Carolyn Feldman of Nationwide Credit Clearing joins us for the first of two episodes today. We cover a wide range of topics from establishing credit to the difference between a FICO Score and what she calls a "Fake-O Score."
When you're young and you need to establish credit, you may want to consider a secured credit card - Carolyn explains the difference between secured and unsecured, as well as how credit utilization and bill payment affect your credit score.
To get your true credit score, you'll want to get your FICO Score from MyFico.com. You're able to look at your true FICO score (that potential lenders see) once per year at each of the three major credit bureaus, for free.
Beware of a website called Credit Karma - this is only an estimate of your score. They have only 2 of the 3 major credit bureaus - Experian won't participate with them. So Carolyn calls Credit Karma your "Fake-O" score as opposed to your FICO score.
If you're a Capital One customer, they have a program called Credit Wise. This is a true FICO Score.
It's important to know the difference between a hard pull of your credit history and a soft pull. When you check your score, that's a soft pull. There's no penalty for checking on your rating. When a third party pulls your score, that's a hard pull and can affect your rating.
Credit cards have billing cycles and statements, and credit bureaus are no different - this will affect when new information hits your credit report. Carolyn says to think of it like a report card. She explains why.
If you find an error on your credit card report, you can challenge it. And, by law, if the creditor doesn't respond in 30 days, it comes off your report. But remember, often the dispute is with the lender, not the actual credit reporting agency.
We also spend some time on medical bills, which are often a source of financial hardship. Medical bills do not go on your credit report until they are unpaid. This is why it's a good idea to even make small payments on a large bill, so they remain in repayment.
To reach Carolyn at Nationwide Credit Clearing, you can call her at 248-254-3315 or send her an email at carolyn@mynationwidecredit.com
To reach Paula Christine regarding any financial questions, visit her website at PaulaChristine.com or email her at Paula@PaulaChristine.com
Paula: Welcome to be on the Paycheck. I'm Paula Christine. Today we're gonna talk about credit. I know we've talked about it in the past, but now we have an expert. So I wanna welcome Carolyn Feldman from Nationwide Credit Clearing. Welcome, Carolyn.
Carolyn: Thank you for having me.
Paula: Thanks for joining us. So let's just start off with some of the basic things.
So let's say I'm a 20 year old or younger, or just have never established credit. What's the best way for me to establish credit?
Carolyn: Through a credit card. Get a secured or an unsecured credit card. The difference being when it's unsecured, somebody already has put credit or they're allowing them to start their credit without any issues on it.
So they give them a credit card. The other way is a secured credit card, and that means that you are a higher risk. So you give them money and then they put that on a credit card and you get the benefit of having a report on the bureaus every month. So if you're taking out, let's say, a $200 line of credit, give them the $200, and then they give you that amount to work with and they record it every month on the bureaus, like it's a regular unsecured credit card.
So either way, it's helping you establish credit.
Paula: So if you have, let's say that $200 credit limit, do you max it out and then pay it off? Does that show something good to the credit? How does that work?
Carolyn: It just depends. Credit cards have what they call a utilization ratio. Simply put, the amount of money that you're borrowing against your limit, determines what your score's going to be on a month to month to month basis.
So if you go over 30% and your score goes down about a point for each percent or over. However, If you pay it down to zero, then obviously your score's not being affected at all. But if you leave a balance on it, you're gonna have to pay interest on it. Correct.
Paula: So you could charge up to 200 as long as you pay it off.
Carolyn: Correct. But you don't have to pay off the full balance. The key is just to pay at least the minimum to that full balance on time every month. So let's say you charge a hundred dollars. And you have a balance of that amount, a hundred dollars out of 200, they send you a bill, and based on that bill, you only owe $25 minimum.
If you make that minimum payment up to that hundred dollars, then your score is not affected that month. In fact, it's like an A on a report card, so you just have to pay it on time. But if you pay less than a hundred, You're going to have to pay interest on it. But the key is once you have a balance on there to make the payment on time.
Paula: Perfect. So you mentioned your credit score. So how do you check your credit score?
Carolyn: Yeah, there's different ways to do that. Now, what people really wanna see, if they wanna see the true score, they have to look at the FICO score. And the FICO company has a website called MyFICO, MyFico.com. And what it is they're showing you the real score that somebody else would pull if you were applying for any credit line, mortgage or car, whatever.
They can sign up through the bureaus, which is TransUnion, Experian, and Equifax. And then be able to see it monthly, or they can just look at it that one time through myfico.com. Now, there's another site that a lot of people are very familiar with, which is Credit Karma. However, credit Karma only shows you a estimate of a real FICO score.
So whenever you see the word credit, you might only be seeing an estimate. If you see FICO score, you're seeing the true score. Now, Credit Karma only has TransUnion and Equifax, but I affectionately call it the Fake-O score because it's not the real FICO score. Experian will not participate with them.
Jon: That makes a lot of sense, Carolyn, because I think I've played with that Credit Karma app on my phone and I'm like, something about this doesn't seem right. So you're right. I think it's given my Fake-O scores opposed to my FICO.
Carolyn: Yeah. Sometimes you go in into stores and they say, we'll give you a free credit score. What you really wanna get is a FICO score because there's a difference. And they play on that on those two words on a lot of advertising. I'll get your free credit score. No, you want your FICO score. And there are some companies that will allow you to see the real FICO score. Capital One has a service called Credit Wise.
They actually show you the FICO score if you're signed up with Capital One. So there are certain sites that will give you that real score, but if you wanna see the score, you can look at it as many times as you want, wherever you're gonna look. It doesn't affect your FICO score at all. A lot of people know about what they call hard pulls and soft pulls.
And really what it means is your score being affected by you looking at your score. And it's not. If you are looking at your own, so to speak, report card and your own grade point average, it doesn't affect you.
Paula: When a third party pulls that, then that affects your credit score.
Carolyn: That affects your FICO score. So even if they tell you they're doing a soft poll, they can't. Because they have to go through the front door at the bureau to get those FICO scores.
Paula: Oh, that's interesting. A lot of people say that.
Carolyn: Yeah, so I always tell people they may tell you that either they don't know or they're misrepresenting that information, but I always tell people, simplify it.
If you're trying to get into college, that's a third party. Okay? But if you're looking at your own report card with your own grade point average, That's a soft pull. That's you looking at your credit as many times as you want and there's no effect on the scores. It shows you look, but it doesn't affect the actual scores, is what they call a hard pull.
Jon: I'm glad you told me about Credit Wise cause I feel better now because I also have that app, which is part of Capital One.
Carolyn: Yeah, that's a real FICO score.
Jon: I have a Capital One card, and if my balance goes up, if I make a really big purchase on my credit card, I'll get an alert from credit-wise and it'll say Your FCO score has changed, and I'm able to look at it. So it's good to know every time I do look at it, it's not affecting my credit score.
Carolyn: Correct. They have what's called posting cycles. The bureaus, they don't change your score until the new information comes out. So think of it like a new report card comes out, and that's when you get your new grade point average.
When does that come out? Here's the thing. You don't know when the, first of all, the credit card company doesn't immediately notify the bureaus that they've recorded a new balance. So you know, with credit cards you get monthly. You know that you owe this amount for this month, the statement.
And that's their billing cycle. But the bureaus have what's called posting cycles, and what that means is when the credit card company notifies the bureaus, here's the person's new balance. Once it hits the new posting cycle, that's when you see the score change. So I always tell people, if you're about to buy a house, you wanna do everything three weeks before just to make sure that it hits the bureaus and that it's recorded in time for that pre-approval letter or whatever you're gonna be doing. So you just play it safe by doing it three weeks in advance. And then you don't use the credit card account.
Paula: We've heard from mortgage people that it's best not to purchase anything right before you buy a house anyway, or while you're in the process, cuz it, it's very difficult, right?
Carolyn: Here's the reason why. If they're gonna hold the carpet against the house because you bought the carpet first, why did you buy it first? So if they're gonna hold that carpet against the house, you wanna buy the carpet after the house, which means don't put debt in front of the house. Put the debt after you buy the house because they're gonna hold that carpet against the house when they give you the loan.
So that's why I tell people, pay down your credit card balances before the loan, because once you hit over 30% and that's how it's recorded at the zero, you have a lower FICO score than had you just paid it down to zero. And the great thing about paying it down to zero is not only do you have a higher FICO score, but now you have less debt against the house.
So now you can get more money, but if you pay it down below 30%, it's not affecting your FICO score. But I tell people, if you're about to buy a house, don't you want the best score and the most amount of money offered to you?
Paula: Correct? Yes.
Carolyn: Plan 30 days out before you know you buy a house because here's an opportunity for you to get ahead of the game at the bureaus.
Paula: Huh, interesting. How often should you run your credit report and actually look at everything that's on it?
Carolyn: Here's a great thing. All three bureaus only participate together on onewebsite. It's www.annualcreditreport.com, and they all participate on that website. And what they give everybody a chance to do once a year is to look at their credit report.
So I tell people you can pull all three together or you can pull them separately throughout the year, but once you pull it, they won't let you back in for free. So I always tell people, try to be next to a printer so you can download it and then have a hard copy of it, and then go through it. That's also a good chance for you to look for identity theft too.
Paula: Okay, but what if you find an error?
Carolyn: Then you can challenge it through the bureau. But here's what I tell people so they understand. When something's incorrectly recorded, the bureaus are the report cards. You're not fighting with them, you're fighting with the teacher that put it on there. So you're actually disputing the creditors.
Because they put it on there. They're the only ones who can take it off. The bureaus can't, they didn't put it on there. They can't take it off, so they don't care what's going on between you and the creditors. They're just getting paid for that report. So you're really fighting with the creditors.
So they have a legal 30 days to respond. That's the law. So they may immediately take it off because it's incorrectly recorded. But if they don't respond by day 30, they've already waived the rights. So by law, they have to take it off. The bureaus have to take it off.
Paula: So let's talk about medical bills, because that's usually what ends up getting people in a lot of trouble with their credit score is medical bills, right? How much, unpaid medical bills, how much does that affect your score?
Carolyn: Medical bills, they don't cost that many points. The problem is that usually they don't record until you stop making payments, and then they wanna punish you by putting it on the report.
It's a collection or a charge off, whatever they're gonna record it as. It's like rent. In the past they never recorded rent, but once you stop paying it, then they record it. So it's the same thing with medical bills. I always tell people just try to, make some minimum payment to the medical bills.
They don't record monthly if you're paying them back. They only record it when you default, when they send it off to a collection agency.
Paula: I think that's good to know.
Carolyn: Yeah. I was gonna say, one thing that a lot of people make the mistake of is, they try to negotiate with hospitals or they hire an attorney and the attorney knows better, which is you can't negotiate.
There is nobody at a hospital that has that authority or authorization to negotiate a bill. So you really can't negotiate anything through a hospital. But once you start getting medical bills, if you stop making payments and then they send you a notice saying, we're gonna send this to collections unless you start paying this.
You definitely wanna start paying it. But Paula, for simplification purposes, I always tell people, even though medical bills aren't as many points against the FICO score, the problem is you're putting a fresh F on a report card. So think of it like that, right? Yeah. So an F in a gym class is the same F as in an engineering class.
It's still an F on our report card, so it will hurt the FICO scores. And more so because you just flunked the class in 12th grade.
Jon: So Carolyn, is it possible that, say you had a bill of, I don't know, $20,000 from a hospital stay. Obviously you're not gonna have $20,000 to give them, but if you give them like 50 bucks, 50 bucks, 50 bucks, can sometimes a little small amount keep them from sending you to collections or is that sit dependent on the situation?
Carolyn: Absolutely. Absolutely. That's what you wanna do. You wanna keep the ball rolling that you're paying them, because in the end, once they accept the payment, that's compliance. They've agreed to accept that payment. Just like a landlord who says he wants to kick you off, but then he cashes your monthly rental check. Can't do both. Can't kick somebody out and accept their payment. So it's the same thing.
Paula: You just are just such a wealth of knowledge. And a lot of it makes sense and I think people get themselves in trouble because they fight the system. And if they just, like Jon just said, 50 bucks a month or whatever it is.
That they would be so much better off. Exactly. But I often hear people that just wanna fight the system. They're not gonna pay their medical bills because the cost is too high and they're not gonna do this and they don't make minimum payments or they make their payments late and they just end up getting themselves in trouble.
From what you're telling me is just make those payments, make some type of payment. And it's really not gonna effect your credit score.
Carolyn: Correct. And sometimes you can call them and set up a payment plan.
Paula: So that's what I think we're gonna stop this episode right here and I, we're gonna have you back next week, and I think what I wanna talk about is the service that your company offers.
And how that can help somebody in that situation that we just talked about.
Carolyn: Absolutely.
Jon: You wanna ask her for the contact information, Paula?
Paula: I was going to, but you interrupted me.
Jon: She interrupted first, so
Carolyn: Yeah. Yeah. John, forget about your happiness. It's about ours. Okay, go ahead, Paula.
Paula: Carolyn, how can somebody get ahold of you?
Carolyn: I have a private landline number because we take confidential information over the phone. My private landline number is 248 254 3315. ,248 254 3315. I'm their lead advisor nationally, so I have a private landline number.
Paula: Okay, perfect. Thank you so much for joining us today, and we'll talk again next week.
If anybody wants to reach me, they can email me@paulapaulachristine.com or you can check out my website at Paula Christine dot.