance, actually, there's all sorts of things. There was something that you said that I think that gets thrown a lot around with credit, which is "credit worthy", and I think that also plays into how people feel about credit scores. Sorry I feel like that, but that's kind of ugh, yeah.
Yasmine: Don't apologize for your auditory expressions.
Dara: It feels like, ooook.
Gaby: Yeah, that's how it feels.
Dara: And spooky, like the Addams Family.
Gaby: Exactly.
Dara: I bet the Addams Family would love credit scores.
Yasmine: They're creeps.
Gaby: No, they were very supportive of each other.
Yasmine: That's true.
Gaby: I don't think they would be into the scores.
Dara: They are also masochists, they enjoy things that cause you pain.
Gaby: They would enjoy bad scores.
Dara: Yeah, and just the general anxiety around credit scores, they would love.
Gaby: I told my friends today that sometimes I get too anxious reading books, and I look up the Spark Notes to know what happens, and then I can finish reading them.
Dara: Oh my gosh.
Gaby: Yeah, I just told a lot of people that on this podcast.
Dara: Please, don't leave me here in the no judgment zone by myself.
Yasmine: Okay, I will tell you my story. I was a high school art teacher, and it's very hard to make a living as a teacher, let alone an art teacher, because most schools don't fund full time employment. I was, for a long time, just getting my student loan bills and literally opening them up and laughing, because I'm making $17,000 a year, and they're like, "Where's our $97,000?" I'd be like, "[laughs]," trash, "It's going in the garbage, like this is literally a joke, this is a cruel, cruel joke the world's playing on me," or that I played on myself, because I decided to go to grad school.
I had decided at some point that I had to stop laughing at my student loans, and just find a different career because I had all this debt, and I started working in tech, and eventually started working at Credit Karma. I was in a better place at that point to be probably building my credit score, but because I didn't know anything about it, it just seemed like this ridiculous sham of a joke, overhanging black box weird thing; I just never really addressed it.
When I started working at Credit Karma, I worked on product design, and so sometimes we'd have to look at the app. At that point, we didn't have what's called really good staging, so basically a fake profile I could pull up, so I'd literally have to pull up my actual account. I remember at one point, our chief product officer was like, "You know, one thing about people who work here is they don't really know what it's like to have bad credit." Cut to the next meeting I'm at, I have to pull up my Credit Karma app to talk through some of the product design, and I log in and everyone can see I have a 530 score, which is so in the red, it's pretty low.
I had to do this multiple times, so not only I had to confront my credit score, like everyone at work knew my credit score.
Dara: Oh my God.
Yasmine: All my new coworkers knew my credit score.
Dara: Oh my God.
Yasmine: I just had to be like, "Mm-hmm (affirmative), yep, that's me."
Dara: Oh my God, oh no.
Yasmine: "I guess I can really empathize with our user base." It was really awful, but the upside of that story is, a lot of it was, like I said, my student loans, and at that point, I had just met the man who I am now married to, and he sat one day and drew this chart that suddenly made it very clear to me that basically the way principle and interest are related, it's this curve, and if you're only paying the bare minimum, you're basically never going to be paying the actual principle, you're just paying interest for so long. It just clicked in my head, like I don't know why it never clicked in my head prior to that, that I should be addressing that and my credit score hand-in-hand.
Something just clicked, and I think also because my job was to understand how credit scores work, the bright side to this story is, once I really understood how they worked, I just started going at it. I basically one day got a credit score notification, and usually when you go to check your score, you're like, "Oh, it raised five points, it raised 10 points, awesome," one day I went in, and I actually still have this screenshot, it was like, "Your score raised 118 points." I was like, "What?"
Dara: That's awesome.
Yasmine: Disclaimer, it usually takes a lot longer, but with the right confluence of circumstances, and albeit, I will say, I did have much better income at that point than I did previous years, so I'm not going to lie, it's not like everyone can just push this button and raise your score, but it's not impossible. Even with a low income, you can still see it steadily go up.
Gaby: There's definitely stuff you can do, but I think that one of the things that I definitely want to come to this podcast and talk about is that online, and talking to our users at Credit Karma, a lot of times I see a lot of negativity around credit scores, and people really feel hurt by their credit scores. They feel like it's a very personal thing to them, and I just wanted to tell people, you're not your credit score. There's so many wonderful things about you as an individual, and maybe you're a horrible person too, but like-
Yasmine: Let's always leave room for that, yeah.
Gaby: Not just because of your credit score, if you're a bad person, like that has nothing to do with whether or not you're a good or bad person.
Yasmine: I like to think of credit score as like your weight on a scale. It's one number that can certainly give you some signal about how things are doing, but you would never say to a person like the entirety of your health and who you are is based on this one number. It's just one number.
Gaby: Exactly.
Yasmine: That being said, if you need something where your credit is the key decision maker, then-
Gaby: There's a lot of things besides ... It's just a number. It's a number that can affect you, but it doesn't mean that you're a bad person number.
Yasmine: No judgment, do you have a story about credit that you want to share with us?
Gaby: A lot of people don't realize that you have a lot of different credit scores, including one for auto insurance. I discovered that one day when I turned into a parking pylon. Those things don't move, and I hit it real hard, real hard. Getting car insurance after that was extremely difficult because it was my fault, and I fully acknowledged that, and I said that to the insurance company, which is apparently something you're not supposed to say to them.
This lady on the phone was like, "Yeah, I'm looking at your score here." I'm like, "Excuse me, my what?" She was like, "Yeah, there's an algorithm that predicts how likely you are to get into an accident and how likely you are to pay your premiums," and I was like, "What?" That was the day I learned that my actions have consequences. No, I learned that a long time ago, but I felt it viscerally in my pocketbook.
Dara: Wow. I like that you specified that it was your fault, because the parking pylon can't hit you.
Yasmine: "There was a bird, and it distracted me, and it told me to go, and I went, mm!"
Dara: Oh man, I feel like that is so often how we learn about these things, like, "Whoops, that was a thing I was supposed to know, and now it's having an impact on me."
Yasmine: Yeah. It makes me think of that book, Automating Inequality by Virginia Eubanks, which is about the way in which all of the judgments that used to be done by human beings that were, let's be real, they were discriminatory judgments, they were often race and gender-based, they've been offloaded onto computers, which are supposed to be more objective but are ultimately coded by human beings. Human beings were basically creating ways to just offload all these calculations that really create a judgment, but it is really just this extension of human beings judging each other, just done much faster and at scale. Hey guys, it's time.
Dara: It's time.
Gaby: It's time for what?
Yasmine: Let's talk about facts, baby, let's talk about you and me, let's talk about all the good things and the bad things that facts see.
Dara: The facts can see?
Yasmine: The facts can see, the facts can see.
Dara: I was not expecting that the facts could see, that really tickled me, my goodness. This is, let's talk about facts, parentheses, baby, section of the podcast, where we do what, Yasmine?
Yasmine: We talk about facts. We have our expert Gaby here today, so I wanted to hear Gaby.
Gaby: Hello again.
Yasmine: Tell us a little bit about credit scores. We talked about how scary they are and how worthless they can make us feel, but why are they important?
Gaby: Yeah, sure. Credit scores are basically financial companies' way of doing a risk assessment on an individual, and trying to decide whether or not the odds are that that person will pay the company back for whatever service is rendered. Whether that's a mortgage or a credit card, they just want to know whether or not they're going to get their money back, because they don't know you. It's not like your mom, that you go and you're like, "Hey mom, can I get $20?" She's like, "Oh, I know I'm never going to see this $20 again, but I love you." The company's not like that.
Dara: The companies don't love you, is what you're saying.
Gaby: They don't love you, and they don't want to give you $20, so they use credit scores as a proxy as a way to know you, and that means that the credit scores are used for two really important things. They can help decide whether or not you're going to get a financial product period, whether that's a mortgage or a car loan, credit cards, personal loan, so many financial products. Once you have that, companies don't give you money out of the goodness of their hearts. I think everyone is familiar with this fact, so they want to get paid back in some way for giving you the money, and that's where interest rates come in.
That's the price that they charge you for giving you the money upfront, and the better your credit score is, the lower your interest rates, so the easier it is to pay off whatever amount of money was lent to you. That's why scores are really important.
Dara: Got it.
Yasmine: That makes sense.
Dara: Yeah, that does make sense. Then who are these people, who's coming up with these scores and how are they doing it?
Gaby: That's actually really funny, because there are hundreds of companies that make credit scores, but there are-
Dara: Hundreds?
Gaby: There are hundreds. One time I had to read a pamphlet.
Yasmine: Stars in the sky is what I'm saying.
Dara: Skies in the stars. I think I only know two, three.
Gaby: There's three, so there are the big three, which makes them sound way cooler than they actually are.
Yasmine: The three that calculate scores, but there's many different kinds of scores they can calculate.
Gaby: There's even some other companies that calculate scores as well, but the ones that we worry about as consumers on the daily, maybe not on the daily, but "on the regs", as the young people, I think, maybe once said in a universe somewhere.
Dara: "How do you do, fellow kids, fellow teens?" I don't even know the meme, oh god.
Gaby: Thanks Steve Buscemi, okay, moving on.
Dara: So old.
Gaby: The big three, they are Equifax, Experian, and Trans-Union. You might be familiar with some of these because of data breaches.
Yasmine: Very soothing.
Gaby: Then on top of that, so you've got these three big credit bureaus or credit reporting agencies, that's the other way that you might see them presented, and then you have two main types of credit scores. One is FICO score, which I think most people have heard of, that's from the Fair Isaac Corporation, they've been around for forever, and then there's Vantage score, which is kind of like the new kid on the block, and probably not that exciting to people who don't talk about this all the time.
Anyway, just be aware that both scores might appear in your life. Most people check FICO scores, Vantage score is becoming more popular because it's cheaper for people to do, it's a whole long thing. The long and the short of it is that these are just code names for two different algorithms for figuring out what your credit score is. You might be sitting there going like, "Well hey, Gaby, how do these people even figure it out? How do they get this information?" because that's ultimately what these people are pedaling, is information about you.
The answer is, anytime that you take out a financial product, chances are that the person who is giving it to you is also telling the credit reporting agencies how you're doing with that product. They tell the credit reporting agencies how much they've given you, whether or not you're paying on time, how much you have left to pay, all sorts of different things like that. Then once a month, they tell the credit bureaus, and that's why if you track your credit scores religiously, you might see your credit scores go up and then go back down again, it's because they're receiving new information at least once a month from all of these different, this constellation, if you will, of lenders.
Yasmine: I have an American Express card, once every 30 days, American Express is sending one of these three bureaus all of my information?
Gaby: Yeah, or maybe all three.
Yasmine: No rules, it could be anything.
Gaby: It could be anything.
Yasmine: Wild west out there actually.
Gaby: Actually, it probably is all three, now that I'm thinking about it. We can get into why that could be good and could be bad, if you want.
Yasmine: Sure.
Gaby: Right now.
Yasmine: Tell us.
Gaby: Okay. When you are building credit, one of the things that it's really good to know is whether or not your credit card is reporting to all three agencies, because if they are, then that means that your credit will build kind of the same across all three at the same time, which is great because that way you know if a creditor looks at Equifax or Trans-Union, it doesn't matter, but if they're only sending the information to Experian, then you're kind of screwed if they check Equifax and they're like, "Wow, your score's real low." I don't know why your lenders sound like that.
Dara: Yeah, but they should stop it.
Gaby: That's something that you should check into if you're trying to build your credit, like, "Does this credit card report to all three bureaus?" If it's not something that you're worried about, maybe your credit's great, then awesome, I don't even know what we're talking about here.
Yasmine: What are some myths about credit scores?
Gaby: The biggie, the one that I hear all the time, is that carrying a balance on your credit card is good for your credit score. False, it's not true, I don't care what your Aunt Sue told you, it's not true.
Dara: Oh no, Aunt Sue getting flamed on Money Ha Ha.
Gaby: Mm-hmm (affirmative), you watch out Aunt Sue, I'm coming for you. This is for a few different reasons. I don't know if you guys care if I jump around.
Yasmine: Please.
Gaby: All right, so-
Yasmine: Make it fun.
Gaby: The things that make up your credit score, there's five main factors. One is payment history, which is, do you pay on time every time, not like that cologne, works ... Okay, never mind.
Dara: Anchorman?
Gaby: Yeah.
Dara: I got it, I got it, something for some of the time, it works every time.
Gaby: Exactly. No, you've got to pay on time every single time, and are you paying at least the minimum amount every time, ideally more? Well, not from the credit card company's perspective, from the credit card company's perspective, it's great if you don't pay everything. They want you to pay the minimum amount, but they want you to carry a balance. The credit card companies, the evil financial overlords, the Sith of this universe-
Yasmine: Why would they not want you to pay it all off, Gaby?
Gaby: It's because, thank you, Yasmine, for bringing me back, it's because they make money from the interest rate. The longer you put off paying your card in full, the more money they're going to make from you on the interest.
Dara: Doing that doesn't have any benefit to you, other than if you just truly cannot afford to pay anything more than the minimum.
Gaby: That's exactly right. Actually, most credit cards have this thing called a grace period, which is if you pay before the grace period is up, you don't have to pay any interest at all, so if you pay your balance off in full. That is specified in your credit card terms and conditions, which no one likes to read, but you can just CTRL+F on them, because that's a thing you can do on the internet these days. You don't have to strain your little eyes reading the little print.
Yasmine: I'm not sure, I have big eyes, like huge.
Gaby: You don't have to strain your giant eyes reading the tiny print, so that's payment history. Another thing is the credit utilization ratio, or the credit use ration, and this is the idea that if you have, say, five cards with a total of $10,000 available to you via those five cards, you don't want to have more than 30% of your available credit used.
Yasmine: $3,000 is the most I should be using, even though my limit is $10,000.
Gaby: Yes.
Yasmine: Why is that?
Gaby: Because the algorithm says so.
Yasmine: And it will punish you.
Gaby: Yeah, because the idea is that if you've spent more than 30% of whatever your credit limit is, you're going to have a hard time paying it off. The credit score companies start dinging you for it, because they're like, "Meh, this person's probably not going to be able to pay off their debt, so we're not going to give them any more."
Dara: You talked about carrying a balance on your credit card, just to go back, what's the definition of that?
Gaby: Say you owe those $15, and instead of paying your bill at the end of the month and paying it off, you let those $15 go to the next month. Realistically for a lot of people, this is generally a little bit more than $15, so it's like you owe $500 and you're only able to pay $200, so you let that $300 roll over to the next month. Some people think this is good for your credit score; it's not, and let me tell you why. It's the credit utilization ratio, like it increases the chances that you're going to go above that 30%, plus you're paying more money in interest, and potentially it makes it harder for you to make the next payment, because it's just going to be even more, so it could end up affecting your payment history.
Yasmine: But Gaby, I heard that if I wanted to build my credit, I should use a credit card and make payments, as a way to show that I know how to make payments.
Gaby: Yes, this is the Catch-22. It's impossible to get credit unless you have credit, which is some bullshit if I've ever heard it. That's why there's actually a lot of credit score companies these days, these youngins in this tech world who are trying to come up with other ways to assess whether or not people are "credit worthy", besides just, "Do they already have financial products available to them, and are they using them ..." I hate this word, "Responsibly?" Not because I hate responsible people, but I just feel like there's a lot of judgment wrapped up in the word "responsibly".
Yes, you do need products, credit products. Credit cards are probably the easiest for most people to get, but there's other ways to prove your credit worthiness, stuff like student loans, which are generally easier to get because people like to put young people in debt, auto loans, anything where you can get a cosigner, something like that, those are other options for you in terms of building credit. Credit cards are probably the easiest and fastest avenue for most people.
There's a bunch of different types of credit cards too, like there's this thing called secured cards, which I don't think a lot of people realize exist. This kind of sucks a little bit, but it can help you build credit, it's secured because you have to give them collateral. Most of the time you use a credit card, it's called an unsecured card, you just swipe it and the credit card company trusts you to pay it. A secured card, you give the credit card company, say, $500, and that $500 is your credit limit. You still have to pay it off every month.
Yasmine: It kind of functions a little bit like a prepaid card.
Gaby: Not exactly, because a prepaid card, you're reloading the money. The credit card company holds onto that $500 for you, and you continue to pay on top of that. If you've spent $200 that month, you pay them $200. If you ever close the card, they'll give you your $500 back. If you close the card without paying, they keep that money.
Yasmine: Okay, so it's like pay to play.
Gaby: Exactly, it's collateral, it's collateral.
Dara: Interesting.
Yasmine: But it's a good way for, if no one's approving you, to get approved.
Gaby: Because in the credit card company's opinion, you're a completely safe bet at that point. They have your money, so even if you default, it doesn't matter because they got it.
Yasmine: Can I just say, in all your descriptions of credit card companies right now, I'm getting the image of the worst Tinder date ever? Where it's like, this is somebody who basically wants to know that you're with somebody else before they have any interest in you whatsoever.
Gaby: That's so true.
Yasmine: Also, they want to know that you're available, but don't be too needy, like, "We're going to offer you $10,000, but don't use all $10,000, because that's too needy." They're just playing games, and they want you to not seem desperate, and it's like-
Gaby: Talking about that-
Yasmine: Do you want me or not?
Gaby: Talking about not seeming too needy, there are these things called credit inquiries, and when you ask for credit, there is a ding on your credit report. It says, "Hey, this person's asking for credit."
Yasmine: "She needy as fuck." Sorry.
Gaby: No, that's exactly what they're saying.
Yasmine: "She's needy as eff."
Gaby: What they're saying is like, "It's fine if you've just texted the guy once ..."
Dara: Okay, we're really diving in here.
Gaby: But if you apply for four credit cards in a row-
Yasmine: If you pick up the phone and call him.
Gaby: AKA, you text this guy four times in a row and he has not responded to any one of your texts, or ladies, let's be inclusive-
Dara: Or anyone.
Gaby: Or anyone, you know what? Anyone, then that's when the credit card companies or the lenders or whatever start getting nervous, because they're like, "For whatever reason, this person thinks that they need a lot of money right now, which means like maybe they're not going to be able to pay their next bill."
Yasmine: Worst Tinder date ever.
Gaby: Circling back.
Dara: That's one of the things that actually affects your credit score, is requesting the credit inquiry. What are some of the other things that affect your credit score?
Gaby: There's the average age of history, so like how long have you had accounts. I was really lucky, in that my parents opened a credit card in my name when I was 16 and put a car in my name when I was 16, and they actually paid all of that stuff off, so I have a really long credit history, much longer than I've actually been using credit, which makes me look like a better risk than I potentially actually am, thanks parents.
Then another thing that they look at is credit mix, and this is the types of credit that you have available to you. Maybe you have credit cards and a student loan and an auto loan, and they just like to see a mix, that you know how to handle all these different types of products.
Yasmine: And not just having 10 credit cards, but having different kinds of credit.
Gaby: Exactly. All of these weigh a different amount, we don't know exactly how much they weigh because that would be telling secrets, I guess.
Dara: Why should you not be able to know?
Gaby: I don't know.
Dara: If you want people to do the things that you want them to do, then tell them what the things are.
Yasmine: Worst Tinder date ever.
Gaby: Actually, I do know why, because if they were to tell everyone how to calculate their credit scores themselves, then they wouldn't make any money from selling people credit scores.
Yasmine: Yeah, because the score, so you were saying FICO and Vantage, it's just a calculation, a really expensive calculation.
Dara: All right, so those are all the factors. This is a great segue into our next segment, our not G-Unit, action item.
Yasmine: Action item.
Dara: Always with the "huh". This week, our action item is going to come from Gaby.
Gaby: I think the single most important thing that you can do is check your credit scores and reports regularly. I know I hadn't talked about reports before, but credit reports come along with credit scores, and they have all sorts of fun information on there like utility bills, and whether or not you paid your cable bill. Then the reason you want to check your credit reports is they can hurt your credit scores, and if you look at your credit report and you're like, "I definitely don't have a cable bill in Tulsa, Oklahoma," you can call or mail the credit reporting bureaus and tell them, "Hey, that's not my account," and that might help your credit scores. Also, now that you know all of these factors, you can look at your score, accept whatever it is now, and use the factors to work on them.
Dara: Our action item is, check your credit, how often are we to check it, and where can we do this, and do we have to pay to do it?
Gaby: Yes.
Yasmine: And does it have our credit score to check it?
Gaby: Oh my God, so many good questions all at once, I'm so excited. Okay, so places that you can check your credit scores, a lot of times, banks offer credit scores now, because I swear I'm not trying to sound like a corporate shill here, but Credit Karma started off running free credit scores-
Yasmine: It's true, yeah.
Gaby: Like 10 issues ago, and banks were like, "Uh-uh," and they also got into the game. Check with your bank, they might offer you a free credit score through whatever credit card that you have. You can also use Credit Karma, I actually believe in our service, and you can also check your credit reports on Credit Karma. If you don't want to use Credit Karma and you don't want to go to your bank for whatever reason, there's also annualcreditreport.com. That sounds like a scam, but it's not, it's sponsored by the federal government, and it requires all of the big three credit bureaus, Equifax, Trans-Union, Experian, to give you at least one free credit report every year.
Yasmine: If you wanted to check your Experian score, that's probably a good place to go.
Gaby: Yes.
Yasmine: Because Credit Karma will show you your Equifax and Trans-Union score.
Gaby: Yes. Wow, you're doing my job for me, it's great. One thing to keep in mind with annualcreditreport.com though, is it is only the credit reports, it does not include credit scores. If you want to see credit scores, you'll have to look elsewhere. You can also pay the bureaus like $30-ish.
Yasmine: Why do that when you can do it for free?
Gaby: Exactly, why do it when you can do it for free? I will say that, depending on who you get your credit scores from, you might have Vantage score, you might have FICO score, and you never know exactly what your lenders are going to see. That brings me to my second thing you should be checking periodically, but if you are coming up on a really big purchase like a house or a car, it might be good to check your credit score ahead of time, to see if it needs any work.
Dara: Checking the score does not have an impact on the score itself.
Gaby: If you check your score, it does not. Okay, that's called a soft credit inquiry, and that will not hurt your scores. Also, if you are shopping for a mortgage and a bunch of lenders pull your credit score all at once, like in a two-week period, that won't hurt your credit score, because that shows that you're being responsible and shopping for the best interest rate. I know people get nervous, they're like, "Oh, I can only do this thing one time, and then my score will drop." No, it'll count as one inquiry.
Yasmine: The CFPB recognized that it is kind of a scam to say like, "Every time you check your credit, it dings your score," because what it does is it stops you from wanting to check for loan rates from multiple people, and it stops you from being able to shop around for a good loan rate. To what Gaby was just saying, what they did was give you this grace period to say, "You can shop within a specific window," so even though, yes, you don't want to apply for a bunch of credit cards, when it comes to specific loans like a mortgage or a personal loan or a business loan, you do have this two-week grace period where you're allowed to check with a bunch of people so that you can pick the best rate.
Gaby: Yeah.
Dara: All right, we've got our action items, now we are ready to move to, it was worth it. Is this my song? Are we worth it?
Yasmine: Was it worth it? It was worth it.
Dara: It was worth it. Okay, I'm going to go first because I'm ready. My it was worth it this week is this tee shirt that I'm wearing, it is a picture of Bob from Bob's Burgers in sunglasses, like the dude from Breaking Bad, and underneath it says "Heisenburger," what? I love those shows.
Yasmine: That's a great show.
Gaby: Did you see that there will be a Bob's Burger movie?
Dara: Of course I saw that there will be a Bob's Burgers movie, and I am very excited about it.
Gaby: I'm so excited for you.
Dara: Yasmine.
Yasmine: My it was worth it was, I decided to take myself out to dinner the other night. My husband was out of town, I was alone, and I was like, "You know what? I'm going to treat myself to a nice dinner out." It was lovely, I had silence, I watched a TV show on my phone. Usually I think of going out to eat as a thing you do, you spend a little more because you're having a social time, and I was like, "You know what? I want that experience anyways." It was worth it, it was lovely.
Dara: Nice.
Yasmine: It was nice me time.
Dara: What about you, Gaby?
Gaby: I do get to do it too, okay.
Dara: Yes.
Gaby: I'm really excited, I prepared one. It is, my handyman, I really like him a lot, he's called Reasonably Honest Mike, and he is, I would say more than reasonably honest, I would say pretty honest.
Dara: Sorry, can you clarify, is this a real person?
Gaby: This is a real person, you can Google him, Reasonably Honest Mike, and he's doing like a crouch with a hammer. I don't know, he's really great, but the thing is, I lived in this really old apartment because I live in San Francisco, and I have these scary plaster walls that crumble when you hang anything. I just gathered, I amassed 15 paintings that I wanted to hang but I was too scared to do myself, and I paid him to come and hang things for me. It was so worth it, because my walls are intact and I have beautiful art, and I got to talk to Reasonably Honest Mike for like an hour.
Dara: Well, that's a triple play.
Yasmine: Reasonably honest, awesome.
Dara: That's great, that's great.
Yasmine: Thank you so much, Gaby, for being with us here today.
Gaby: Thanks for inviting me, I had so much fun. Please invite me back.
Yasmine: We would like to.
Gaby: Can I invite myself back, is that rude?
Yasmine: I think you just did, and we're okay with it.
Dara: I think you did.
Yasmine: Yeah, it just happened.
Dara: Is there anything you want to plug before we close out?
Gaby: No.
Dara: Great.
Gaby: No, I'm not plugging anyone besides Mike, I already plugged him.
Dara: If people want to follow you on the social medias, are you on there?
Gaby: Oh no, but my dog is.
Dara: Okay.
Gaby: Yeah, it's Rosie the little red dog, she's on Instagram, she's a chihuahua/dachshund mix and she's the light of my life.
Dara: Oh my gosh, yay.
Yasmine: We need to put Rosie and Milo on a play date.
Dara: That's right.
Yasmine: At least a photo play date.
Dara: All right, that's our show. You can catch us back here every single Tuesday.
Yasmine: Next week on Money Ha Ha, what we wish we knew when we were younger. Dara's mommy is going to join us.
Dara: Mommy.
Yasmine: She's going to talk about how hard it is to make smart money decisions when you're young, and what we wish we could tell our younger selves about money.
Dara: That's right. Send us your stories about needs versus wants, we're going to be talking about that in a few weeks, and we want to hear from you. We'd love to hear your story in your own voice, the easiest way to do that is by recording a voice memo and emailing it to hi@moneyhahapod.com, that's hi@moneyhahapod.com.
Yasmine: Or you can call and leave a voice message at 404-MONEYHA.
Dara: You can also tweet us @moneyhahapod.
Yasmine: Or email us at that address again, which is hi@moneyhahapod.com.
Dara: Please review and rate us if you like the podcast, show that support. Leave us a great review wherever you're listening to this podcast right now, and also be sure to subscribe.
Yasmine: Follow us @Moneyhahapod on Twitter and Instagram. Dara is @DaraMWilson on Twitter, and I am @YasmineK on Instagram. Money Ha Ha is a production of the Even app, learn more at even.com.
Dara: It's hosted by me, Dara M Wilson.
Yasmine: And me, Yasmine Khan.
Dara: Our executive producer is Jane Leibrock.
Yasmine: Our producer is Phil Sirkus.
Dara: Our designer is Allison Chan.
Yasmine: Our social media manager is Nicole Maltrotti.
Dara: Our copywriter is Kelly Anneken. Until next week, have a nice life. Lordy.