Who needs a good credit score? Pretty much everyone…unless you’re royalty! On this week’s episode, Josh and Austin talk about credit scores. They dive into how they’re calculated, the range, how it affects borrowing, and what makes it go up and down. Listen in to hear some good advice if you’re looking to improve your score or freeze you credit. Tune in now!
Main Talking Points
[1:01] – What is a Credit Score?
[3:30] – How Are Credit Scores Calculated?
[7:05] – Range of Credit Scores
[8:48] – Credit Scores Affect Borrowing
[10:18] – Dad Joke of the week
[13:25] – What Makes Credit Score Go Up or Down
[16:34] – Improving your Credit Score
[19:06] – How & When to Check your Credit
[21:58] – Fraud
[23:34] – Freezing your Credit
[26:18] – Who Needs a Good Credit Score?
Links & Resources
How Is My Credit Score Calculated? – Investopedia
Average Credit Score in America: 2020 Report
When You Should Freeze Your Credit… and When You Shouldn’t
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action, and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey, welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future today. Josh, we are going to be talking about your credit score.
Josh Robb:
Oh, good. I’ve been wanting to know what my number is. I’m glad we’re going to bring up my credit score.
Austin Wilson:
Okay. Well, not necessarily your credit score, Josh, but credit scores in general. So, I’m pretty sure this is going to be the most exciting episode ever.
Josh Robb:
When I can’t go to sleep at night, I count credit scores. So, it’s useful.
Austin Wilson:
So, I guess let’s take a 30,000-feet approach.
Josh Robb:
Yes.
[1:01] – What is a Credit Score?
Austin Wilson:
At first. So, what is credit? We’ve kind of hit on this a couple of times in between a couple episodes over the course of this year, but what is credit, Josh?
Josh Robb:
Yeah. So, think of credit card.
Austin Wilson:
I’m going to give you credit for doing something.
Josh Robb:
Yes, yes. Credit being, it’s lending or borrowing. It’s the ability or your obligation that you can cover something. So, a credit card, you are borrowing on credit. Someone is in a sense on your behalf buying something for you.
Austin Wilson:
They’re giving you credit.
Josh Robb:
With the promise of paying it back.
Austin Wilson:
Yep.
Josh Robb:
And so, a credit report is looking at your ability or for the people that maybe are the ones going to be the ones lending to you, your ability to sustain that debt load that they’re going to offer you.
Austin Wilson:
Yeah. And credit is not free, generally speaking. So, there is a charge associated with that. And that is in the form of interest.
Josh Robb:
Yes.
Austin Wilson:
So, when you borrow, because you’re not paying for something out of your own pocket and you’re using credit to do so, there is a risk associated with that, that the lender is taking on that risk, so they are going to be compensated in the form of interest.
Josh Robb:
Yes. And the more risk there is, the more interest you’ll probably have to pay.
Austin Wilson:
Correct. So, let’s dig down a little deeper now, 30,000 feet down to 10,000 feet. What is a credit score? Well, in short, it’s a number.
Josh Robb:
Yes.
Austin Wilson:
We like numbers.
Josh Robb:
It’s a score.
Austin Wilson:
It’s a score. I like scores. So, it’s a number between 300 and 850 that shows a borrower’s creditworthiness. So, like many things in life, higher is better.
Josh Robb:
Not golf.
Austin Wilson:
This is not golf. This is the opposite of golf. Higher is better here. And the most common is really a score that was created by the Fair Isaac Corporation, also known as…
Josh Robb:
FICO.
Austin Wilson:
FICO. Got to love that.
Josh Robb:
More like a dog name, right?
Austin Wilson:
I know. Like, “Come here. Come here, FICO.” There is…
Josh Robb:
Gosh, who’d name a dog that?
Austin Wilson:
There’s totally a dog in America named FICO. Totally is. It’s a nerdy bank guy’s dog, but definitely is. And there are three major credit reporting agencies. Those are Experian, Equifax, and TransUnion. So, these all record, they calculate, they retain these scores for individuals, and the scores may differ slightly between the three, but they’ll be in the ballpark, generally, for everyone.
Josh Robb:
They all do a little bit different calculation on how they attribute or give weighting to different things. But yeah, you’re right. If you score, let’s say a 700 on one, you may be maybe a 690 or a 680 or a 710. You’ll be in the range. You’ll be close.
[3:30] – How Are Credit Scores Calculated?
Austin Wilson:
So, you mentioned my favorite word. Calculate.
Josh Robb:
Calculate.
Austin Wilson:
So, calculate. How are credit scores calculated? And we’ll link our great article from Investopedia in the show notes, but there are five components to credit score calculation. Number one, payment history is the biggest component of credit score calculation. And that’s really on-time payments versus late payments. You get that big 35% of the score is calculated favorably for you from a series in a history of on-time payments, and unfavorably for you if you have a history or series of late payments or missed payments or whatever. That’s not good.
Josh Robb:
Now, along with that too, you need history to have a credit score.
Austin Wilson:
We’re getting there.
Josh Robb:
Yes.
Austin Wilson:
Yes. So, we’ll get there.
Josh Robb:
All right.
Austin Wilson:
But total amount owed is number two. So, credit utilization. Really, that’s about… Josh, say you have a couple of different credit lines, different credit cards, credit accounts, home equity line, who knows what that may be. And you have $50,000 of available credit. If you currently have outstanding balances of 40, then you’ve used 80% of your credit, should that be a lot.
Josh Robb:
Yes.
Austin Wilson:
But generally speaking, lower is better on the credit utilization. And we kind of talked about that in our mortgage discussion that we had, by day. So, that is 20, or that is 30% of your credit score is calculated from credit utilization. Generally speaking, that should be lower if you want your score to be higher.
Now, what you had talked about just a second ago, length of credit history is a 15% component of your credit score. And yes, you have to have some form of credit history to have a credit score. Generally speaking, the longer your credit has been established, the longer you’ve been utilizing credit through various different means or whatever over the years, the less risky you are, and the longer those accounts have been open. So, if you’ve been an American Express cardholder since 1981, you’re probably… That is…
Josh Robb:
Consistent payment history over time.
Austin Wilson:
Exactly. That’s going to really help. That’s going to really help, so.
Josh Robb:
Looking at those two, history between the length and the actual what you did, that’s 50% of how they make up that score.
Austin Wilson:
Yes. Yeah, payments and length. That is a lot.
Josh Robb:
That’s crazy.
Austin Wilson:
Next up is another… So, that was 15%, like we said, length of credit history. Next up, number four, is type of credit. So, there’s two types of credit. There’s installment credit, so you’re making an installment payment towards an overall asset or whatever. So, that’s like a car loan, like a mortgage, those kinds of things. And then, you’ve got revolving credit, which is like a credit card. So, where it’s just replenished after payments and stuff like that. Those are two different types of credit. That’s 10%. Then… And generally speaking, if there’s a hard asset backing things, like an installment credit, rates are going to be lower. They’re a little less risky because they can always go back on them and take them and stuff like that. So, I would say that the more proportion of your credit that is leaned towards that, like a mortgage, is going to be viewed as less risky and help your credit score.
Josh Robb:
Which is why I could get maybe a mortgage for $100,000 but my credit card is not going to give me a $100,000 limit because there’s a lot more risk involved as someone that does that.
Austin Wilson:
Exactly.
Josh Robb:
Because there’s no asset tied to collecting that.
Austin Wilson:
Correct. And then, the final 10% is new credit. So, that’s like new accounts, new applications for accounts, those kind of things. Really, the less frequent that is, the better.
Josh Robb:
Although, all of a sudden have a bunch of people checking my credit score for the loan, that might hurt me.
[7:05] – Range of Credit Scores
Austin Wilson:
Yes, exactly. So, that is how they’re calculated. But we talked about how that range, there’s a broad range of numbers that can be, and there’s a cool Motley Fool visual that shows us, and we’ll link that in the show notes as well. But generally speaking, the range, like we said, is 300 to 850. So, I have the breakout of what those are. We’ll start at the bottom.
Josh Robb:
Okay.
Austin Wilson:
So, lower is not as good.
Josh Robb:
Right.
Austin Wilson:
We want high numbers, but the worst you can be is 300 on a credit score. So, that’s like little to no credit, no history, bad missed payments, pretty much not good. But 300 to 579, that’s a pretty big range, that is 16% of people in America have those scores. The next… And that’s considered relatively poor. So then, you go up a notch to fair. Fair is 580 to 569, that is another 18%. Then you go up to good. And this is where these are increasing percentages too. So, good, 670 to 739. That’s 21% of the population. Very good credit scores, a 740 to a 799, 25% of the population. And then to be excellent, it actually does go down in percentages. Only 20% of people have an over 800. So 800 to 850 are, really, the best credit scores out there. Those are the ranges there.
Josh Robb:
So, two-thirds of the U.S. population lands in good or better. Right?
Austin Wilson:
Correct.
Josh Robb:
Good or higher scoring.
Austin Wilson:
Exactly.
Josh Robb:
So, two-thirds of the population lands at least at the good spot or higher.
[8:48] – Credit Scores Affect Borrowing
Austin Wilson:
And generally speaking, if you think of 640 or so as kind of a general breaking point of where you’re okay. Prime to subprime is that like 640-ish range. So, right below good. And you can do… And better is good. So, Josh, how does your credit score affect your borrowing?
Josh Robb:
Yeah. So, if I’m in a good, very good, excellent, the higher up I go, the more I have proven my ability to take that on in a reasonable way and pay it off consistently. That means I am less of a risk to the people that may consider lending to me. And so, if I have a high score, let’s say I’m 750 or 860, in the very good category, I’ll get a better rate than somebody who’s in the 670, in the lower. So, I will be able to access more credit with a higher score.
Austin Wilson:
Yeah. And specifically for banks, if they see you walk in the door and you’re trying to get a mortgage or whatever, they’re going to be very happy to loan you money if your score’s, especially like, oh, north of 700, they’ll say, “Oh, thank you.”
Josh Robb:
You got it. Come on in. With good rates.
Austin Wilson:
It’s really low risk for us. We’re going to give you what you want and you’re not going to have that much interest now. If you come in at under 640 or so, that’s considered what’s called subprime mutch. It’s not a sub ordered from Amazon Prime.
Josh Robb:
Nope.
Austin Wilson:
Which I really… I should not… I’m always hungry, but I should not do this recording when I’m hungry because I would eat a sub.
Josh Robb:
Always thinking about food.
Austin Wilson:
Whew. And if you could get that Prime delivered.
Josh Robb:
Two days though?
Austin Wilson:
That’s not fresh.
Josh Robb:
It’s stale.
Austin Wilson:
I don’t want that. So, anyway, subprime, less than 640, you’re going to get higher rates because that lender is…
Josh Robb:
That’s risk.
[10:18] – Dad Joke of the week
Austin Wilson:
They’re going to be less apt to… Maybe they’ll be okay to loan to you, but they will charge you for it. A little extra. So, Josh, this is super exciting.
Josh Robb:
Everybody loves credit scores.
Austin Wilson:
It’s what I woke up this morning wanting to talk about. But in honor of Disney Plus turning one year old…
Josh Robb:
One year old.
Austin Wilson:
This month.
Josh Robb:
That’s right.
Austin Wilson:
We are going to do a dad joke of the week that’s going to make you laugh.
Josh Robb:
I’m ready.
Austin Wilson:
All right. So, Josh, why is Tinkerbell always in the air?
Josh Robb:
Why is Tinkerbell in the air? I’m not sure. Why?
Austin Wilson:
Because she never lands.
Josh Robb:
Never lands. Love it.
Austin Wilson:
Woo. So. Yes, Disney Plus, one year old. I can’t believe it. I love me some Disney Plus.
Josh Robb:
It’s good.
Austin Wilson:
That Marvel.
Josh Robb:
Mandalorian?
Austin Wilson:
Haven’t watched it yet. But I heard there was a whole outcry about Baby Yoda eating the eggs.
Josh Robb:
I haven’t got that far yet, so.
Austin Wilson:
Oh. Don’t want to ruin it for you.
Josh Robb:
I heard. But I haven’t watched.
Austin Wilson:
It sounds interesting.
Josh Robb:
Yeah.
Austin Wilson:
But yeah, I’ve seen previews. Whenever I get on Disney Plus, they have little preview on the thing.
Josh Robb:
You got to watch. First season was good.
Austin Wilson:
Mandalorian looks really, really good. So, yeah. Disney Plus, one year old.
Josh Robb:
They’re coming out with all the Christmas stuff now. So, Home Alone, Home Alone 2. It’s on there. They have Prep & Landing, which is a Disney movie that we had the DVD for, and it wasn’t there last year.
Austin Wilson:
Really?
Josh Robb:
And I was surprised because it’s… I had double-checked and I looked. It is a Disney movie. And I thought, “Why isn’t it there?” And they probably had an outstanding deal with some other streaming app or whatever, but it’s there now, which is, if you haven’t seen those, those are pretty good too.
Austin Wilson:
I still want to watch Hamilton too.
Josh Robb:
Oh, yes.
Austin Wilson:
The musical?
Josh Robb:
I’ve not seen that. Yeah.
Austin Wilson:
I haven’t. I’ve heard amazing things. I’ve heard it’s great. But I have yet to sit down and watch it. And why not? What am I waiting for? Well, it’s because I’m still working through the Marvel movies.
Josh Robb:
Oh, that’s true.
Austin Wilson:
So, tonight…
Josh Robb:
That’s more important.
Austin Wilson:
Yeah. So, tonight, so my brother-in-law and my sister and their little one come over once a week. We watch a movie. Tonight…
Josh Robb:
Well, yeah.
Austin Wilson:
Which I feel like we probably talk about this pretty frequently on here.
Josh Robb:
I don’t know which one you’re on right now though.
Austin Wilson:
We just watched Spider-Man: Homecoming.
Josh Robb:
Okay.
Austin Wilson:
So, we’re watching… Which was interesting.
Josh Robb:
Yeah.
Austin Wilson:
So, we’re watching, I think, Thor: Ragnarok.
Josh Robb:
Oh. That’s one of my favorites. It’s hilarious.
Austin Wilson:
Which I’ve never seen. It’s hilarious?
Josh Robb:
Oh, man. This is… It’s a good one.
Austin Wilson:
So, my wife, Jenna, has a… One of her favorite characters in all of the Marvel series is Loki.
Josh Robb:
Okay.
Austin Wilson:
And…
Josh Robb:
He’s good.
Austin Wilson:
Yeah. So, it kind of… The last Thor movie kind of left you hanging where Loki impersonated Odin, and pretty much, yeah, pretty much that “I love you. Thank you for doing what you did, son. You did good” to Thor. What Thor didn’t know, it was Loki but…
Josh Robb:
Yeah.
Austin Wilson:
So, now…
Josh Robb:
Spoiler.
Austin Wilson:
Yeah.
Josh Robb:
For anyone who hasn’t known that.
Austin Wilson:
Yeah, for anyone…
Josh Robb:
Sorry.
Austin Wilson:
Sorry, guys.
Josh Robb:
Sorry. The movie’s been out for four years, but sorry.
Austin Wilson:
You’re missing out. And I just watched it for the first time. But yeah. So, that’s what we’re on is Thor: Ragnarok.
Josh Robb:
Oh, you’re going to love Thor: Ragnarok.
Austin Wilson:
And we’re getting close to the end too. So, it’s like…
Josh Robb:
Final stretch there.
Austin Wilson:
We’ve got like Ant-Man and the Wasp. We’ve got Infinity War and End Game. There’s not a whole lot.
Josh Robb:
Another Star Wars.
Austin Wilson:
There’s no Star Wars in that.
Josh Robb:
Or another Spider-Man.
Austin Wilson:
Yeah, there is another Spider-Man. So, anyway, sidebar, Disney Plus, one year old. We pretty much use it a lot. It’s good.
Josh Robb:
We love it. Kids love it.
[13:25] – What Makes Credit Score Go Up or Down
Austin Wilson:
Kids love it too. So, I guess some general points we should probably make is, what makes your credit score go up and down? Josh?
Josh Robb:
That’s a good question. Up…
Austin Wilson:
Is good. We want good. Up is good.
Josh Robb:
The things you could do to improve your credit score. One, and this is big because if you think back to when Austin was giving you the rankings, the percentages of how it affects your score, how it’s calculated. So, up, the big thing is on-time payments.
Austin Wilson:
Make them.
Josh Robb:
All right? The better you can have on-time payments, it’s huge, because that’s 35% of that score ranking.
Austin Wilson:
Exactly.
Josh Robb:
So, on-time, consistent payments is huge. Low utilization, so that means if you have $50,000 of available credit, don’t use it all. Use 5. Use 10. Use as little as possible. Or in other words, pay down some of that debt, so you have less utilization.
Austin Wilson:
Yep.
Josh Robb:
Have less inquiries. So, anytime someone checks your credit score, it can affect it. Now, there’s two ways of checking it. If they do a credit check on you from like a job standpoint, they’re not accessing the full thing, so that doesn’t affect you. But if you’re going in to say, “Hey, I’m going to buy a refrigerator” and they check your credit, that’s going to have a ding on it. “I’m going to go buy a car” and they’re going to check your credit. The full check on your score can have an impact. So, just only do it if you’re serious about needing it. Don’t just go around willy-nilly having people check your score. If you’re really proud of it, I mean, just don’t “Hey, check my score.”
Austin Wilson:
Right. I want to see it.
Josh Robb:
And then cleaning up old accounts. So, you have open credit, especially credit cards, that affects it because the utilization comes to that. Again, you’re accessing, because let’s say you have a credit card that has a $2,000 credit limit, but you don’t use it. That’s still $2,000 available credit.
Austin Wilson:
Which is good. Yeah.
Josh Robb:
But if you’re not utilizing it, then it’s all, close that out of there.
Austin Wilson:
No, you do not.
Josh Robb:
You don’t want to close it out of there?
Austin Wilson:
You don’t want to close it out of there. Trick question.
Josh Robb:
I want to close it out of there.
Austin Wilson:
You do not want to close it out of there because closed accounts also ding you, and length of credit is a very important… So, you actually let…
Josh Robb:
I want to close it.
Austin Wilson:
It’ll close on its own eventually.
Josh Robb:
I want it gone.
Austin Wilson:
But yes, I know. I feel the same way, and I have done some research into this, but yes, you leave-
Josh Robb:
I see what you’re saying.
Austin Wilson:
Leave it open with zero balance.
Josh Robb:
Your old ones, like your old ones for the credit-
Austin Wilson:
Because you’re… Especially if you opened up some credit cards when you got out of college and you don’t really use those ones anymore.
Josh Robb:
So, don’t close-
Austin Wilson:
Those are your oldest credit, so you should not close those.
Josh Robb:
I don’t like those.
Austin Wilson:
They will close them on themselves eventually.
Josh Robb:
I didn’t even like that bank anyway.
Austin Wilson:
That was a trick question.
Josh Robb:
It was a trick question.
Austin Wilson:
Okay. So, things not to do. Things that make your credit card go down. Down is bad. Don’t close your credit cards.
Josh Robb:
Even though you want to.
Austin Wilson:
Even though you want to.
Josh Robb:
Even though I tell you to.
Austin Wilson:
Okay. New not… I’m going to say it again. Do not… One more time. Do not make late payments. Do not miss payments. And we’re going to get two ways to help your credit, but don’t do that ever. There’s really, with automatic payments, there’s really no excuse anymore. So, don’t ever do that. Do not use all your credit or more than all your credit, which I don’t think you can. Don’t use it all. That’s bad. Don’t go get your credit score checked all the time. And don’t open and close accounts every day.
Josh Robb:
Yeah.
[16:34] – Improving your Credit Score
Austin Wilson:
Because that affects your new accounts, the new inquiries and your length of credit. So, things not to do. Also, right there. So, how to improve your credit score? Well, this kind of goes without saying, but we just talked about it. Do pay your bills on time. Do pay them on time. And use automatic recurring payments.
Josh Robb:
Oh, it’s huge.
Austin Wilson:
It is so easy to set up too. You get a new credit card, the first thing you do is to set up automatic recurring payments. And in a perfect world, automatic recurring payments for the statement balance.
Josh Robb:
Yes, full balance.
Austin Wilson:
Because then you are not paying any interest and cha-ching. You just get rewards, which, see our credit card episode if you’re interested in learning about our thoughts on credit cards. But yes, set up recurring payments. And then, if your credit utilization is too high, you can ask your lenders to increase your credit limits. So, even if your utilization, you keep about the same in dollars, if you have more credit available, then your percentage goes down, which also helps your score. That’s another way to do that. Don’t close accounts. That will shorten your credit history.
Josh Robb:
I still want to close accounts.
Austin Wilson:
I know it’s so counterintuitive, but you should not do that.
Josh Robb:
And again, it comes back to, we’re talking about how to keep your score up. Right? When I’m talking financial planning as a financial advisor, sometimes closing accounts to remove… That has that temptation to overspend.
Austin Wilson:
Yes. Different sides of the same-
Josh Robb:
Totally different, which is again, why I keep coming back to…
Austin Wilson:
I want to do it.
Josh Robb:
Talking to people, it’s getting rid of some of those cards that are just hurting you, but you’re right. From a credit standpoint…
Austin Wilson:
Correct.
Josh Robb:
That makes sense.
Austin Wilson:
Correct.
Josh Robb:
It’s so hard.
Austin Wilson:
And you may be able to wean it down over time.
Josh Robb:
The other ones-
Austin Wilson:
Just don’t do them all at once or whatever.
Josh Robb:
Yeah, if you have ones that are more recent that you don’t use or you’re… For instance, let’s say you were, go back to the refrigerator, right? You go there and you open a store credit. You’re not going to use that store again, get rid of that because it’s just floating out there for no reason.
Austin Wilson:
Do keep in mind that anytime you close an account, it takes your total credit down. So then, your utilization, all things equal, will go up. Don’t-
Josh Robb:
We’ll talk to fraud in a minute. That’s the other reason why-
Austin Wilson:
Exactly.
Josh Robb:
Open ones you don’t pay attention to.
Austin Wilson:
Another thing to improve your credit score is, don’t be afraid to talk to your lenders, because if you have questions or whatever, it’s amazing what some of these companies can do if you just talk to them. So, give them a call. And then I haven’t used this, and I’m not sponsored by this at all, but there’s a new service I heard about through Experian called Experian Boost where they really allow you to… Yeah, they link other recurring payments, like utilities and phone bills and stuff like that, that’s really not on credit, but they link it to-
Josh Robb:
It shows your payment history.
Austin Wilson:
Yeah, they link it to show your payment history and it can supposedly help improve your credit score for free. That could be worth looking into. So, you had mentioned this, but checking credit’s important.
Josh Robb:
Yes. Pay attention.
[19:06] – How & When to Check your Credit
Austin Wilson:
But how and when should you check your credit reports?
Josh Robb:
Yeah, really, I think hourly makes a lot of sense. Just…
Austin Wilson:
I’ve check mine five times today.
Josh Robb:
That’s right. It just scroll across your screen, if you could put an app.
Austin Wilson:
That’s right.
Josh Robb:
No, really, honestly, as we talked about, you checking your credit score does not affect… It doesn’t move it. All right? You asking for your credit score doesn’t… Like we talked about, having other people check your credit when they’re looking for loans and stuff, you checking it doesn’t affect you. So, don’t think, “If I look at it, it’s going down.” But we also, there’s really no point in checking it daily, or hourly like I was joking, because it’s not going to change. That’s the thing about credit. Just really, it’s not there. But you should check it two times.
One, once a year, they allow you for free to check your credit score. All three places allow you annually to get a credit report for free and see where it’s at. Two, if you know you’re going to need it, that would be a good time to use that annual one. Or if you’ve already used it, and you’re just worried about making sure everything’s cleaned up before, let’s say I’m going to go get a home loan and I want to really make sure I get the best deal. It probably worth even paying for another credit report if you’ve been far enough out to just make sure everything’s in line and there’s nothing there you don’t know about. So, you can go to the FTC. They are the ones that monitor all the…
Austin Wilson:
Federal Trade Commission.
Josh Robb:
Federal Trade Commission. They’re cool people. They set up a website, annualcreditreport.com. That’s the only one that’s actually like, I don’t want to say endorsed, but that’s the one that they send you to, to get your free credit report. And we’ll set a link in the show notes for that. The Federal Trade Commission actually has a decent information about that, so we’ll link that as well. Just, that’s a spot to go, from the government, to give you some information you can trust, because they’re not trying to sell you anything. They’re not a credit monitor trying to get you to sign up for their business or anything. And the annualcreditreport.com is where they send you to for that.
Austin Wilson:
So, alternatively, if you want a little bit more real-time, less formal process of doing that, some personal finance companies, like I’m thinking of credit card companies, or if you use Mint or whatever, your budgeting app or whatever, which is an Intuit company, they will show you your quote-unquote real-time credit score, and it’s probably not perfect, but it’s dang close, and it can show you that.
So, I have a Capital One credit card, and they have an app, a specific app, separate from their credit card app called CreditWise. You can, with your same log-in from your credit card, you just use your thumb or whatever, you log in and you can see your credit score, which is great. And you can see all of the outstanding credit lines. You can see inquiries and everything. So, it’s kind of handy. And that’s, if you don’t want to get the official… If you’re in between getting the report once a year or whatever, it’s a great way to just make sure you’re kind of cleaned up. So, fraud. Fraud is…
[21:58] – Fraud
Josh Robb:
So, why you’re checking your report?
Austin Wilson:
We should be checking our report for things like fraud.
Josh Robb:
Yes.
Austin Wilson:
Because people steal identities and fraud happens rampantly, especially in the United States.
Josh Robb:
Yes.
Austin Wilson:
So.
Josh Robb:
And what you don’t want is to get a letter in the mail saying, “Hey, here’s this credit card that has $10,000 on it that you haven’t paid anything on.”
Austin Wilson:
And you’re like, “What’s that mean?”
Josh Robb:
“We’re collecting.” You’re like, “I didn’t have a credit card.” And so, that’s what you’re checking for is making sure there’s no open line of credit that you did not establish.
Austin Wilson:
Exactly. So, if you notice something funky, when you’re looking at your credit report, first of all, look into it, get ahold of the lender, and talk to them about it, and make sure that they can take care of it, because you’re not liable for credit that’s not yours.
Josh Robb:
Right.
Austin Wilson:
So, if it is identity theft, there are protections in place that you are not-
Josh Robb:
But it’s a pain and it can affect your score.
Austin Wilson:
But it’s a pain and it can affect your credit score. So, look into it, take care of it with the lender, take care of it with the credit union or the credit provider that it’s showing up on.
Josh Robb:
And you may have to contact the police. I mean, there are possible crimes that you have to report and go through that process.
[23:34] – Freezing your Credit
Austin Wilson:
Exactly. So, and one thing that those credit reporting agencies can do is they can put additional fraud protection on your account, if you’ve noticed funky things happening. You’ve got it taken care of. It’s great. It looks clean now. Things are good. They can put additional protections for specified periods of time on your account to have them… If you apply for a new loan, then there’s an extra step of protection where they have to verify your identity and all this other stuff. So, that is one thing that you can do. You can also think about freezing your credit. So, what are some instances maybe where you would think about freezing your credit? And what is that? I guess.
Josh Robb:
So, freezing your credit puts a block that no new…
Austin Wilson:
It’s like where you put all your credit cards in the freezer?
Josh Robb:
It’s not in the freezer. No new credit can be opened. And so, it essentially-
Austin Wilson:
Or closed, I guess.
Josh Robb:
Yeah. No activity can happen on your open credit. And so, what it does is it eliminates the opportunity for someone to cause fraud on your credit. Now, it’s important to note that when you do that, they’re going to mail you a code, and that’s how you unfreeze it. If you lose that code, you’re in a lot of trouble. And so, you just got to be very careful.
Austin Wilson:
Put it in the freezer.
Josh Robb:
Yeah, put it somewhere safe. The idea there is though it protects you so that you will be sure that nothing’s going to happen. So, someone went and applied for credit. Even if it’s you, you will not be approved. You will not be able to get it because it’s frozen.
Austin Wilson:
Correct.
Josh Robb:
And then, like you mentioned, is you could put that more of an alert on there, which doesn’t stop it, but as one layer of protection where they either call you or text you or some way of confirming that it’s you doing it.
Austin Wilson:
So, I guess a couple age groups that may be beneficial for a credit freeze, because they maybe have no use for credit is kids.
Josh Robb:
Kids and really old people.
Austin Wilson:
Yeah. Kids, they have no use for credit, but they have a social security number, so I guess in theory, could have fraud happen.
Josh Robb:
Yes.
Austin Wilson:
So, probably not a bad idea to think about freezing your kids’ credit because that would be…
Josh Robb:
Don’t lose the number though. So, when they’re ready to get credit, they can have it.
Austin Wilson:
Alternatively, the elderly, because they are the most susceptible to fraud. Think about all of those scam calls. They’re the ones that typically are most susceptible to that. So, that is unfortunate. But maybe if you’re paying cash for your way through life as an elderly person, great. You do not really need credit.
Josh Robb:
Just lock it up.
Austin Wilson:
Lock it up and leave it. Don’t lose your paper.
Josh Robb:
Yes.
Austin Wilson:
It’s like your Bitcoin code or whatever. If you lose it, you’re just done.
Josh Robb:
I just think of… Yeah. I mean, the idea there is, there’s things in place. The alerts to me are a lot better of an option.
Austin Wilson:
Yeah, I agree.
Josh Robb:
Because it usually lasts for about six months or so, so you have to renew. And you can renew it.
Austin Wilson:
You can keep it up to seven years in some instances.
Josh Robb:
Yup. Especially if you had issues, they can extend it longer. You have to renew it. But the idea there is, it’s not permanent, but it does help put an extra layer on.
Austin Wilson:
True.
Josh Robb:
Usually, it’s free or relatively cheap to do.
Austin Wilson:
Yeah.
Josh Robb:
So.
Austin Wilson:
So, let’s wrap it up.
Josh Robb:
By the way, Jess, our colleague, in The Everyday Advisor, she did an article.
Austin Wilson:
On freezing your credit.
Josh Robb:
So, if you’re interested in freezing your credit, she did an article.
[26:18] – Who Needs a Good Credit Score?
Austin Wilson:
Absolutely. We’ll link that in the show notes. So, Josh, who needs a good credit score?
Josh Robb:
No one.
Austin Wilson:
No one.
Josh Robb:
No.
Austin Wilson:
Well actually, that’s the second part of my answer is, who doesn’t need a good credit score? So, who does not need a good credit score is rich royalty who don’t need to worry about their finances. AKA, probably not you and not us. So, that’s who does not care about their credit score, but who does? Anyone else.
Josh Robb:
Yeah. And it really just depends on where you’re at in life. So, if you own a house, have a credit card, if you want one, and have a car you like, and aren’t planning on getting anything new, you don’t need a credit score. But if you think you’re ever going to need some way to loan you money, you’re going to want a credit score.
Austin Wilson:
In any way, shape, or form.
Josh Robb:
In any way, shape, or form, so. Yeah, and it is out there. Some jobs too, depending what industry you’re in. Also, take a look at that as well. So, you’re right. Most people need to at least be aware of the credit score and do the best they can to get it in a good to excellent type of area.
Austin Wilson:
Yeah. I would say that the most acceptable form of debt from a financial advisor perspective is probably a low-fixed-rate mortgage. Nice. And you’re going to need a good credit score to get a good rate on that. So, even if you’re extremely conservative in the way you run your finances and avoid debt like it’s the plague, you don’t have car payments, you don’t have credit cards, housing is expensive, and if you… Great for you, if you have enough cash to go buy a house, but most people really aren’t in that situation. So, monitoring your credit and having good credit is probably important in that way.
Josh Robb:
If you plan on living in your parents’ basement though, and never owning anything, you may not need credit either.
Austin Wilson:
Man.
Josh Robb:
So, it’s not royalty or rich, but it’s not-
Austin Wilson:
Yeah, I didn’t really moocher. I didn’t really take that. I need to talk to my parents about that. Is it too late?
Josh Robb:
Move back.
Austin Wilson:
I got married and I have a three-year-old. Can I move back in?
Austin Wilson:
So, as always, check out our free gift to you, it’s a brief list of eight principles of timeless investing. These are overarching investment themes meant to keep you on track to meet your financial goals. It’s a wonderful PDF. It’s free. It’s on our website. So, check that out. Josh, how can people help us to continue to grow this podcast and help people week after week?
Josh Robb:
Yeah. Subscribe, that’s the big one. That way, you get an alert or it automatically downloads to whatever you use to listen to the podcast. Leave us a review, especially on the Apple Podcasts website. That’s where we get ranked and so more people can find us and we can help more people. If you have any great ideas or have questions about freezing your credit or anything like that, email us at hello@theinvesteddads.com. We’d love to hear from you. And then finally, if you know somebody who is new to credit or trying to figure out what they need to do, and you think this episode will help, make sure you share it with them.
Austin Wilson:
All right. Well, until next Thursday, thank you and have a great week.
Josh Robb:
All right. See you later.
Austin Wilson:
Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.
