20+ Things Everything “Twenty Somethin’” Should Know About Credit | Chris Bridges of "Credit With Chris"
Finances are a hot topic right now, especially in the early ages of your adulthood. After school, we get jobs and everything; but, something it can feel like what we’re making either isn’t enough or we just have too many things we want to do (and can’t afford it). But, is the issue our salaries or our will power? On top of that, it seems like everything we desire is controlled based on three number numbers that organizations believe will tell us everything they need to know about us (i.e. a credit score).
These three numbers can control whether or not you get a car, a house, and in some cases even a job. That’s why as women we need to discuss credit – specifically maintaining good credit – as much as possible. Yes girl, I know you want to look fly in your new shoes, but no one looks cute not being able to pay their bills.
Christiana “Chris” Bridges is an award winning speaker, author and coach dedicated to raising awareness of credit and its impact on our lives. Chris is a Certified Consumer and Business Credit Expert and is recognized to have a strong understanding of positioning credit to gain financial freedom. As a correspondent on FOX5 and as published in Forbes, Chris educates and empowers her clients to live a better life with good credit.
She believes, if we know better, we can do better. Since 2006, Chris has been passionately changing lives through her books, broadcasts, coaching, and workshops. Her mission is to impact generations and setting people free from the bondage of credit and debt.
I picked her brain about credit and asked her several questions to see if she had a chance to handle her finances differently at the age of “twenty something” what would she do differently? Would she do anything different at all? With these questions in mind, Chris laid out twenty plus things every “twenty plus” woman needs to know about credit.
Derika C: What are some of the financial mistakes you’ve made in the past, and how did you overcome them?
Chris B: Wow, where do I begin? I guess overall I wouldn't be as hard on myself as I did start off on the right foot. My father was and is a very frugal and pessimistic man, so he taught me to be mindful of my money and to put away for a rainy day. I got married the year after I graduated and we purchased our first home when I was 21. I know that's a little young for most people, but for me I was already a wife and a mother, so my mind was on settling down and preparing for my future.
Fast forward several years and another husband (that's a different story for another article) we collectively saved over $350,000 and went through about $300,000 of that running a business and maintaining our lifestyle, I have learned the importance of understanding how to leverage my money and use someone else's. As a business owner, there were options for us that would have protected our money, but we didn't prepare ourselves for entrepreneurship and didn't know about business loans and other financial options available to us at that time.
I could touch on a few others like when I paid full sticker price for my first car or when I overpaid for other purchases, but nothing compares to losing $300,000! Now you see why I say to my clients, "When you know better, you can do better!” I simply didn't know, but now I do.
What is the range of credit scores, and what exactly do they mean?
Depending on which bureau and scoring model you look at, the credit scores range between 350 and 850.
I heard we actually have three credit scores. What’s the purpose of three and what does each one reflect?
Yes. There are three credit bureaus, Equifax, Experian and Transunion and each bureau uses a different scoring model to produce a three digit credit score. The scores are calculated based on the information that has been reported by the creditors at the time the report has been generated. Our credit scores are used to determine the level of financial risk when we borrow other people's money. Our creditors have reporting agreements with the bureaus to report history about our accounts. Some creditors report to all three bureaus and some don't. Since there is no requirement for reporting, it is common to evaluate our risk based on information from all three bureaus.
What’s the difference between a credit report and a credit score?
A credit report is a document (hard copy or electronic) that compiles information reported to the credit bureaus about our account history. A credit score is a three (3) digit number that is generated when the account history is reported and calculated by the score model.
True or False: Having good credit isn’t just about getting credit cards and loans.
This is a great question. Good credit not allows you to save significant money in interest and fees, but also live a life of convenience. Think about it, without good credit and access to credit it's difficult to rent cars, book hotels or even get utilities in your own name.
How does one get a free credit report from each bureau?
You can get a free credit report from all three bureaus at www.annualcreditreport.com. Keep in mind that if you want to see your score there's a minimal fee and you can get a free report once every 12 months. If you want to continue to monitor your credit profile and be proactive with possible identity theft violations, I strongly recommend that you review your full report from each bureau more often than once every 12 months. A great resource to view all three reports with scores is at www.getmy850.com and the first report is only $1!
If we have already jacked up our credit, is there any way to recover? If so, how?
Restoring your credit is not only possible to do one, but as often as necessary if you've experienced unavoidable financial hardships. Remember, your credit score is calculated based on current information being reported and can change as often as that reported information has changed.
The first step to restoring your credit is to recognize that you need and want a better score. Self-reflection and commitment is critical to starting down your journey to good credit.
The second step is to thoroughly review your full report to see what is negatively affecting the score. If it's a recent negative account like a collection then it is probably a good idea to work with the creditor to pay in full or work on a settlement/payment arrangement. Remember, it's your debt and it's not going to just go away!
Another step you can take is once your accounts have been paid, you can entitled by law to dispute the reporting of the negative accounts based on whether the reporting is inaccurate, incomplete or unverifiable. The last one is why 90% if not more accounts are removed!
What are the factors that affect your credit score?
Our credit score is generally based on five (5) factors and they impact our score the following ways:
Payment History: 35% and includes late payments, collections, charge-offs, judgments, liens and bankruptcy (all negative accounts)
Balance Due or Utilization of Credit: 30% and is based on the ratio between the credit limit and the current monthly balance reported. Good rule is to keep the ratio below 30%
Length of History: 15% and is based on how long you have had credit established
New Credit: 10% and is based on inquiries, specifically hard inquiries when you apply for credit
Type of Credit: 10% and is based on the diversity of accounts, such as mortgages, installment (student loans, cars, personal loans, etc.) and credit cards
Are there any tricks to raising your credit score?
Tricks? Here's a few simple suggestions based on the information above.
Keep credit cards balances to zero or as close as possible.
Make sure to have at least one credit card opened to activity the 10% type of credit.
If you don't have a credit card or can't get an unsecured card right now, find someone who is willing to add you to their existing POSITIVE credit card as an Authorized User.
DON'T pay accounts late!!!
True or False: You need to have debt to have a credit score?
You don't need to have a lot of debt to trigger a score, but you do need to have at least one active account reported within a six (6) month time frame.
What makes your credit score drop?
There are a few things, but the most damaging are late payments. Keep in mind these may be reported immediately or show up as a collection from an alternative credit account that doesn't typically report like medical bills, wireless or utility bills. Also, applying for a lot of credit can drop your score with the hard inquiries.
What is the WORST way to pay off credit card debt? What is the best?
The worst way to pay off credit card debt is over a LONG period of time by paying just the minimum payments. The best way is to pay more than the minimum and even adjusting the payment date closer to the beginning of the billing cycle versus the end at the due date.
What happens if you can only pay less than the minimum payment on a card? Does it still count as a payment?
That may depend on the creditor's terms and conditions, but typically they will be glad to accept the payment and charge you late fees and possible report it as a late payment to the bureaus.
How do you build a credit history?
Building credit history is easy - open an account in your name or ask someone to let you borrow theirs as an authorized user.
Retail cards…are they a “friend” or “foe?
Retail cards still help simple because they are credit cards, but it's best to have credit cards from banks or credit unions. Either way to keep them friendly, manage your balances and payments wisely.
What happens if you max out (or are close to maxing out) a card?
If you max out a credit card, just pay it down and eventually off, but DO NOT CLOSE them. Closing credit cards can have an adverse effect on your score by impacting the history and type of open accounts.
Can you negotiate with your credit card issuer?
Absolutely you can negotiate. Just keep in mind that the art of negotiation is to start low so you can end up higher or where you ultimately want to be.
What is good debt vs. bad debt?
Good debt can be any debt that is well managed (paid on time and low balances). Bad debt is the opposite (paid late and high balances).
Why would an employer pull your credit report?
More and more employers want to get a better idea who is working for them and who may become a risk at some point. Unfortunately, using our credit profile as an evaluation factor can be misleading and in some cases down right unfair. But unless we're the lender and not the borrower, and the boss and not the employee, we have to play the game. Just make sure you know the rules to win!
What’s the difference between a prepaid and secured credit card? Will either one fix your credit
Both type of cards can be used to purchase items. However, prepaid cards do not report to the credit bureaus, so they have no impact to your score. Secured cards are credit cards that you deposit money into an account and then are given a credit limit with access to that money. Secured cards DO report to the credit bureaus and are treated just like unsecured cards.
What would you tell your 20-year-old self about credit?
Chris, protect your credit like would your life! But, like life if you have a setup and fall off, get back up and take care of your business!
Chris' bio and more information can be found on the following pages and to join the Conversations about Credit Movement visit http://www.conversationsaboutcredit.com. Take your time and get to know her and you will see her heart to serve.