1 Comment / By The Social Chameleon Show / September 20, 2018 Understanding Credit Credit can be confusing, slow going and hard to get right. Having good credit can save you tens of thousands of dollars over your lifetime and give you access to opportunities for a better financial future. We want to help you with this and shed some light out how this machine works. On this episode, we talk about understanding credit, types of credit and using credit to your advantage. Remember, With Great Credit Comes Great Responsibility! Resources & Links From The Episode COVID-19 Update How you can protect your credit score during the coronavirus pandemic. via Bankrate.com Bankrate.com was kind enough to send us over this great resource to help you manage your credit (credit stress) during these uncurrent times. The article has great information about the latest updates and special provisions while we navigate through Covid-19. Free weekly credit reports On April 20, 2020, the three major credit bureaus (Equifax, Experian, and TransUnion) made a joint decision to offer Americans free weekly credit reports for the next year to help those facing financial hardship due to the effects of the pandemic. Credit score risks Two of the most influential factors that make up your FICO Score are payment history (35 percent) and amounts owed (30 percent). Issuers help with financial hardship Reaching out to your credit card issuer should be your first response if you’re having difficulty making payments due to coronavirus. Continue reading Credit Reports/Monitoring Credit Karma - Free Credit Scores As a member, you can see your accounts, your last reported balances and what's affecting your credit scores. creditkarma.com Annual Credit Report AnnualCreditReport.com is the official site to get your free annual credit reports. This right is guaranteed by Federal law. You can verify this is the official site by visiting the CFPB's website. annualcreditreport.com Credit Agencies experian.com equifax.com transunion.com Check with your credit card company and see if they have free reports, scores, and monitoring as part of having an account with them. Some companies like Discover and Capital One offer this service to cardholders. Shopping For Credit NerdWallet NerdWallet's helpful tools, expert info, and tailored insights make it easy. Quickly compare tons of options to find your best, Credit Cards, Savings Account, Online Broker, Mortgage, Personal Loan. nerdwallet.com Types Of Credit To have a high credit score you will need all 3 types of credit Type 1 = Mortgage(s) Given a loan, with real estate as collateral, interest is amortized over a long period of time, usually over 30 years. Type 2 = Revolving lines Credit cards Unsecured lines of credit Secured lines by a deposit account Type 3 = Installment loans Car loan Student loans Length of time your accounts are open Longer the better SHOULD I PAY OFF my car or my house Percentage of the balances on your loans Keep below 33% or ⅓ Pay down your balances OR…. increase your credit limits Other factors to consider Inquiries or applying for credit cards and loans lower your score temporarily “Shopping” is allowed Try NerdWallet to shop If you are trying to increase your credit score, make sure you have all three types of loans, make sure they have been open for a really long time (in good standing), and make sure that the available credit to you is ⅔ unused or greater. (33% used) Episode Transcript Expand Tyson: 00:00:00 Opening Music Tyson: 00:00:05 welcome to the social chameleon show where it's our goal to help you learn, grow and transform person you want to become. Today we're talking about understanding credit types of credit and using credit to your advantage. Listen, I know I'm. It's, it's a tough road. It's complicating and it's confusing and today, you know, Ransom was going to walk us through credit from his perspective as a real estate professional. He's got many years of experience helping people get mortgages and these types of things. Before we get going, here's a little disclaimer Ransom is a real estate professional and speaks as someone who has a general knowledge of subject. I am in no capacity. I'm able to able to give any real intellectual addition to this. I'm, I'm here to learn just like you guys to help facilitate this. I'm, I'm, I'm, I'm excited to learn more. Um, and I hope you guys are going to be excited too and as always, don't do dumb shit. Okay. This is a guide. There's tools here to help you build and establish credit and don't, don't use this stuff recklessly. It's very easy to have this house of cards comes tumbling down on you and, and get buried in this and have to start all over again and that's when it gets hard. And we're going to start this off with a rules of how credit works. Uh, the first thing where you get into is types of credit. Ransom can you walk us through types of credit? Ransom: 00:01:26 Oh yeah. And then I just kinda want to add onto a little bit to the disclaimer in. No, just like anything else in life. I mean, things can be used as tools to help you or they can be used as weapons of destruction. And uh, it again, so you know, if you're here watching this to kind of learn the tricks and trades to improve your credit so you can go out and use it irresponsibly or whatever. Like, uh, I, I would, I would encourage you not to do that. This is more along the lines of base of just trying to either establish credit or if you have credit, how to build it and get it higher. Uh, you know, so that you can use it responsibly. So just kind of wanted to double take on that and just add a little bit to that. But anyway, um, I guess this is kind of complicated as far as things go. Ransom: 00:02:14 I myself am a real estate professional so I've helped people, you know, either improve their credit score or sometimes for a lot of first time home buyers, they don't have any credit, you know, I mean I remember being back in the day, you know, fresh out of high school, I didn't have no credit either, so just Kinda Kinda want to touch basis on this subject. But anyway, um, as far as how credit works and how your scored or, or, or for all of that, there's basically three main criteria. And the first one as Tyson was alluding to is the different types of credit that you have. Okay. So the more types of credit that you have, you know, the higher your score will be. And the second criteria is the length of time that those accounts are open and in good standing. Yeah. So obviously the more types of credit you have, the longer those accounts are open and in good standing and then the third is kind of, I guess your balances and how they work, but that's more headed towards revolving lines of credit. Ransom: 00:03:22 So for your credit cards and revolving lines that you have out there, you don't want your balances on those to be too high, you kind of want them to just be like under a third of your, your balance. So let's just say for example, if your, your line of credit is only $3,000, you shouldn't have more than a thousand dollars outstanding on that car. Anything over that balance will kind of like knock that down. So you know. So those are the general rules. I know it's, I'm making it sound a lot more simpler so we'll just kinda get into depth here. I'm just want to makes sure Tyson, am I losing you there? You do. It might be with any questions or anything that I need clarified, which I would like to think probably would also help clarify for most people that are listening. Yeah, yeah, for sure. Ransom: 00:04:16 I just Kinda want to make sure we're good on that. So I guess touching back on the first subject, which would be types of credit. So there's three major categories that credit types fall under. The first one is obviously going to be a mortgage and I start with that one. Um, in essence most people know what a mortgage is. A little interesting thing about mortgages is actually the word derives from engaged until death, right? More being death and engage, engage because back windows were created like, you know, 30 years was a long time. Not everybody lives for 30 years, you know what I mean, especially if you've got a mortgage later on in life. So that's kind of where it came from. But you know, if I could nail it down into a more solid definition is basically alone that's given to you with in which real estate is held for collateral and the interest is amortized over a long period of time, usually about 30 years or more. Ransom: 00:05:13 And that's a, the one to get too complicated with the definition, but that's about as complicated as I want to take. I want to say I've heard of mortgages even longer than 30 years now. Is that true? I'm in the Americas or in our society. A 40 year mortgages are becoming popular in Japan. They are actually catching onto 99 year mortgages so. Well, I mean just I can see where things go here in Hawaii. We tend to pass our houses onto our next of kin or whatever, so I believe that's what they're doing in Japan. That was my first thought, like a generational mortgage, 99 year mortgage. From there you pass it on, so on and so forth. So yeah, so just kind of depends on where you're at, but right now 30 years is kind of common in a lot of people know that, but yes they are increasing. Ransom: 00:06:08 Forty years is more and more common and if for those of you that are trying to either refinance your home or something like that, they do have shorter terms. They do have 15 year mortgages as well for that can go either way, but in general, you know what I mean? It's just a debt that's held over a longer period of time with real estate held as collateral and then from there, your second type of credit that liked to talk about today is going to be like a revolving credit lines. Most people can kind of relate to those as like a credit card. Um, and it's, it's basically you are given a certain amount, like we talked about earlier, $3,000. You don't have to use all of it at one time. You can use as much of it as you want and have the amount that you used. Ransom: 00:06:57 You will be charged interest on a monthly basis. I don't know if you don't pay them in full, right? Yeah. Um, yeah. Most of them, if you do pay fully there, there won't be any interest that's accrued on the account. You just of gotTa to watch out for that. But I know I'm kind of speaking like above and beyond, but most people know what credit cards are, are just kind of want to try to hit the definitions because we are trying to classify different types of credit and you know, you do want to make sure that you have all three. So credit cards is a good example. There are other revolving lines of credit that you can get either unsecured or secured with some type of deposit account. Um, you know, but either way is this, as long as it's a revolving line, you don't have to use all of it. Ransom: 00:07:45 And then from there, the third one would be an installment loan. And installment loans are basically amount that you take out. You can have collateral or not have collateral or on them just kind of depends, right? For something like a car loan, right? You all going to go get a car for $10,000. They break that down to principal and interest over to say three to six years. And then from there, you know you're going to be paying 200 bucks a month for six years. And that's going to be your installment, another type that other people should be familiar with our student loans because those are kind of popular now. These as well. But the same thing, right? You take x amount out to go to school, they give you an interest rate and then from there you make that monthly payment. So on and so forth. Ransom: 00:08:34 And I just want to make sure I'm not getting too carried away with the definitions. Think it's pretty clear, you know what I mean? But just, just so you understand like how the different types of credit. Most people, if you know, you have some type of credit established, most people have a credit card and some type of movements, installment loan going on either for their car, for student loan. And those are, those are pretty acceptable. However, if you're just starting out, you know, you may not have any of these there, you know, you've got to try to achieve and grab one as they come and then from there you can kind of build along the way. So, but yeah. And then from there, the next criteria that we talked about is going to be the length of time that your accounts are open. And for this I can also stay. Ransom: 00:09:21 Sometimes you may not have to be the one that has the account opened, it can just show up on your credit score. Um, this, those of you that don't know, I'm on the second, so I have the same name as my father. So kind of ironically I've had a credit card since I was like 12 years old and that's been a good standing lucky you credit card things like, hey, this is great. Is that a credit card system as well? Um, but yeah, so the length of time that you have that line of credit or installment loan or mortgage, the longer you have that loan in good standing, then the higher credit score goes because they're kind of makes sense. Yes. So with that, this kind of comes like the question. It's like, should I pay off my house or should I pay off my car? Ransom: 00:10:13 And this is kinda where things get tricky as well. Let's take a look along here. You know, usually if it's an installment loan or car loan, you know, you can't really extend that. There are times in which you can go back to the lender and be like, Hey, can I refinance this car and get it to go a little bit longer, but you know, usually most people are going to continue on. So if it's something of that nature, yeah, it's going to come to its term and you know, you can't really do much about that. But for that are, you know, say they're halfway through their loan, like say they have a loan for six years and now they're three years in and it's like, oh I have enough money to pay off my car now. No, should I do that? Well, the ironic part is if you do pay off your car loan halfway through the term, your credit score will actually go down because you've had this loan and it's been ending with this company for three years. Ransom: 00:11:09 Payments are on time every month and then all of a sudden that stops. That company is no longer reporting to the credit agency want necessarily reporting bad stuff about you, but they're not in clarity reporting good things about you either. Well that's kind of the part where people are trying to get started with their loans, you know, that's kind of where they get in trouble. It's like, well we don't see you have any loans now so we can't really approve you for credit card, you know, so then they kind of go into other things with you pay or electronic bill cell phone bill, you know, basically these companies are looking for records showing that you have some type of debt or some type of obligation to somebody in your continually paying them on a monthly. That's kind of where that length of time kind of goes. Ransom: 00:11:57 So, um, yeah, it, it just kind depends, you know, some people think, oh yeah, like I had a client recently, he's like, um, yeah, so I have this house on the mainland that I'm going to go ahead and sell. And then from there we can, once that's cleared out we can go and buy another one. I said, okay, and he's like, and when I do that, like my credit should go up and I was like eight to break it to you buddy, but when you sell that house initially your credit's going to go down. He's like, wow. I was like, yeah, and then sure enough. He's like, yeah man, you're right dude. I was like, alright, cool. I was like, well let me stop you. Let's go get another house and let's get the ball rolling to get a new house. Now you're going to start that process all over again and accompany is going to be reporting on a monthly basis and we're just going to get your credit score right back up to where it was before you sold the house. So. Tyson: 00:12:43 So it's something like what? Something like that, like a car loan that comes to term or you know you're selling your house like that. What, what does that look like? So you're going to get a short term dip and then you're going to bounce back to where you were or get a little easier. Ransom: 00:12:57 That just depends. I mean, credit agencies, you know, they monitor this stuff on a monthly basis, so yeah, if you sell your house and you buy another one, like put them in a few months, then yeah, we can bring you back up to where you were at. Let's just say you sell the house and your retirement, you don't want to buy under that unless you're like, oh, 30 years is over a paid everything. I'm good. I'm not going to buy another house. Um, sat at all, have. I don't have to pay another mortgage for the rest of my life on those things every month that you don't pay. You know what I mean? And every month that you don't get something new, you know, your credit card will slowly go down. But as long as you have the other accounts, right, let's just say you have a card and you have an installment loan out there, those two will help keep you afloat. You know, it's not like, it's not like a hit or miss. If you want a max credit score or something over 700, you know, your chances are if you don't have a mortgage, you know, chances of your credit score being over 700, they're slim. I mean, it's possible but. But it is slim. Tyson: 00:14:00 Yeah. So, um, Dang, I forgot what I was gonna say, Ransom: 00:14:10 but I mean going on the other side, if you do pay off your car loan and you don't leave out some other type of installment loan, again that's going to affect your credit because now you don't have an installment loan. Tyson: 00:14:21 Yeah. So now going back to like, you know, these, these large purchases cars, homes over there, so you get those paid off. So on your credit report will show that. So maybe your score doesn't reflect it, but the log their shows, hey yeah, your score is 6:50, but I see you've paid off cars, you've paid off homes. So Ransom: 00:14:43 this is kind of another interesting fact is like people get confused between your credit report itself. Score your credit report kind of shows with you. That shows that, hey, at x, you know, when you were 12 years old, you've got this credit card when you were 30 years old when he got this mortgage and like it shows like the history and it shows whether you're in good standing or whether you're delinquent on all of those things and then you have your credit score. Your credit score is going to be 5:50, six, 67, 20, something of that nature. So your credit score can be good, right? Let's just say you have a six 60 credit score, but when you go to apply for a loan, they kind of look and say, Hey, your credit score looks good on your credit report. We show that you haven't made your car payment in two months. Ransom: 00:15:37 You want to kind of explain that and you want to explain that to me and see what's going on. And then that's Kinda when you know they can make the decision cycle, well, you know, I got downsized or I got injured at work, you know what I mean? And I'm just waiting for my workman's comp to come in or my aflac insurance to come in and I'm going to pay that back. And they're like, okay, so when your insurance money comes in, whatever, you pay the back, oh, now your credits towards going to go back and the lane, things like that. So just kind of be aware that there's two different criteria. One is your credit score itself and that will be your credit report which holds all the items you know, that you know, that we're talking about here, your installment loans or mortgages revolving credit line. Ransom: 00:16:21 So on and so forth. Yeah, yeah. No, this confidence. Like when we were talking about me doing this show, I was like, ah, I was like, I can, but like it's so complex, like wanting to keep it as simple, but I want to try to get in depth so hopefully we can keep a good balance of that. And then speaking of balances of your revolving line, so let's just say your credit cards and stuff that you have. This is only pertaining to one type of credit that you have your credit cards. Again, we want to have two thirds of that balance available to you for use or on the other side of that, you want to have only used one third. I said it in two different ways. Does that kind of help explain things differently? You know, just to make sure like two thirds, one third maximum in use? Ransom: 00:17:14 Correct. Yeah. So again, getting back to the whole $3,000 thing, if you have a credit line of 3000 and only use 1000, then you're okay. Once you start getting over that threshold and then pass the 50 percent threshold, then you know, sometimes your credit score gets affected by that. They kind of look at that as a negative thing around, you know, your credit cards maxed out all the time. Credit cards kind of frowned upon that, you know what I mean? Was a credit score. Your credit score goals, right? That shows a sign of you're struggling or something like that, or you're purchasing beyond your means. Again, we talked about this at the beginning, right? You want to be responsible, you know what I mean? Yes. If you're purchasing beyond your means and you're not able to actually pay back what you're getting into debt for, then you know, high balances on your credit cards may be an indication of that. Ransom: 00:18:13 So, so let's, let's talk about this in a practical example. Let's say I've got that 3000 on the credit card I got currently. Let's say I think I know where you're going with this. Why don't what for the sake of purpose being, why don't we say you have a one, you have a $2,000 credit card limit, okay, sure. Whatever it may have a $2,000 credit card limit and you use $1,000 of it, right? Because you have 1000 available that's currently being charged interest at the 50 percent bracket. Does that make sense? So if you have them available, you could go in and pay the extra money to bring that balance of a thousand pounds to say if 500 or something like that, that would bring you below the 50 percent level and also below the third level, right? At 25 percent, right? $500 or $2. So if you have $500 and you're willing to spend it right, if that's an investment that you're willing to make for yourself a little bit among the fees and all that, then you can do that. Ransom: 00:19:21 However, the goal is to just get your balance to one third. So the other option would be to call your credit card company and say, Hey, I mean, you may not going to tell them, hey, I need my credit score to be better. So my credit for them, Hey, I'm going to make a few extra purchases this month. I was just wondering, are you able to increase my credit limit of 3000? And I mean, and then sometimes they'll tell you yes in a sec. Okay. So now you've solved that problem without spending money and does it make sense? Yes. And again, be responsible with that. Right? But I just, again, you know, because I've worked with so many, either first time home buyers or people that just needed a little boost in their credits going with these were kind of fixed, you know, especially when you're trying to buy a house and every dollar is accounted for. Ransom: 00:20:12 It's like okay, well can we really, can we really use this $500 somewhere else to make this a better picture? And it's like, yeah you can, why don't we call your credit card company and just have them increase your limit real quick. And then from there that will do the trick. And then like even I've noticed lately, like we talked about when we're prepping, it seems like, you know, the credit reporting is almost real time now. Nowadays it is. They have all of those, you know, I'm not a, I'm not a big fan of those guys that want to monitor your credit and then give you some type of or identity theft protection. I mean, granted, monitoring your credit is always a good thing for sure. And if you want to pay a premium to have them do it and that's fine. Um, but you know, just don't there. There's a lot of companies out there and sometimes they don't always live up to the hype. Just this be grappled with. Tyson: 00:21:06 And with that said personally, I'm, all my credit cards have that all built in. They have fico score, credit monitoring and credit protection. I mean, I get alerts every month that says something changed, nothing changed. And I don't pay. It's all part of my, my credit cards. Maybe you folks have those same features you can turn them on if they're not turned on. Ransom: 00:21:26 Yeah, yeah, definitely. And, and nowadays I always recommend that you go in there and manually check for stuff that's just manually check at least once a year. Not every student is. A lot of these updates come automatically from the companies. So. And then from there, you know, just, just another thing about credit scores, and this is kind of a people who are just getting started, but also people who are trying to improve your credit score. Any type of inquiry that you get. And what I mean by inquiries, when you go apply for a car or you go apply for a credit card, like those types of inquiries, like when you're searching for new credit lines or loans, those will have a negative effect on your credit score temporarily. It's just kinda like, you know, they're, they're saying, oh, this guy's trying to get another credit line, even though that may not asked, even though that's not true that you're going to get when the fact that you're shopping will lower it all over. Ransom: 00:22:26 Now these are actually pretty decent about it because they do like allow like a one to two week when though. So you know, most investors are, most consumers are smart nowadays, so they won't just apply for one credit card, they'll apply for three or four credit cards that they want within the same week. Right. And the credit card that gives them the best deal, they'll take only one of them. So now the, you know, the credit score agencies are aware of that. So you know, before it used to be every inquiry that you took, nowadays they allow a shopping period. You can look for four or five within the same week or as many as you want within the same week, and it's only going to lower your score wants. Tyson: 00:23:09 That's a good tip there. If you're thinking about getting a mortgage or car loan or a new credit card or a credit card, schedule some time to have a shopping period for yourself. So go ahead and just blast out a bunch of apps. Ransom: 00:23:21 Yep, for sure. Awesome. And then, yeah, and then that way you know, your credit score won't take a hit every. You know, if you do one every week or two, that's going to lower your score over time. You don't want to do that. Not all at one time lot. I'm getting tired of talking about all this stuff like I kinda did in the beginning. Right. So if you're trying to increase your score gets started. Um, basically make sure that you have as many types of different credit available. We talked about three specific ones that are in their show, right? Mortgages, credit card, and installment of the credit of the types of credit that you do have. Make sure they've been open for a really long time or as long as humanly possible and make sure that they're in good standing right. You want to make sure that they're in good standing. Ransom: 00:24:15 If they've been open for a long time and you haven't been paying them, that's probably going to affect your score in a negative way. Again, make sure that you have two thirds of your credit available for use or that you've only used about one third of it. And that's that. Those three things alone, right there. That's Kinda if you can just follow those. Um, hopefully by the end this is the second time I'm saying it. So after I've gone into detail, it's kind of sinking in on how all that works and mean it's a little bit more complicated than that. I don't know how their exact algorithm is. So you know, if you're trying to contact us and be like, Hey, I applied for this loan, like how much did my credit score will go down by like I can't calculate exact numbers. Again, these are just general principles, general rules that if you follow them in the right way, it should increase your credit score. Tyson: 00:25:09 And with that I would like to offer something I'm, I am aware of on my capital one credit card there is in the credit monitoring era, there's a credit simulator where you can go in there and you can, um, put in, I'm going to get a mortgage, I'm going to get a loan, I'm going to pay off something and it'll predict based on these things I'm going to cancel that credit card or for 15 years, what's going to happen to your score? I don't know how many other companies have been with my capital one. That's something that's for free and it will predict with whatever they use to say. Ransom: 00:25:42 Those guys are probably a lot, you know, if they've been in the game for a while that you kind of dictate what's happening. Tyson: 00:25:48 But if you're interested, that's at least something that's reliable and I would think they would want to give you the best information available to them to help you get credit with them so they can make money for you, you know, from you. Ransom: 00:26:02 Yeah, definitely. Definitely those are, you know, nowadays we live in an information age man, so it is in your pocket. So those kinds of things should be automatic and slash or almost instantaneous for a lot of people. But, and if your card doesn't offer that, you know, again, the length of time that you've had that card counts. So maybe don't go out and cancel that car if you're not happy with them, you, we just keep it on the side or something. Tyson: 00:26:29 What I've heard of people doing an instance where they, you know, your, your first card, you got that really just there's no perks, there's no nothing, there's no reason for it. Um, I've heard of people like, you know, you take your one and an annual, you have and you have Ransom: 00:26:44 it come off of that card. So there's always an activity once a year. It's that card and keeps it active. Um, that's something I've heard of as an idea. Yeah, exactly. I mean, it just, you got to decide and you know, hopefully your, your credit card company has something in which can be like, hey, if I cancel this card, how's it gonna Affect my score, you know? And if ultimately if you have to break terms with a credit card, I mean, do you know, just, and it's not the end of the world either. If you'd do, again, these are just suggestions to help you improve your score. So you know, what, where do we get started? If you're, if you're, if you're new to credit, if you're, you've got bad credit or you're looking to do what, where do we get started? Okay. Well yeah, that's one thing I'd definitely do help people out with this getting started. Ransom: 00:27:35 So if you are just getting started, I would definitely say check your mail, credit card companies that just will blanket and do a lot of spam advertising through mail and nowadays, surprisingly even email to. I'm just going to be careful about which one just makes sure that it's a good source and it's not some kind of thing that's out there right now. Standard Mail is a little bit more safe these days as far as it goes. According to my spam inbox. I'm rich as hell when all of these things. Um, but yeah, so credit cards getting started. Um, there are sometimes if you go to your bank that you bank with for a long, long time, they'll give you one. Um, I, for one, kind of like the Costco Card because a lot of people are critical members. That card, you know, basically it has the annual fee for your costco membership. Ransom: 00:28:33 So technically it's a dollar annual fee, but what you're paying anyway, if you shop at Costco and on top of that, the costco card gives you enough cash back. Especially for gas. Most people use enough gas to make back their $50 a year. So it just kind of going out there other good starting points. For those of you that are students out there, again, you know, just be careful about how you use these loans, but you can apply for a student loan and they kind of come readily and just go ahead and take out a small student alone maybe for like 500 bucks or a thousand bucks and just and just pay that back. Those are good ways to get started with student loans. Understand if you guys aren't aware, you can never get rid of them. You have to pay them. You can't file bankruptcy. Ransom: 00:29:25 You can't. You have to pay them. So understand that I'm gonna. Go and take out $100,000 suits on, but like, ah, you know, one day, fuck this loan. No, you can't. So understanding that, again, these are just ways to get started, you know, getting out there, but for the credit cards that you do find again, might want to make a list and apply for all of them within the same week. That way you know, beggars can't be choosers at this point, especially if you have no credit at all. Sometimes having no credit is worse than having bad credit. Those of you that have bad credit and you're like, oh, I'll never get a credit card because I, you know, don't be shocked because they might find a company out there that will give you a credit card and it's just mostly for people that have no credit at all. Ransom: 00:30:15 I once had a couple come to me and, you know, the wife always use credit, but the husband always used cash. They were like in their mid thirties, mid thirties guys. Never used a credit card. His, a life like really hard time, like trying to get established credit. Um, if you're in that situation, um, they do have what's called secured lines of credit and basically you, what you do is go to your financial institution and give them $500. Right? They'll take that $500 and deposit it into like a savings account of some type. And then from there it's like you give them the $500 that they're going to loan to you. It's kind of a weird. That's exactly what's happening. So you know, you can deposit a certain amount and they will give you a line of credit for that amount and they'll use your cat, your hard earned cash as, as collateral for your loan if you absolutely can't get anything. That's, to me that's like the last line of defense Tyson: 00:31:23 and that's what I'm, I don't know, I was like 30, 31, 30 1:32. I hadn't had, I hadn't had any, I had no credit cards. I had no loans or any time and I had a hard time. Um, I was like, you know, I should start, I should start thinking about this now. Um, you know, and you know, um, so that's what I have. I shopped around, I spent, you know, a couple of shopping around and nobody to give me a shot. So that's what I had to do. I put a thousand dollars I'm in and then they gave me that as a line of credit and I still have the car this day. I mean I can't get rid of it because it's the first card I've had. No. And they still never gave me back my thousand bucks. They said they would, but they still just haven't, you know, and I just, I let a couple of things, like I said earlier, I let a couple things paying off that card and every month they just wiped the balance out. And um, but that's something I had to do because like you said, I just, you know, being 30, 31, maybe there two, just that's what I had to do at 3000 bucks down. And you know that sometimes that's what you gotta do guys. So don't be ashamed that I get started somewhere. Ransom: 00:32:24 You know, again, if you're watching this at a younger age, you know, I always recommend starting earlier, but be responsible and you know, just remember the first card that you get. Yeah, beggars can't be choosers, but you do kind of want to pick something that is good for you. I wouldn't worry too much about interest rates because as your credit gets better, your interest rate will actually go down. And you can always call them up and be like, Hey, when I first started with you 10 years ago, this is a pretty high interest rate. Like, I think my credit is better now, do I qualify for a better interest rate? And they'll change it like on the spot that that's happened. But you know, annual fees you can almost never get away from. So just kind of when, if you're going to be picky about anything on your first card, be picky about the annual fee, pick something that's comfortable for you. I definitely recommend something under $100 a year. Those should be pretty easy to find. But you know, you're comfortable. If you only want to pay $50 a year, that's great. But just remember, beggars can't be choosers. If the only company that's going to give you a credit card wants 75 bucks a year, you might have somebody like that Tyson: 00:33:32 maybe with that understand, uh, there's a lot of perks that come with these, with these credit cards. Use those to try and offset the fee. A lot of times you get extended warranties, you get all kinds of other different travel things and discounts and stuff, so try to look for those as well. This I'm, I'm stuck with a $50 fee, but how can I recoup that from something they're offering me, whether it's cash back, whether it's discounts on things. So look into that. Ransom: 00:34:01 Them have some type of rewards program with points that relate. So every time you spend your card, you're, you know, you're going to accumulate points of some kind and slash or cash back. And sometimes those rewards are really cool. I know one couple that they, the credit card offered them a reward system that gave them a $25 gift card to their favorite restaurant and that's just what they do. They take that as like, oh, we just go and get free dinner, you know what I mean? Every, every six months or so we'll get a $25 gift card and we'll go to our favorite restaurant. So there are, there are other ways that you can offset that annual fee, you know, but again, you know, just look for a reward system or cash back that's going to be comfortable to you. Don't worry too much about the interest rate. If you use a card property, you won't have to worry about it. And if you do, you can always call it later. But that annual fee though, that's, that's Kinda, that's the one decision you do have to make because if you want to keep this card for a long period of time, 10, 20 years, it's going to add up over the years. Tyson: 00:35:04 Yeah. And I understand, I personally, I enjoy cashback. I make thousands of dollars a year on cash back money I would have never recouped by put down 20 bucks. I would have never gotten a dollar back. Whatever it is, the cash back rewards. So understand there's great. My, uh, my sister likes travel. It's up to you guys. There's lots of things, but take advantage of that, Ransom: 00:35:24 you know what I mean? Those mileage points or 20,000 miles just for signing up. Now you know those, those can be advantage and then from there, once you get this credit card, for those of you that are just starting out the way I recommend using it again, make sure you don't use more than one third of whatever the balance is right, and then I'd definitely recommend it on using it for bills that you pay on a regular basis, so things that you're used to painting stuff, clinging to your cell phone, bill or gas. It was like you know how much gas you spend every month and that's a regular thing. We basically just use the credit card as an intermediary credit card to pay for your gas and then at the end of the month, pay your credit card off in full or use it to pay yourself. Homeville said something, something miniscule, whatever your cell phone bill is a one. If it's one or $200 a month, just pay with your credit card and then from there, pay credit card off completely at the end of the billing cycle and Tyson: 00:36:25 that's. That's what I do personally. Every, every bill I have that I can have the ability to auto pay on a credit card, I have a credit card is dedicated to just that I have all my bills are paid and every month I just, I just pay off that balance. Not only do I have to ever worry about missing a bill or payment on something, um, I also get the cash back on those things that are normally be paying and at the end of the month I just paid off and it's like nothing happened. Ransom: 00:36:55 Yup. And that to me is the best way that you can build credit. And then from there, once you attack a credit card, you know, then you get an installment loan or if you're a student and you have an easier time getting a student loan versus getting a credit card, go to the student loan process first. And then, you know, one thing at a time. Again, this show is about knowledge about improving yourself just a little bit. You know, you don't have to go gung Ho at the beginning, you know, just get a small taste of something and get used to it. Then from there, work on your installment loan and then after installment I'll work on getting a mortgage. You know, just small steps in progress. Tyson: 00:37:30 I had an idea real quick, let me run this by you. So let's say I'm, I'm 18, I go out and I'm trying to get credit. I can't get any credit cards but I can get a student loan. So let's say I get a student loan for five grand. Can I, would you maybe think it's a good idea? Ransom: 00:37:46 Fire a big much, Tyson: 00:37:48 but I'm just, I'm just throwing something out so I get a $5,000 student loan. Would, would it be a good idea to take that 5,000 some of it, whatever it be, if not all of it and going out and getting a secured credit card is a hair. Here's, here's a thousand dollars so I can get you get that kind of credit card thing. You know, with the $5,000 student loan, I'm going to use a thousand of that and I'm going to go put this on a secured credit card so they give me. You know what I'm saying, that you kind of double dipping here a little. Is that maybe a good idea to have something to do Ransom: 00:38:18 for somebody that's never been a student? That actually sounds like a great plan. Who's ever been a in knows that your broke ass when you were a student and that's just not gonna work like you don't. You don't even have money to pay for school, let alone all this extra stuff. No, you don't to. Again, if you are going to take a student loan, I'm irresponsible about it. I definitely wouldn't take five grand. That's a bit much. Maybe $2,000 at the most profitably. 500 to a thousand dollars is probably what most students can get away with. You want to take that thousand dollars and you want to put it into a savings account or some kind of low yield account. Then you're going to use that thousand dollars to pay back your student loan every month. That's, that's what you should do with it because that way we're only going to pay the interest on the loan. Ransom: 00:39:10 You don't, you're going to keep the original principle that you took and you're going to use that to pay back the loan and then you're only going to pay the interest on it. And that's basically how it should be done. Once you get comfortable with that, once you build a little bit of credit, then you can get a credit card, you know, whatever the situation works. Again, just be careful with student loans because you can't get away from them. Um, even if you file for bankruptcy or whatever the case might be, you still have to pay that back. And on top of that, some of these student loans that can be amortized over a really long time, like 20 years. I know it's $2,000 over 20 years payments, 20 bucks a month, but that's for 20 years. Like law students have any lived to be 20 yet. Like we're $20 bill for 20 years. Like, you know, just understand that, you know, there's, there's a rhyme and a reason to it, but you know, again, be responsible and that's, that's basically if you're going student loan, don't do that. Uh, that's, that's kind of a fast way to fast track. But most people starting out, you know, let's take one step at a time. I would definitely advise against doing 18 hours. Just take the five grand. Go. Have a good time. Ransom: 00:40:28 Yeah. No, but anyway, the question line here, you got, you got any other questions? Tyson: 00:40:35 So we do all these things and we get, we get going, we, we're doing the right things. You know, what, what is, what is this credit score? Get me what, what, what, what, what am I going to get out of this? Where do I lie? Ransom: 00:40:46 Okay. So, uh, you know, I mostly know about this from a mortgage standpoint and I'm sure it works similarity with credit cards and all these other things, but the, the higher your credit score up until a certain point, we'll get you better interest rates. There are times in which we talked about earlier, if you don't have a high enough credit score at all, companies won't even give you a loan and there are times when your credit is or will be high enough. However, if you're delinquent on recent payments, some companies will look not only at your credit score, they will look at your credit report and they'll say, hey, there's some items on here that are questionable. Can you explain these? You know, so just as a, as a what I want to say, just so we can compare apples to apples, I guess let's talk about mortgages because that's what I'm most comfortable with. Ransom: 00:41:38 So in order to get the best interest rate right, and especially if you're looking at mortgages in Hawaii for houses that are like, you know, half a million dollars up to 700,000, you know, most people will get one percent. That's not a lot, but one percent of 700,000, that's over 30 years. That's a pretty big chunk of change, you know? So one percent interest can make the difference when you're talking high amounts. So right now the best range to be in, um, mortgage wise is about 740 most mortgage companies. If your score is over 7:20, you can qualify for the best interest rates and best terms on the loan that are out there. And then from there, you know, we're looking at the next range down from that would probably be Obama, 60 to six 60 range. So if you're a b, two, six, 80 and 60, you'll get a decent interest rate. Ransom: 00:42:36 You'll get decent terms. I'm not as good as if you were at the seven slash 40 level, but you know what I mean, like you'll, you'll get decent terms between six 82, 6:40, and then anything below that, you know, you're probably looking at not the greatest interest rate, not the greatest terms. And you know, some companies may or may not even, you know, afford you anything, just kind of depends. And then another thing to look at is we do also have three credit reporting agencies, right? I forget their name, I shouldn't, transunion, equifax and Experian. Those are the three. So all those three in the mortgage world, we take all three scores and we choose the one dead in the middle. That's kind of how that works. If you're applying for a credit card, that particular credit card may only look at experience scores or they may only look at trends, you know, transunion's scores, whatever, whatever that company's policy is. That's how it works. I'm most familiar with Margaret, is they take the middle score whenever you apply for middle, they get all of your scores and it take the middle school and that's what they use to give you your terms. Ransom: 00:43:50 Kinda kind of makes sense. And what, uh, what would that, what's the difference between, you know, my score versus the quality of what's on my report? Is that what a difference they play into each other, you know, where, where should I be focusing? I mean, I kinda touched you. I mean we'll hope hopefully if you kind of following what we're seeing in this program, you should be doing all the right things that your credit report shows up. Good. Yeah. So that's kind of what we're talking about. So if you have a 7:40 score, sure, or you're going to qualify for the best rates and terms, but as we talked about earlier, the individual items on your credit report may affect how things happen, right? So yeah, you got seven slash 40, but we show that you haven't paid your, your little Amex bill here for 500 bucks in the past six months. Ransom: 00:44:43 It's like, no, you know what I mean? And those are kind of the things when usually when that happens, if you have a good score and something doesn't look right on your credit report, you can actually distribute that item. So there may be times when your school or it looks good and, or bad, and then things on your credit report are questionable. You can go in and fix those items. It's like, that's not my credit card. Um, you know, in my case, the error on my credit report actually worked in my favor. I had a credit card since I was 12 and it's been in good standing. So that's helped me out tremendously. Right. Versus the person who was like, you know, somebody stole your identity, they opened up a credit card in your name, they charge $500 bucks to it and they haven't paid in the past six months. Ransom: 00:45:37 I mean those are the kinds of things that when you check your, your credit report every year, or like you said, if your credit card company does that for you for free, you can go back and be like, hey, those are fraudulent charges. That account was not open under my name and you can basically go through the dispute process, just basically making a statement that this isn't that. And then sending it to the credit agencies. Now what about, I hear a lot about this debt to income ratio. Can you explain a little bit about that? Okay. So yeah, this is kinda where we're going into a little bit more than this credit scores at this point. It's a little advanced topic, but yeah, I'll touch briefly on it. So basically most people have an annual income, right? In order to get some type of card, you should hopefully have some type of income, whatever that is, right? Ransom: 00:46:27 Most companies go off of what your gross income is. For those of you guys know, what gross is that the money that you make before taxes are taken out, so what you get in your paycheck and your bank account is not always your gross, kind of just depends on your employer and how you have things worked out. But at the end of the year you get this tax statement, right? W two or whatever it is, I nine, whatever you get, and that's going to give you how much you owe in taxes at the end of the year. Okay? So of that amount, let's just say, how do I even go on this? Let's just use 100,000 and it's just for simple numbers because I've been working with clients around that, that, that number. So 100,000 a year. Now you have what's called that to income. So if you were to take out a mortgage for $100,000, that comes out to a monthly payment of $500 a month. Ransom: 00:47:30 So I mean those. Do you guys want to go on Google calendar? I mean Google and search, all of that. I mean mortgages are kind of a little bit hard to calculate because they're amortized over 30 years, but on average right now in today's world at like four point four and a half percent, that's what you're looking at. So that $500 of debt that you're going to ink per every month to have this loan, that $500 creates a debt. And then from there you have your income, right? So at 100,000 a year, right? You're looking at maybe 8,000, $9,000 a month. Now you're going to take $500 away from that. And then that gives you a pretty good debt to income ratio, right? Versus if you take out, say a million dollar home, right? And now instead of paying $500 a month, you're paying $5,000 a month. Right? Now you've got $9,000 of income and then you got $5,000 worth of debt obligations. That ratio looks really bad because that's more than 50 percent of your income. Tyson: 00:48:43 Is that what you want to stay at? Fifty percent? Ransom: 00:48:45 Uh, in the mortgage world, you basically want that ratio to be actually less than, or you want it to be around 40 percent, 40 percent, 40 percent is kind of ideal. Most most lenders can work with that, but that's more along the mortgage turns. You kind of don't really worry about that when you're doing credit cards in the middle, that's, that's in the mortgage world when you kind of get advanced like you figure out, you know, and in the mortgage world, this includes all of your debt, not just your mortgages. So all your car payments or your credit card payments, all, all of your debt obligations will add up. And all of your debt obligations, including your mortgage, have to be less than 40 percent of your total gross income. Sorry, that part, for those of you that are just trying to get started, don't worry about that. Just kind of delete that part, come back to it later. That's like advanced stuff. Um, but yeah, it's definitely that you did talk about it because I'm sure there are some people who are well in the credit game that are kind of looking into that number as well. Does that kind of help you with that debt to income ratio? Tyson: 00:49:54 I wasn't very familiar with it. Yeah, not like I said, I'm not an expert in this. I don't know a lot. I just don't know how to spend it. Ransom: 00:50:04 All right, cool. What are the questions you got here? Tyson: 00:50:10 I guess the last thing I heard of before was, was getting like your kids or somebody maybe a spouse or or something like that or relative like putting them as an authorized user on your credit card that hopefully is in good standing. You don't mess them up Ransom: 00:50:28 and help and using that to help them build the credit. Okay. I'm on this one. You got to be careful. I mean just kinda. This is kinda where semantics get caught up. Sometimes the term authorized user and then an authorized account holder for credit worthiness is, they're not going to say it in those exact terms, but they're, I guess maybe we'll just say there's two types of authorized users, ones that are affected by credit and one that. Okay, so let's just say you want to add me as an authorized user on your credit card. You can do. You basically just say, hey, you know what? This is my credit line. I want to have this card. Get it to him tomorrow, and he can spend whatever he wants. Thanks. You're welcome. Table. But that doesn't necessarily mean that I share in the responsibility of paying that debt back. Okay, so in order for you to truly benefit from this, like the person that you're adding onto your account, right? Not only has to be authorized user of your credit card, but they should be an account holder was responsible for the debt obligation. Ransom: 00:51:46 In some cases it works because they can actually add the person on cases it can't. And I guess if I can explain it in the mortgage world, if you and I want to get a mortgage together, then the bank would have to look at how much income we generate. Right? So that our debt to income ratio is good, but are the. The bank would also look at, or that financial institution would also look at your credit worthiness, your credit scores about I'd be good enough. My credit score has got to be good enough in both of our credit reports have to be legitimate and then from there we can go in together on a mortgage. So if you're truly going to add this person on his account holder, it shouldn't just be a form that only you sign this will account holders should be filling out their social security number and all their income and all of that kind of stuff so that this company is going to do a background check on that person can check their credit, right? Ransom: 00:52:42 Get an inquiry and there add them on, you know, as as a true account holder, not just the authorized user per se. That's great. Go ahead. No, I was like, I've seen this work the other way too is like if I'm going to go out and I got to try to apply for a car, right? And like I don't qualify, but if I get you to jump in on the carnal, we can quantify together. Right. So there's times when that's the case too. It's like you go to apply for this loan and you can't get it by yourself and now need a co borrower right to sign with you. You know, in that coal borrower situation, yes, that's going to affect the, you know, but usually the borrower is like the person you're looking for has better credit than you. Right. And they're going to be, one will take you under my wing kind of thing. You know what I mean? It doesn't always come from the top down. I mean, it doesn't always come from the top down where the, you know, the person with a good credit score says, Hey, I want you on my am. I want to give you good credit. Sometimes it works the other way where the person who has no credit needed somebody of credit worthiness to go in on so that they can get started in a game. You know what I mean? Tyson: 00:53:55 Yeah, I do. I do. Just, um, I was able to use that for lack of a better term trick to help me when I was trying to establish credit. I, I jumped on with my wife and I kind of piggybacked off for her credit a little bit and it gave me a nice little boost. But I think what the difference was I was, I was, I had a fiduciary responsibility to the debt I incurred from that card, but that's something I did. Um, I didn't realize being able to spend the money versus being able to spend the money and be responsible for it. I didn't realize there was a difference. Ransom: 00:54:31 Yeah. There, there are two differences. So the part where you're just able to spend the money that doesn't help your credit at all. Tyson: 00:54:37 Like my corporate credit card. I could give you one you're not responsible for. And I am Ransom: 00:54:41 exactly. Okay. So just Kinda, just be worried about that. Sometimes you, you're doing that thinking that it's going to improve some of these credit and then it ends up not happening. So just be careful when you're trying to do Tyson: 00:54:57 and then um, I'm, I'm not, uh, that's all the questions I have. Is there anything else you'd like to touch on? Ransom: 00:55:04 Um, no, and I think we went into depth like subject, so you know, if people have questions, they're just, just hit up the show and get out there and we'll do our best to answer questions that we can. Or sometimes when you just watched this the first time, like it just goes over your head sometimes a second or third time that she listened to it. It's like, oh, okay. I remember he said that sinks in. Tyson: 00:55:27 Yeah, absolutely. You guys have questions. I need clarification as maybe a scenario you want to throw out leading into comments or get ahold of us on the social committee, the show. You can go down and get, get the email and whatnot and either if I can answer them I will. If not, I'll pass them along the ransom and we'll get it. You guys answered as quickly as we can Ransom: 00:55:47 for sure. Tyson: 00:55:49 And with that, uh, if you want to learn more about, uh, your, you know, controlling your finances, I would go over to the social chameleon that show slash pick me and get into this month's giveaway because what we're doing is we're giving away three copies of Mr Tony Robbins book unshakeable, gets in there and talks about a lot of things about making your finances unshakable where you're not going to be affected as much or if at all by economic downturns and even be able to capitalize on economic upturns and downturns, all these other different things. Tony, through. He interviewed a bunch of very independent, wealthy people. It's a great book. Get over there getting on the giveaway, the social chameleon.show/pick me for your chance to answer to when we're doing this all for the, all, all month of September. And then, um, I will, I will do my absolute best to put as many resources for you folks down in the show notes. Tyson: 00:56:47 Um, the different credit, read the annual report, you're at all, we're all allowed one full detailed report, a credit report a year. I'll put the link to that website and some of the different websites to being able to monitor and check your credit. And I'm also a nerd wallet. It's a great resource if you're looking for credit cards, you can put in what your looking for your credit score and all these different types of things and it will show you the best credit cards that you'll most likely get approved by based on the scenarios of things you want or, um, your credit worthiness. And then you can have that as a resource for your shopping period to go out there and nail down a few offers. I'll put all those different links for you guys in the show notes. And then, um, anything else that ransom any, any other links and things you can point people to? Ransom: 00:57:35 Uh, no, not off the top of my head, but we'll put them in there. Tyson: 00:57:39 Yeah, we'll put that in. And then ransom. What's this week's challenge? Ransom: 00:57:43 All right. Challenged this week. Let's say. Just get out there and go do it. Those of you that are looking to improve your credit score or you've obviously listened this far and watched his far like, what are you waiting for? You know what I mean? Definitely take the leap and go to the next step. For those of you getting started, get out there, go start applying for credit cards and loans and stuff. Have there, and if you're not in that situation, then go check your credit and I mean they'll look at it. It's you. Get a free one every year and definitely do something about it today. Either check it out, try to get started or tried to better your score. Those are the challenges Tyson: 00:58:30 and with that guys, listen, with great credit comes great responsibility, credit score as powerful. You can do a lot of things, credit. You can leverage yourself to help you create wealth end and a great life and all these different things. Use these tools wisely. Use this information, um, with, with your discretion. If you abuse it. I don't have to tell you so. And if you know of friends and family, maybe colleagues or whatever that are in a situation of good credit, bad credit, needing to improve, looking to get a mortgage, share this with them. I, I really think this is a lot of great information. I think it'll, it'll, it'll wrap around. We're not selling anything, we're not trying to show you anything or pitch you anything, you know, we're just giving you information. And I think, um, I think we were able to do that in the most unbiased possible way. Tyson: 00:59:24 So to get out there, share this assists people, let's get people going. Like I said, you know, the great credit comes, great responsibility and great access to, to, to mortgages and deals and investments and so many things, chairs or people that start bringing, you know, the meeting wealth up and our credit worthiness up. And we can, we can do much more with our lives. We can help more people and all these other things. If you're in between shows, you guys see, connect with us at the social community and show on facebook and instagram and twitter. You can subscribe on Youtube. And your favorite podcast apps, if you'd like to leave a review, this really, really will help not only our show reach more amazing people like you, but we'd also like to hear from you guys and what you guys have to think about this and all the other episodes for this and all other podcast episodes you guys can visit the social chameleon.show for all your show notes in different links to resources and books and whatnot. Until next time, keep learning growing and transforming into the person you want to become. 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