Deep Dive on Credit Reports, Scores, and Their Real-World Impact

00:00:00.000 | Your credit score has so much information in it that impacts how much you pay for everything from

00:00:05.140 | your home to your car. It could even impact what jobs you can get. Even worse, there are over 20

00:00:10.480 | different models being used to calculate your credit score. So if you don't know which model

00:00:14.140 | is being used and how credit scores actually work, it can really cost you money. But good news,

00:00:18.960 | today is a masterclass on credit reports and scores, and we're going to go deep on how these

00:00:23.660 | numbers are generated, how to improve them, why they matter, how opening cards, closing cards,

00:00:28.240 | and earning points plays into it all. And I'm going to share what I learned from checking over

00:00:32.180 | 42 different versions of my own credit score and so much more. If you're new here, I'm Chris Hutchins.

00:00:37.900 | I learned so much doing the research for this episode, so I really hope you enjoy it. And if

00:00:42.040 | you do, please share it with a friend or leave a comment or review. And if you want to keep upgrading

00:00:46.560 | your life, money, and travel, click follow or subscribe. First, let's talk about credit reports,

00:00:52.760 | which are a multi-billion dollar industry that's been around for a long time. In fact,

00:00:57.620 | maintaining information on borrowers actually dates back to the early 1800s. Merchants on the East

00:01:04.060 | Coast actually needed a way to judge the creditworthiness of customers and borrowers on

00:01:08.440 | the West Coast. This was in the age of the Transcontinental Railroad and the Telegraph,

00:01:13.160 | and suddenly people could communicate across really far distances pretty quickly, but where they were

00:01:19.060 | increasingly doing business with folks they'd never met in person. So they needed a way to figure out

00:01:24.200 | who was a safe bet for a loan and who was most likely to end up on one of those old-school

00:01:28.680 | wanted posters. In 1841,

00:01:30.640 | Louis Tappan founded the Mercantile Agency, which started as an informal operation collecting

00:01:37.160 | subjective and anecdotal information on customers' financial reliability. These early little bureaus,

00:01:43.140 | like that one, started recording details about people's character, their lifestyle. They started

00:01:48.320 | compiling data through conversations with neighbors, associates, local merchants, and they were really

00:01:53.460 | subjective as an approach to creditworthiness. But by the mid-20th century, credit reporting became much

00:02:00.080 | more standardized, driven by increased consumer lending and the growth of department stores and

00:02:05.720 | credit cards. In the early 1950s and 1960s, thousands of local credit bureaus began consolidating

00:02:12.560 | into larger agencies, with companies like Equifax, Experian, and TransUnion emerging as the dominant

00:02:19.440 | players. The era also saw the advent of computerized databases dramatically improving the efficiency,

00:02:26.080 | accuracy, and reach of credit reporting. However, the rapid expansion of credit data collection led to

00:02:31.720 | growing concerns over privacy, accuracy, transparency, and all of those things for consumers.

00:02:37.360 | In response to these issues, the Fair Credit Reporting Act, FCRA, was enacted by Congress

00:02:43.000 | in 1970, significantly reshaping the industry. The FCRA established regulations to ensure credit

00:02:49.520 | reports' accuracy, fairness, and privacy, granting consumers the right to view their reports, dispute

00:02:55.480 | inaccurate information, and know when their credit information impacted decisions such as lending or

00:03:00.940 | employment. Today, the credit reporting industry is still dominated by those three major bureaus,

00:03:05.280 | Equifax, Experian, and TransUnion, which use really sophisticated scoring models like the VICO score

00:03:10.700 | to objectively assess consumer credit worthiness and manage financial risk.

00:03:14.660 | Now, a question you might be wondering, at least I was, is why haven't these three bureaus merged to

00:03:19.380 | one since they're all doing something very similar? Well, my research and chat GPT didn't lead to a

00:03:24.440 | compelling answer other than that's how things evolved, competition is good, and there's lots of

00:03:30.020 | antitrust regulation issues when there becomes just one agency. But practically, they are all about the

00:03:35.680 | same, but not exactly the same. So let's dig in a little more. Let's start with what a credit

00:03:40.660 | report is. It is a record of your financial life, at least as it relates to borrowing and

00:03:46.440 | liabilities. The record's primarily kept by those three bureaus I mentioned, and it's used to create

00:03:52.240 | your credit score, but it doesn't actually contain a credit score. It does include a lot of your

00:03:56.960 | personally identifiable information, or PII. It has things like your address, your past addresses,

00:04:02.260 | your name, other names you've used, your date of birth. It does also include some of your work history,

00:04:08.400 | and public records information like bankruptcies. For the purpose of a credit report, bankruptcies do

00:04:13.940 | stay on your credit report for a while. If you file a chapter 7, it's on 10 years. If you file a chapter

00:04:19.140 | 13, it stays on for 7 years. But the meat of your credit report is the credit section, which is divided

00:04:25.480 | into two parts, adverse and satisfactory accounts. All the information in this section is voluntarily

00:04:32.820 | reported by lenders, and each account is recorded along with the age of the account and lots of other

00:04:38.660 | information like your highest balance, the date it was first seen, last activity. I'm even seeing the

00:04:44.800 | scheduled payment amount on some of mine. The adverse lines of credit are those that have not been paid,

00:04:51.120 | have missed payments, and were sent to collections or charged off. Like chapter 13 bankruptcies,

00:04:56.660 | debt in this section typically gets removed after seven years, but credit bureaus still keep it on file.

00:05:02.100 | And if you apply for a line of credit that's over $150,000, think a mortgage, or $150,000 face value

00:05:09.640 | life insurance policy, or if you apply for a job with an annual salary of over $75,000, that older

00:05:16.660 | information can be released upon request. Any lines of credit in good standing, revolving, or installment

00:05:22.660 | make up the satisfactory account section, which is where most of the things that I hope all of you

00:05:28.500 | all are seeing on your credit report live. Finally, the credit report does have a record of all the

00:05:33.220 | inquiries made on that report, whether it's by you or other financial institutions, both hard and soft

00:05:39.820 | inquiries. And the difference being that a soft inquiry is one that can check your credit, but not make a

00:05:45.820 | lending decision. So a soft inquiry actually has no impact on your score, and you might have tons of them.

00:05:51.540 | They usually come from when you're checking your own credit or a credit reporting tool you're using, or

00:05:57.380 | some banks use them to give you a pre-approval, so they can look at your credit report, decide if they are

00:06:03.140 | going to lend you money. When they come to the point which they will lend you money, or approve you for a credit

00:06:07.860 | card and actually issue it, they have to issue what's called a hard inquiry, which is officially making a lending

00:06:13.500 | decision, and that does stay on your credit report, and that can affect your score, and we'll get to scores in a

00:06:19.440 | little bit. For example, when I went through my credit report, I can see 22 different accounts. Now, the funny

00:06:25.120 | thing is, of those 22 accounts, three of them don't actually show up on my TransUnion report, two don't

00:06:31.360 | show up on Equifax, one doesn't show up on Experian, and they're not all the same. Now, to be fair, that does

00:06:37.680 | include closed accounts. So of my active accounts, which is just 12, only one of those accounts doesn't show up

00:06:45.360 | on one report, and it's from a random fintech startup. So for the most part, my active current

00:06:50.940 | accounts are still being reported to all three credit bureaus. Additionally, if I look at the

00:06:55.920 | inquiry section, it's also a little off, and I have two recent inquiries from Equifax, six from TransUnion,

00:07:02.060 | six from Experian, but only two of those total 14 inquiries are actually the same, so it's 12 total

00:07:09.520 | inquiries. And that's because most of the time someone's looking to make a lending decision. And

00:07:14.700 | when I say lending decision, that could be approve you for a mortgage or an auto loan or approve you

00:07:18.440 | for a credit card. They're only pulling one report from one agency. And so in occasion, like I mentioned,

00:07:25.280 | two of them, they pulled multiple reports, but that doesn't always happen. Do keep in mind, I am in a

00:07:30.120 | situation where I don't have any collections or public records or delinquent payments that made it to my

00:07:35.900 | credit report. So none of that information is there. I don't actually have a lot of info on what

00:07:40.780 | that looks like because I can't view other people's credit reports, which is a very good thing. I will

00:07:45.400 | say one thing when it comes to delinquent payments. If you are delinquent by less than 30 days, most of

00:07:50.640 | those issuers aren't going to report that if you correct it before the 30 day mark. So it's not all

00:07:55.420 | delinquent payments. Finally, there is another notable thing missing, and that is all nine of my business

00:08:00.320 | credit cards. I'll get to that a little bit later, but most business credit cards don't report on your

00:08:05.000 | credit report, at least not your personal credit report. I also opened a Citibank card at the end

00:08:10.200 | of February. That wasn't on my credit report. It hasn't made it there yet. I'm recording this in

00:08:14.880 | the middle of March. And our mortgage, for whatever reason, the mortgage lender we have doesn't report

00:08:20.880 | that to the credit bureaus. Turns out there is actually not an easy defined way that I could say,

00:08:26.320 | hey, can you start doing this? I could make the request, but there's no way to require anyone to do it.

00:08:31.340 | It's all voluntary. But also, I'm not sure, and I'll get to this later, whether it would be worth

00:08:36.600 | adding. I do have a mortgage of a high balance. I don't know if that would benefit me, but I will

00:08:41.100 | get to that later. So at least for now, I haven't requested it get added. This episode is brought to

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00:10:55.760 | So that's what's on the report. But how do you get your report? Well, it's easy. You can request your credit report from all three bureaus for free by going to annualcreditreport.com. You can also call and I'm sure there's an address you can mail. But doing it online is super easy.

00:11:02.200 | You can request your credit report from all three bureaus for free by going to annualcreditreport.com. You can also call and I'm sure there's an address you can mail. But doing it online is super easy. There are hundreds of other sites out there that will sell you your credit report. As far as I can tell, they are all an absolute waste of money. Because you can get your credit report for free. Additionally, many sites like Credit Karma or maybe your bank or

00:11:32.140 | credit union will give you your credit report free. But the ones you get from annualcreditreport.com are straight from the credit bureaus. And I found them to be really comprehensive, easy to use. And like I said, free.

00:11:45.260 | Now, despite the domain name annual credit report, this is no longer annual. It used to be that you could only get your credit report once a year. During the pandemic, they made some changes. And now all three credit bureaus allow you to get your credit report every single week.

00:11:58.380 | Now, when you first get your report, I'd encourage you to read it carefully because there might be information on there that you don't recognize. Now, sometimes that might be an old credit card that you forgot about. But other times it could be something that isn't correct. And maybe it's not nefarious. Maybe it's not bad, but it's just inaccurate.

00:12:14.860 | In either case, you'll want to dispute something that you don't recognize. And you can do that by contacting the credit reporting company directly. You could do that by calling them, going to the website. But believe it or not, the gold standard for disputing is to actually send a letter. And the CFPB does have free templates.

00:12:31.940 | Those disputes must be handled by you, the person impacted. Even some of these fancy credit monitoring services that we'll talk about later can only offer you templates or get on a conference call with you because ultimately you have to be the one that disputes it. So they don't really offer anything that you can't do yourself.

00:12:48.880 | Now, filing those disputes can have an immediate impact on your credit score, which is great. So definitely do that. But if there are things that are accurate, but impacting you negatively, maybe you missed a payment many years ago. Reminder, after seven years, those negative items should be removed from your report, but it doesn't always happen. So if you find anything that's over that limit, you can also request that be removed. Now, it doesn't erase it from the world. If you have debt and you owe someone money, a financial institution, for example, and it's been eight years,

00:13:18.760 | and you remove it from your credit report, you still owe that money. So you can't rely on the fact that you've removed it from your credit report to erase that debt. Additionally, there is a rule recently that the CFPB passed that said medical debt should also be getting removed from your credit report as well.

00:13:34.340 | So last on reports, let's talk briefly about credit freezes, fraud alerts, and credit monitoring. Earlier, I explained how a hard inquiry is when a lender is making a decision like approving you for a new loan or a new credit card. Freezing your credit will prevent those inquiries.

00:13:48.640 | And thus prevent a lender from opening an account for you. Now, that can be a good thing if someone else is trying to open an account in your name. This will prevent that from happening. Now, it will also prevent you from opening up your own credit card or loan if you don't remember to unfreeze your credit before doing that. You get denied immediately, and you end up having a call to get things reconsidered once you've unfrozen your credit.

00:14:11.640 | I've done this a few times and thought, gosh, why didn't I get approved for this card? Oh, I forgot to unfreeze my credit.

00:14:17.080 | That said, I do think the upside of preventing someone from opening an account in your name is worth the effort, so I do keep my credit frozen.

00:14:24.100 | And you have to do that with all three major credit bureaus one by one, but fortunately, it's easy and you can do it for free on all of their websites.

00:14:32.240 | Separate from that, you can also set up what's called a fraud alert. There are three options. There's your initial fraud alert, your extended fraud alert, and an active duty alert.

00:14:40.900 | They all simply require a business who you're talking to about a loan or a mortgage or a new credit card to contact you directly to verify your identity before opening up any new accounts in your name.

00:14:54.240 | So what happens is you'll go online, you'll apply for a credit card or an auto loan, and then you'll get a phone call from that lender trying to make sure that was really you.

00:15:02.900 | So it doesn't prevent them from doing it like a freeze would, but it requires an extra step.

00:15:07.720 | So if you want to be able to sign up for a credit card online, get immediately approved, get your virtual card numbers and start spending that card, this could slow that down.

00:15:16.600 | But if you want to protect your identity, which is what this is for, it can be super helpful.

00:15:21.080 | So this is primarily for that use case, someone who's worried about their identity getting stolen, and that lasts for one year.

00:15:26.820 | You can extend it for seven years, but only if you're a victim of identity theft, and you actually need to prove and provide some supporting evidence of that.

00:15:34.740 | Finally, if you're an active duty military, you can get an active duty fraud alert.

00:15:38.400 | It is also only good for one year.

00:15:40.320 | I tried to research how this was any different than an initial fraud alert because both of them can be renewed, and I couldn't figure it out.

00:15:47.300 | If anyone knows, feel free to let me know.

00:15:49.200 | But to set up any of these, you actually only need to notify one of the credit bureaus, and they will inform the other two.

00:15:56.040 | Finally, let's talk credit monitoring.

00:15:58.960 | There are many free services.

00:16:00.900 | Credit Karma has one, Experian has one, Capital One and Chase have one built into their portals, and they'll continually monitor your credit, often giving you a free credit score, and they can alert you of any changes.

00:16:11.760 | Those changes can be fraud, errors, or even just the inquiry that someone is checking your credit.

00:16:18.060 | Anytime I apply for a new credit card, I end up getting three or four emails from all these services saying,

00:16:23.580 | Oh, we saw a new inquiry once that card of cards approved.

00:16:26.220 | Oh, we saw a new line of credit on your report, that kind of stuff.

00:16:29.360 | There are also a number of paid services, and best I can tell, they market themselves as credit monitoring and credit scores and that kind of stuff.

00:16:38.520 | But their main benefit over what you can do for yourself for free seems to be much more focused on cybersecurity, providing you with access to VPNs or password managers or insurance or litigation support in case your identity is stolen.

00:16:53.160 | When it comes to actually credit monitoring, I haven't found anything that you can pay for that does more than you can do on your own, other than maybe simplifying the interface, making it faster or easier to get your credit reports.

00:17:07.100 | But they're not actually doing anything unique, and they can't freeze or unfreeze for you.

00:17:11.680 | They can't dispute things for you.

00:17:13.420 | In my opinion, they are all useless.

00:17:16.060 | Now, I talked about credit reports and the three major bureaus.

00:17:19.620 | Turns out there are a few other credit bureaus and similar agencies that, as long as we're going down this rabbit hole, I thought I'd touch on before I jump into credit scores.

00:17:29.140 | So, the first one is Inovus.

00:17:30.460 | They are another credit reporting agency.

00:17:32.840 | Creditors generally use them for identity verification or fraud prevention.

00:17:36.320 | But I ran my Inovus report, and unlike my credit report with 22 items, this only had five items, and it was pretty limited, and there was not that much information.

00:17:45.920 | It was free to check, so I'm glad I got to do it to be able to tell you about it, but it was not that informative.

00:17:51.260 | The next is Checks with an X.

00:17:53.720 | They are to bank accounts, as credit bureaus are to credit.

00:17:57.000 | If you're opening a new bank account, many banks query Checks' database for red flags in your banking history, and if you have a frozen Checks report, it typically means you will get denied for a new bank account.

00:18:08.460 | Now, later I'll talk about a few bank accounts I tried to open in the process of doing this research.

00:18:13.340 | One of them did not error out when I had my Checks report locked, and one of them said, hey, your Checks report's locked.

00:18:18.940 | Can you go fix that?

00:18:19.880 | One thing you can do when using Checks is you can opt out of pre-approved offers of credit or insurance.

00:18:26.180 | I don't like doing that because there are a lot of credit card companies that send elevated offers that I want to be able to get access to.

00:18:32.960 | What I did notice looking through my own report, which I did pull, is that it does have some of my personal information, a few inquiries from credit union accounts mostly, and then a ton of requests and inquiries from TransUnion slash Credit Karma.

00:18:48.420 | So I think Credit Karma is just querying all the things they have access to query to get as much data about you as they can.

00:18:54.740 | Kind of makes me wonder if I should delete my Credit Karma account, but I have not.

00:18:59.200 | And they do give you a score.

00:19:00.360 | The score took me an extra day from the actual disclosure report.

00:19:04.700 | I got a score of 682.

00:19:06.520 | I didn't have a lot of context on that.

00:19:08.580 | They said it ranges from 100 to 899 with higher score, meaning lower risk.

00:19:13.760 | But I did find a third-party website that said the way they look at these risk levels is depending on how risk-tolerant you are as a bank,

00:19:23.620 | you want to have something above a 525 to a 580.

00:19:27.800 | So I guess I am not at any of the cutoffs for a risky bank account user, which hopefully makes sense.

00:19:34.260 | I don't think I've been doing anything crazy to be put in that camp.

00:19:36.840 | But this was much more about bank accounts than credit, so I will move on.

00:19:40.520 | Another one is Clarity Services.

00:19:41.960 | They're kind of more for alternative financial services like payday loans or rent-to-loan agreements.

00:19:47.040 | You can freeze your report.

00:19:48.500 | It might prevent someone from taking out one of those things in your name.

00:19:51.540 | I went in to try to check on my report, and I just got an error that said unable to process.

00:19:56.300 | In order to do that, please send us a written request in the mail with all this information.

00:20:01.120 | I didn't go down that process at all.

00:20:02.880 | Another one is the National Consumer Telecom and Utilities Exchange.

00:20:06.580 | They focus on data from telecom, TV, utility accounts.

00:20:10.820 | You could freeze your report if you wanted to prevent someone from opening up a phone plan or a utility account in your name.

00:20:17.440 | I got a score on my report of 756.

00:20:21.220 | I have no idea what that actually means.

00:20:23.340 | The only thing on my report was an old Verizon account that showed as being closed that I paid my bills.

00:20:28.360 | And then yet again, another 61 inquiries from Credit Karma.

00:20:32.120 | Two more.

00:20:32.900 | One is the Early Warning Services report.

00:20:35.960 | Early Warning Services is owned by the seven largest banks in the U.S., and they gather and report information about your banking history.

00:20:42.820 | The information is pulled by banks when determining if you qualify for a new account.

00:20:47.600 | So similar to Chex, except this one was quite a bit more comprehensive and had a lot of information, mostly from those large banks.

00:20:56.960 | A lot of the fintech banks I've opened accounts in didn't show up on this report.

00:21:01.360 | But I will say that more than 80% of the banks pull your banking reports when they look for new account applications.

00:21:07.100 | So I'd say your Chex and your Early Warning Systems reports are really relied upon if you're getting a new bank account.

00:21:13.580 | I don't know what you might find on there, but it's free to pull both of them.

00:21:17.620 | So it's always interesting to do that if you are interested.

00:21:20.940 | But I didn't really learn anything from doing that.

00:21:23.120 | Last is LexisNexis.

00:21:25.640 | If anyone ever remembers looking up data, they are a big data provider across lots of verticals.

00:21:31.620 | But they do have a lot of information on consumers.

00:21:33.840 | They have public records information, insurance claim information, policy data.

00:21:38.160 | You can go in and request that, which I did and said it would come in the next two weeks.

00:21:42.860 | So I don't have anything to relate.

00:21:44.020 | You can freeze it.

00:21:45.000 | So there's an option to go freeze it.

00:21:46.240 | And then there's an opt-out.

00:21:47.400 | And one of the interesting things in here was there's opt-in, which I don't know why anyone would click that says allow for the sale of my personal information.

00:21:54.740 | And by the way, these opt-out things, they didn't show me the options until I changed my state to California.

00:22:00.940 | So I imagine there is some law in California that they're required to make it really easy.

00:22:05.920 | But I would assume, maybe incorrectly, that anyone can opt-out, but maybe it's not as easy.

00:22:11.600 | They had a partial opt-out that said, hey, allow for the sale of my professional information, but don't sell my personal information.

00:22:17.940 | And then they had a full opt-out that says, do not sell or share my personal information.

00:22:22.880 | And then a sub box that says, limit the use of my sensitive personal information.

00:22:27.040 | I don't really know why I would not fully opt-out and limit the use of my personal information.

00:22:33.380 | I care a lot about having my personal information not completely out all over the internet.

00:22:37.480 | So I fully opted out of LexisNexis after I requested my report.

00:22:42.360 | We'll see what's in there.

00:22:43.340 | This actually reminded me of something I've talked about in the past in episode 78, which is about your personal information.

00:22:49.380 | And so LexisNexis isn't necessarily a data broker, but one of the other places, if you're going through this process of trying to find all of your information, what's being stored and shared about you, is searching yourself online.

00:23:02.760 | And unfortunately, unless you've already gone through a process I'll describe, you will find your name and address and phone number on lots of different websites.

00:23:11.220 | There are hundreds of data brokers that are continuously publishing all that information.

00:23:15.560 | And the good news is that you can opt-out of a lot of them.

00:23:18.640 | So most of those websites have a place where you can scroll to the bottom, click opt-out, and submit a form and request they remove your information.

00:23:25.060 | The bad news is that information is constantly popping up.

00:23:28.600 | And so when I first encountered this, I tried to go through this myself.

00:23:31.880 | I probably spent 10 or 12 hours removing data and made it about 10% of the way through a list that I found of all the data brokers and decided that I was going to find a company that does this well and just pay for it.

00:23:44.180 | And so what started as a search for the best company to do this ended up with a partnership.

00:23:49.040 | So full disclosure, the company I use is DeleteMe.

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00:24:50.220 | All right, let's talk credit scores.

00:24:52.400 | Because a little difference in credit score can result in a huge change in the price you pay for different lending situations.

00:24:59.640 | The easiest way to look at the value of this is to look at a mortgage.

00:25:03.540 | Now, a low credit score might just completely shut you out of a mortgage.

00:25:07.520 | So, obviously, that's a huge impact.

00:25:09.280 | But even the difference between a high and a low score, and I say low score, I still mean a qualifying score.

00:25:15.380 | So, if you look at a 30-year mortgage, let's assume a million-dollar home with a 20% down payment, you're having a $800,000 mortgage.

00:25:23.080 | Now, I looked at a table of mortgage rates by FICO score, and they range from 620 to 639 at the bottom, gets a rate of 7.838, and 760 to 850 at the top is a rate of 7.242%.

00:25:40.100 | If you look at the total interest across the life of that loan, you would pay an extra $117,703 of interest just because your credit score was in a lower bracket.

00:25:52.560 | So, that's a really important thing to keep in mind when we talk credit scores, which we're going to go deep on, is the impact they have.

00:25:59.340 | And on auto loans, it can be even crazier than mortgages.

00:26:03.020 | I'm looking at a similar chart, and above a 781, you might pay 4.77% for a new car or 7.67% for a used car.

00:26:13.280 | But if your credit score is way down in the 3 to 500 range, the average interest rate for a new car loan is 15.75%, almost four times larger.

00:26:24.020 | And then on a used car, it goes as high as 21.81%.

00:26:27.800 | And obviously, between 300 to 500 and 781 to 850, it's a sliding scale.

00:26:33.300 | So, the higher your credit score, the better rates you're going to get both on homes and on autos and in lots of different scenarios.

00:26:42.740 | So, that said, the upper threshold on this seems to be, depending on the table I'm looking at, somewhere between 760 and 781.

00:26:51.780 | So, as a general rule of thumb, if your credit's above a 781, I don't think you need to worry about it getting too much higher.

00:26:58.800 | But we'll talk about where it could be and what happens in the future.

00:27:02.520 | Finally, anyone who's bought a home knows that the credit score isn't the only factor in decisions.

00:27:07.880 | So, a lender could also look at your income, your employment history, your debt-to-income ratio, all of your savings, your assets.

00:27:14.180 | It can feel like a little bit of a financial exam when you're buying a home for the first time because you have to provide a lot of information to the lender and the underwriters to make decisions.

00:27:22.920 | So, just keep that in mind.

00:27:24.300 | And last, one other way that your credit score could impact you is when it comes to your employment.

00:27:28.560 | This isn't happening at every single job and every single employer, but some employers do pull background checks, credit scores, and it could impact a decision.

00:27:37.500 | I know when I worked in venture capital, one concern we had any time a founder was raising money for their business was, how much money did they owe?

00:27:46.260 | And if someone had a lot of unpaid outstanding debt, that might be a red flag for us funding their company.

00:27:53.100 | Employers can also do this from time to time.

00:27:55.300 | So, just know that your credit score, your credit report, the impacts they can have are not just the rates, it could impact your job.

00:28:01.700 | So, let's talk about scores.

00:28:03.300 | How were these scores even calculated?

00:28:05.100 | So, back in 1956, engineer Bill Fair and mathematician Earl Isaac created a company called the Fair Isaac Corporation, or FICO, which was a data analytics company.

00:28:16.520 | They developed the first credit scoring system in 1958, and by 1992, the FICO risk scores were available through all three major credit reporting bureaus.

00:28:26.160 | And three years later, Fannie Mae and Freddie Mac both started recommending the FICO scores as the standard for evaluating U.S. mortgage loan applications.

00:28:34.080 | That recommendation was a pivotal moment in the widespread adoption of the FICO score, which traditionally ranges from 300 to 850, though you will learn sometimes up to 900.

00:28:45.440 | And after all, if a bank is using a FICO score for their mortgages, why would anyone use a different score for other lines of credit, like a credit card?

00:28:53.900 | So, because of this standardization from the U.S. government, it just became widespread, and it's because of all of that that the FICO score is used by 90% of all top U.S. lenders.

00:29:04.680 | During the early 2000s, FICO actually went on an acquisition spree, and they scooped up all these different companies that specialized in risk and financial data analytics.

00:29:13.600 | By 2020, they had become so dominant that there have been at least 10 different antitrust cases filed against FICO.

00:29:20.540 | But how does FICO actually come up with this score?

00:29:22.820 | Well, it's actually a series of proprietary algorithms because there are so many different FICO scores.

00:29:27.240 | I think I counted over 20 different FICO scores and models.

00:29:31.160 | So, I'm going to get to that when I walk through my particular credit, how all those scores vary, what they're used for, why you've never heard of them, and why you might want to know about some of them.

00:29:41.220 | FICO score has published the components and weights.

00:29:44.580 | So, payment history is the biggest one, and that makes up 35% of your score.

00:29:49.420 | So, that is, have you paid your bills on time?

00:29:52.660 | 30% is from amount owed, which looks at a bunch of factors.

00:29:56.520 | How much do you owe on all your accounts?

00:29:58.280 | How much do you owe on specific types of accounts, credit card versus mortgage?

00:30:01.780 | The number of accounts you have with balances.

00:30:04.300 | How much credit is being utilized?

00:30:06.440 | And the remaining balance on loans compared to the original amount.

00:30:10.080 | That utilization factor is a really important one that gets bubbled to the top in almost every dashboard to look at your credit score.

00:30:17.840 | And so, that would technically be if you had $10,000 limit and you're spending $5,000 of it, you're at 50% utilization.

00:30:27.180 | Length of credit history is the next component.

00:30:29.140 | That's 15%.

00:30:30.500 | That's just how long you've had credit history for.

00:30:32.740 | What's the average age?

00:30:33.780 | Next is credit mix, which is what kinds of credit you have.

00:30:38.000 | Do you have just a car loan or car and credit card and mortgage?

00:30:41.400 | That's 10% of your score.

00:30:43.040 | And finally, new credit, which is all the inquiries and new lines of credit, which is another 10%.

00:30:48.460 | So, that's the components of your score.

00:30:50.900 | They create a score based on that and they bucket it into these buckets, which are just FICO's buckets.

00:30:57.280 | This isn't necessarily what a lender would use, but they say if you're below a 580, you have a poor score.

00:31:02.400 | 580 to 669 is fair.

00:31:04.760 | 670 to 739 is good.

00:31:07.420 | 740 to 799 is very good.

00:31:09.760 | And 800 plus is exceptional.

00:31:11.700 | Now, given all the success that FICO had, the three credit reporting agencies actually got really frustrated that they were all paying this third party for the software to analyze their own data.

00:31:21.200 | So, in 2006, they brought the process in-house and created the VantageScore, which is another scoring model owned by those three major credit reporting agencies.

00:31:31.120 | So, now they didn't have to pay a third-party data analytics company to generate credit score based on their data.

00:31:38.000 | Now, it's a little bit of a chicken-and-the-egg problem because if you log into most of the credit reporting websites, Experian, Equifax, TransUnion, most of them are still showing and selling you FICO scores because that's what most lenders are using to make decisions.

00:31:52.380 | But as the VantageScore becomes more popular, you'll probably see it being used more.

00:31:56.720 | And that's why it's available for free on so many services because they price it so much lower.

00:32:01.120 | So, when you log into Credit Karma to get your free credit score, you are getting your VantageScore.

00:32:06.660 | But when you're looking to apply for a credit card or a mortgage, they are probably pulling your FICO score.

00:32:12.180 | So, it's important to know how those are different.

00:32:14.180 | And I'm going to share my Vantage and FICO scores and how they differ so you can get a sense of the deviations.

00:32:19.920 | VantageScore is also cheaper for other people.

00:32:23.640 | So, if your landlord is requesting a credit score in order to lease you an apartment, they'll probably get a VantageScore because it's much less expensive, maybe $25.

00:32:33.540 | Or a mortgage lender could get your VantageScore for $50 or $100, whereas a FICO score might be more like $50 to $100 for a single credit check, depending on it's a single or a joint application.

00:32:45.180 | So, the VantageScore is very similar to the FICO score.

00:32:47.940 | It uses the same set of numbers, roughly the same scaling system, but they tweak the percentages just enough that you get a different number.

00:32:55.320 | So, VantageScore has a 40% payment history instead of FICO's 35%.

00:33:00.240 | They have recent credit is 5% while FICO's new credit category is 10%.

00:33:06.300 | The balances you have are 11% of Vantage.

00:33:10.600 | In FICO, that's kind of bulked in with amounts owed, which is 30%, which also includes your utilization.

00:33:16.880 | So, it's all pretty similar, slightly tweaked.

00:33:19.440 | A couple of other differences.

00:33:20.600 | VantageScore explicitly calls out utilization as extremely important.

00:33:25.940 | FICO describes it similarly, but not as important.

00:33:29.420 | When it comes to history, your VantageScore can come with just one month of credit history.

00:33:34.340 | So, it's much more inclusive for people that are new to credit, whereas your FICO score needs at least six months.

00:33:41.160 | And authorized user accounts, which I'll talk about in a little bit, actually get a little bit less weight in VantageScore versus FICO scores.

00:33:48.040 | So, there are some subtle differences.

00:33:50.260 | At the end of the day, they're not that different, but there are about to be some changes.

00:33:54.840 | And that's because in 2018, the Credit Score Competition Act was signed into law, mandating the use of the VantageScore 4.0 and the FICO 10T models.

00:34:04.940 | Now, I will get into all these models because until I went deep on this, I didn't know that any of these models existed.

00:34:11.560 | But there was government-sponsored mortgage enterprises like the VA that already started adopting VantageScore 4.

00:34:17.000 | Fannie Mae and Freddie Mac will phase in using VantageScore, so later this year.

00:34:21.720 | The main thing is that because the VantageScore 4.0 has limited credit history that it can work off of,

00:34:27.420 | there's about 30-plus million people that might actually be able to get a credit score that couldn't previously.

00:34:33.160 | The VantageScore 4.0, which is their latest version of the score, actually takes into account trending,

00:34:40.520 | which is one of the things that's been more interesting for people because it looks at a view over time.

00:34:47.580 | With this change, lenders will be able to choose between getting reports from two of the three major bureaus,

00:34:54.040 | so they don't need to get all three of them, and they can choose which model they use.

00:34:57.780 | It's going to give a little bit more flexibility.

00:34:59.500 | It'll be interesting to see how this evolves.

00:35:01.480 | I really wanted to go check my VantageScore 4, but I could not find anywhere to do it.

00:35:07.340 | I've heard if you had a Synchrony credit card, you can do it.

00:35:09.820 | There are a few credit unions that offer it, but I actually opened up a Synchrony bank account and couldn't get it.

00:35:15.480 | Then I went to Alliant Credit Union, which was the one that required me to unfreeze my checks report

00:35:20.640 | because I was told they give you a free VantageScore 4.0.

00:35:24.200 | But as soon as I got my account set up, it said,

00:35:26.940 | not all members will have credit score displayed.

00:35:28.900 | Check back next quarter.

00:35:30.100 | So I still don't know what my VantageScore 4.0 looks like, but one of the big changes is that they're going to incorporate trended data into the scoring model.

00:35:38.440 | So how your payment history has evolved will be factored in.

00:35:41.340 | Now, on the flip side, FICO is coming out with the FICO Score 10T.

00:35:45.040 | That's their latest model.

00:35:46.620 | And that also incorporates trending credit data, meaning it looks at your borrowing and payment patterns over 24 months, then just a static snapshot.

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00:38:08.060 | So that is enough talking about what they are, where can you get them?

00:38:12.300 | So finding your credit score is actually easy.

00:38:14.320 | Now that you know the differences might change where you want to get your score.

00:38:18.720 | So if you're going to a mortgage and that bank is going to use a FICO 9, knowing your vantage score 3 isn't quite as helpful.

00:38:26.500 | Most companies out there that offer free credit scores as part of free credit monitoring, think Credit Karma, NerdWallet, they only offer your vantage score.

00:38:35.000 | And so again, as of present, that's only being used by about 10% of lenders.

00:38:39.440 | So you probably want to take a look at your FICO score.

00:38:42.360 | Now there are a number of places to get a free FICO score.

00:38:45.500 | So myfico.com, Experian's website, you can get one free score, but they usually don't give you the score on all three bureaus.

00:38:54.720 | In fact, I haven't found any place to get all three bureaus score, whether it's Vantage or FICO, without paying for it.

00:39:01.060 | A number of credit card companies also give you access to credit scores.

00:39:05.320 | Amex Capital One, you can go in and check, even if you don't have a card.

00:39:09.080 | At least that's what I read.

00:39:10.360 | I have a card on both those issuers, so I couldn't confirm that.

00:39:13.620 | But keep in mind, you're giving them access to your credit and you're giving them a working email address.

00:39:19.300 | So you're kind of giving them a bunch of information, just like Credit Karma is doing.

00:39:23.100 | Credit Karma is trying to promote products to you.

00:39:25.040 | I assume if you did this with Amex or Capital One, they would start sending you mailers.

00:39:28.920 | You might want those mailers.

00:39:30.220 | They might be offers with elevated bonuses, so that's great.

00:39:33.120 | But just keep in mind, that's part of what's happening.

00:39:35.200 | As a few examples, if you have Discover, I believe you get TransUnion's FICO score 8.

00:39:41.200 | Bank of America will give you a FICO score.

00:39:43.600 | Citi will give you a FICO score from Equifax.

00:39:46.560 | So I started trying to piece all of these together to figure out, okay, where could I get every single score?

00:39:52.280 | And I was just a little bit down this rabbit hole, right?

00:39:55.700 | I was just looking for my Vantage score and my FICO score.

00:39:58.960 | And I was able to get 5 out of 6.

00:40:01.740 | So I got my Vantage on all 3 bureaus, my FICO on 2 bureaus.

00:40:05.300 | And then I thought, in order to be comprehensive in this episode, I should really just get all of them.

00:40:10.160 | And I was like, do I really want to spend an hour trying to dig and open up new bank accounts?

00:40:14.240 | Or do I just pay $30 to my FICO and get access to their dashboard?

00:40:18.520 | And I didn't know that by doing that, I was really opening up a can of worms.

00:40:23.680 | Because I did get access to my FICO dashboard.

00:40:26.540 | And when I looked at it, I was like, oh, this is cool.

00:40:29.140 | Now I get all 3 scores.

00:40:30.460 | And then it was like, well, what is the purpose of what you're scoring?

00:40:34.620 | So I looked on and the main one was my FICO score 8.

00:40:37.460 | I'm looking at it right now.

00:40:38.540 | And I could see my FICO scores.

00:40:40.140 | And then below, it said score versions by loan type.

00:40:42.980 | And I was like, mortgages?

00:40:43.880 | And then it says, well, the most widely used score for mortgages is your FICO 5 with Equifax,

00:40:51.000 | your FICO 4 with TransUnion, and your FICO 2 with Experian.

00:40:55.000 | And I was like, oh, wow, maybe these mortgage companies are just using the older models.

00:40:58.480 | What about auto loans?

00:40:59.900 | Well, there's actually the FICO AutoScore, which is not a FICO score 8.

00:41:06.800 | It's the FICO AutoScore 8.

00:41:08.580 | So there's not just different versions, but there's different branded purposes.

00:41:12.420 | So there's a FICO AutoScore 8, a FICO AutoScore 9.

00:41:15.840 | There's the old FICO AutoScore 5, 4, and 2.

00:41:18.820 | Turns out that for auto loans, according to my FICO, the FICO AutoScore 8 is the most widely used.

00:41:25.800 | And it is on a scale of 250 to 900.

00:41:29.120 | Then I clicked credit cards because I wanted to know.

00:41:31.020 | And credit card, the most widely used is the FICO Bank Card Score 8.

00:41:36.240 | There's also a widely used FICO Score 9.

00:41:39.520 | So credit card companies seem to use both of those.

00:41:41.860 | But there's also a bank card score 9, which it says is not widely used.

00:41:45.680 | The bank card scores are all on a scale of 250 to 900, while the FICO score is on 300 to 850.

00:41:53.400 | And then I clicked new versions.

00:41:55.240 | And I was like, oh, wow, there's a bank card score 10, an AutoScore 10, a FICO score 10.

00:42:00.820 | And that's where I also found the FICO score 10T.

00:42:03.800 | That's that new score that's using trending data.

00:42:06.140 | So what did I learn looking at all this?

00:42:07.760 | Well, it was super interesting.

00:42:08.760 | If I look across all of my scores, it's a little tricky because some of them are on different scales, right?

00:42:14.820 | These auto scores are up to 900 and the other scores are up to 850.

00:42:18.720 | But if I look at my FICO 9, which is on a scale of 300 to 850, I rank pretty high, 846, 849, 839.

00:42:27.560 | So close to perfect score, which will dovetail into our next conversation about how many credit cards can you open?

00:42:34.360 | How many signup bonuses can you get and keep a high credit score?

00:42:37.420 | And as someone with over 20 credit cards at this point right now that are active, I'm still at a very high credit score.

00:42:44.700 | But my FICO score 8 was a little lower.

00:42:47.240 | So anywhere from 3 to about 20 points lower.

00:42:52.080 | But my Vantage score was meaningfully lower.

00:42:55.300 | So all my FICO scores, at least FICO 9, were in the 839 to 849 range.

00:43:02.320 | And my Vantage score was in the 774 to 779 range.

00:43:06.700 | So I can't quite explain that.

00:43:08.660 | It is what it is.

00:43:09.400 | It's why I really wanted to go look more deeply at the Vantage score 4.0, but I couldn't find it.

00:43:12.960 | Similarly, the most common score for your mortgage is your FICO 5, 4, and 2.

00:43:20.000 | And for whatever reason, Equifax uses 5, TransUnion uses 4, and Experian uses 2 for mortgages, I guess.

00:43:26.820 | And those were all in the high 700s as well.

00:43:31.340 | All of the other scores that weren't legacy 2, 4, 5 models were all in the high 800s, close to 850.

00:43:39.860 | I think I had one score that was 862, which is when I first realized, oh, the scale must go higher than 850.

00:43:47.500 | And so looking at all of this, there is a wide range.

00:43:50.360 | But at the end of the day, the lowest score I had amongst all of these different bureaus was 765.

00:43:57.380 | So yes, the range of 765 up to, I guess, 862 was the max.

00:44:02.900 | They're all great scores.

00:44:03.880 | And yes, there were some low ones, but none of them actually fell into a meaningfully different bucket.

00:44:10.020 | When I was looking at the auto interest rates, the bucket was 781, I think was the floor for exceptional, maybe, for the highest interest rates.

00:44:17.980 | So maybe if they were using Vantage or the old FICO score 3, I wouldn't have qualified for the best auto interest rate.

00:44:24.380 | But for the most part, when you're looking at lending decisions, I've more commonly been told that 760 and above is all the same.

00:44:31.460 | And all of these scores were above 760.

00:44:34.280 | So I didn't learn as much as I was hoping to about all of this, but I could go a little deeper for each of these scores and look at the components of it and how they were having an impact.

00:44:45.220 | And the main two things that impacted my score, which I think is why certain models were getting impacted differently, was the amount of debt.

00:44:53.980 | And keep in mind, that amount of debt category is where utilization lives.

00:44:57.200 | And that was the flag that came out.

00:44:58.900 | And that was that I had 9% utilization.

00:45:01.220 | Now, over the last few months, I have definitely been doing a lot of gift cards and Costco gold, which has resulted in a lot of high balances for things that aren't necessarily expenses, but will get reimbursed.

00:45:19.980 | But I wasn't paying those credit cards off early.

00:45:22.220 | I was paying them at the statement date.

00:45:23.460 | So throughout the month, depending on when you pull from those banks and when those banks actually report to the credit bureaus, it might look like I have higher than normal utilization.

00:45:32.400 | And one of the things I noticed in the past was I could have a score that swings 60, 70 points in a given month based on that utilization data.

00:45:42.440 | And so I suspect if I go look at my Vantage score over time and compare it to my FICO score, you'll probably see something a little differently.

00:45:51.780 | And they'll probably be a little bit more similar.

00:45:53.440 | Maybe the Vantage scores right now are getting more recent data than the FICO scores.

00:45:59.320 | I'm not entirely sure.

00:46:01.080 | The other one that was the only thing that kind of had a yellow color.

00:46:03.980 | It was like bright green is you don't have any late payments.

00:46:06.800 | Your average age of accounts is almost 10 years and you've got 13 different accounts.

00:46:10.840 | Good, good, good.

00:46:11.620 | Utilization is 9%.

00:46:13.620 | So, so.

00:46:14.440 | Amount of new credit is the one where I had a yellow flag.

00:46:18.400 | And in one of them, I think it was an orange flag because the most recent account was open 3 months ago.

00:46:24.900 | I've had a handful of inquiries.

00:46:27.580 | I recently went on a little bit of what I'll call an Aparama, which is opening, I think, 5 cards in the last few weeks.

00:46:35.120 | So, obviously, that has an impact on the new credit bucket.

00:46:40.140 | So, some of those haven't even posted, but I think that'll have an impact.

00:46:43.960 | But the impact is relatively small.

00:46:45.820 | And that's what I want to talk about next is how does all this matter when you're playing the points game?

00:46:49.500 | Because I got a lot of questions like, gosh, you get all these hard inquiries.

00:46:53.180 | How do you handle all this?

00:46:54.840 | How is this destroying your credit score?

00:46:56.860 | Any tips?

00:46:57.480 | The good news is, obviously, it's not, right?

00:46:59.440 | Credit score is pretty strong.

00:47:00.740 | I've got lots of cards open.

00:47:02.200 | And I opened 5 in the month prior to doing this episode.

00:47:06.260 | So, does multiple credit cards hurt your credit score?

00:47:10.120 | Definitely not.

00:47:11.140 | There's a great image, and I've linked to it in past episode show notes, where this person on Twitter shared their credit journey for him and his wife, Chad and Hannah.

00:47:22.380 | Over the course of about 18 months or maybe 14 months, when they opened, I think it was 26 credit cards.

00:47:29.600 | And the most fascinating thing is that his wife, Hannah, started at a 670 and ended up at a 798.

00:47:37.580 | And he started at a 794 and ended up at a 805.

00:47:41.940 | So, in the process of opening 26 cards over 14 months, both of their credit scores went up.

00:47:46.860 | And that makes sense when you think about it because their payment history doesn't really impact it.

00:47:52.780 | The amount they owe, while that's the bucket, big factor of that is utilization, which goes way down, right?

00:47:58.960 | If you had $5,000 owed and a $10,000 limit, you're at 50% utilization.

00:48:03.340 | If you open up 5 cards and you have $5,000 owed over a $50,000 limit, now you're at a 10% utilization.

00:48:10.460 | Your length of credit history, that's two components.

00:48:13.940 | One is how old is your oldest account?

00:48:16.120 | It has no impact there.

00:48:17.260 | What's your average age of account?

00:48:19.040 | It will have an impact there.

00:48:20.400 | New credit, not as good because it's a bunch of new inquiries, but your credit mix, more credit cards, more revolving accounts is actually good.

00:48:31.440 | Or at least it's not bad.

00:48:32.740 | So, the more cards you have in good standing, the better your credit score usually is.

00:48:37.340 | And I've seen that happen in this chart.

00:48:39.360 | I've seen it happen.

00:48:40.240 | And so, that's super fascinating.

00:48:42.320 | Now, keep in mind, this person did open 26 cards.

00:48:45.280 | But one thing to note is that business cards don't usually show up on your personal credit.

00:48:50.040 | I mentioned that earlier.

00:48:51.300 | So, you might get the inquiry from a business card getting opened, but it actually doesn't show up on your credit report.

00:48:57.700 | Now, I found a table.

00:49:00.020 | It's about five years old.

00:49:01.160 | So, I don't want to say it's all perfect.

00:49:02.860 | But some banks, notably TD, Discover, and maybe some cards from Capital One or Barclays, do show up on your personal credit report.

00:49:10.320 | And this is all if you have no negative activity.

00:49:12.860 | The number of banks that report your business credit card activity to your personal credit report is limited.

00:49:19.660 | But if you have negative activity, almost all of them, at least according to this chart I found, do.

00:49:25.200 | So, keep that in mind.

00:49:26.480 | And so, how do I think about this?

00:49:27.680 | Well, knowing your credit score and knowing how many frequent cards you've opened can have a lot of benefits.

00:49:33.660 | So, one, there are application rules at a lot of different banks that say, okay, how many cards have you opened?

00:49:40.060 | Chase is notorious for this 524 rule.

00:49:42.220 | You can't get a card if you've applied for five or more cards in the last 24 months.

00:49:46.660 | But they're getting that number from your credit report.

00:49:49.420 | So, if your credit report doesn't show a card because it's a business card, well, they're not going to count it towards the 524 rule.

00:49:55.360 | This might seem crazy, but a lot of people have reported that they don't even count Chase cards,

00:49:59.520 | which means they're not combining the credit report data with the own data they have on you.

00:50:05.240 | They're just looking at the credit report.

00:50:06.860 | So, you can learn these application rules for each bank and learn how to use your credit report to the advantage of making sure you time things correctly and are doing things in the right order.

00:50:17.240 | And I'm going to do a whole future episode on application rules by bank.

00:50:20.500 | So, stay tuned for that.

00:50:22.020 | It also helps when you understand what banks are sensitive to and how they operate.

00:50:27.040 | So, Capital One is notoriously really sensitive.

00:50:29.660 | So, if you have a bunch of recent inquiries, it might not be the right bank to apply for.

00:50:34.920 | Amex, if you already have an Amex card, usually Amex doesn't even pull your credit.

00:50:40.060 | I know this because I just applied for and got approved for a Delta Amex card, I think it was two days ago,

00:50:45.820 | and I had all three credit reports frozen and they still approved.

00:50:50.840 | So, not only do I not have an inquiry, the card doesn't even show up on my credit.

00:50:54.760 | So, as far as any other bank is concerned, that didn't matter.

00:50:57.360 | So, that's opening a card.

00:50:59.520 | What about closing a card?

00:51:00.920 | I get this question all the time.

00:51:02.380 | What should I do if I have a card?

00:51:04.080 | Usually, it's because the annual fee is high and I don't get any value of it.

00:51:07.560 | Well, a couple things.

00:51:09.520 | One, find out whether you're using the card correctly because I found that there are a lot of annual fee cards

00:51:15.480 | where if you know how to use the annual fee, you can actually make the card profitable even if you're not spending on it.

00:51:22.300 | So, I will also do a whole episode on premium cards and talk about those perks and benefits and how to get the most out of them.

00:51:28.260 | But let's say you're thinking, I don't really want this card.

00:51:31.020 | What will happen if I cancel it?

00:51:32.560 | Well, it won't impact your payment history.

00:51:35.280 | Amounts owed, not great there.

00:51:37.560 | Your total credit will go down.

00:51:39.060 | We'll talk about how to mitigate that if you close it.

00:51:41.280 | Your length of credit history really has a different impact.

00:51:44.560 | If it's your oldest card you've ever had, it could have a huge impact.

00:51:47.880 | But if it is a card you opened recently, when you're looking at your average age,

00:51:52.800 | it might actually bring your average age up so it could have a good impact.

00:51:55.900 | If it is your oldest card, I'd really strongly encourage you to find a way not to cancel it.

00:52:00.560 | And I'll talk about that.

00:52:01.380 | Won't really impact your new credit, your credit mix.

00:52:04.920 | You still will have the card on your account.

00:52:06.940 | It just won't be open.

00:52:08.020 | So, smaller impact there.

00:52:10.160 | So, what I would say is, if you have a card that you've had for a really long time,

00:52:15.600 | like I said, avoid closing it.

00:52:17.380 | But let's say it has an annual fee and you don't want to have to pay it.

00:52:20.380 | You're not getting any benefits.

00:52:21.360 | A few things you can do.

00:52:22.720 | You can always ask for a retention offer.

00:52:25.020 | So, you might get an offer that's waive the annual fee.

00:52:27.820 | Spend a few thousand dollars and get 20, 30, 40, 50,000 points.

00:52:32.080 | So, that's one option that could mitigate that cost.

00:52:34.820 | Another, product change to another card.

00:52:37.280 | There are a ton of cards at a lot of different issuers that you can change to.

00:52:41.240 | So, you could change from the Delta card that includes lounge access and costs hundreds of dollars

00:52:46.880 | to a free or inexpensive Delta card that doesn't.

00:52:50.220 | So, changing to a different card is a great way to keep it on your credit history without having to pay an annual fee.

00:52:58.880 | If none of those work and you're just dead set on canceling, one, make sure you use all of your points.

00:53:04.780 | If it's your last card linked to a bank rewards program, especially because you will forfeit them.

00:53:09.840 | If you close your last Amex and you have membership rewards points, they're gone.

00:53:12.880 | Number two, consider moving the credit to another card before you close, especially if it's a really high limit card.

00:53:19.800 | This could make it trickier to open a new card because the bank might be extending all the credit they're willing to extend.

00:53:27.340 | But, let's say you have a credit card at Bank of America and has a $50,000 limit.

00:53:32.460 | And you just opened a new card and it has a $10,000 limit.

00:53:35.840 | So, when you're looking at your utilization, you've got $60,000.

00:53:38.620 | If you close that Bank of America card, your total limit available to you is $10,000.

00:53:43.260 | But, if you had two cards at Bank of America, you only want to close one, you can usually call the bank and move the credit over.

00:53:49.320 | So, you could take two cards with $30,000 limits, move one to be $59,000 and the other to be $1,000 and then close the $1,000.

00:53:57.580 | So, the way that this could be a pain is you might then later apply for another card at that bank and be denied because they don't have enough credit to give you.

00:54:06.560 | But, oftentimes, you can call up a phone number and ask them if there is any way to move credit to this new card and get that open.

00:54:13.360 | So, when used correctly, I think playing the points game can actually build up your credit score and keep it more durable and higher for a much longer time.

00:54:22.620 | This episode is brought to you by Copilot.

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00:55:13.780 | So, for the best app to track your spending, subscriptions, and investments, go to chrishutchins.com slash copilot or click the link in the description to download Copilot and enter code HACKS during onboarding for a two-month free trial.

00:55:27.260 | Again, that's chrishutchins.com slash copilot and the code HACKS2 for a free two-month trial of my favorite personal finance app.

00:55:35.900 | Now, let's talk about what to do if you want to improve your credit score.

00:55:38.880 | The simplest way is to pay down your debt, keep your debt low, keep your old cards open, and have a diverse credit mix.

00:55:46.100 | If you find something on your credit report that's inaccurate, dispute it.

00:55:49.820 | If you find old things that are on there that shouldn't be there anymore, report that.

00:55:54.540 | Get all of those things removed.

00:55:56.660 | Great way to raise your credit score.

00:55:59.240 | Another thing is you can actually start adding positive history to your credit report.

00:56:05.740 | And there are certain places and services that you can use to report rent and utility payments to your report.

00:56:12.740 | They're not automatically included.

00:56:15.040 | Simple Bills, Experian Boost, and others will report some of those payments and help your credit.

00:56:20.900 | There are also debit cards that will start reporting to credit bureaus as you use them.

00:56:26.120 | So, there are a lot of options there.

00:56:28.700 | Also, don't discount raising your credit limit for an individual card.

00:56:32.420 | You can usually request a credit line increase.

00:56:35.240 | And of course, if your credit goes up and you aren't spending more money, that lowers your utilization and can have an impact.

00:56:42.740 | So, obviously, with all the positive impacts of having a good credit score, being able to play the points game, as many of you do, myself included,

00:56:51.300 | it's always great to help someone getting started with a great credit score.

00:56:56.280 | So, if you're helping someone who's just turning 18, you're helping someone who's moved to the U.S.,

00:57:02.000 | First option is a secured credit card.

00:57:04.140 | This is a credit card that requires a deposit.

00:57:06.180 | That deposit is, of course, refundable, but then it gives access to spend.

00:57:09.860 | Important distinction is it is not a prepaid card.

00:57:12.100 | It's similar, but you can take the money out much more easily.

00:57:14.840 | And so, this is a great option.

00:57:16.820 | Another option is a student card.

00:57:18.920 | Note that for both of these kinds of cards, anyone under 21 will probably need to have proof of income or a cosigner to get approved.

00:57:26.040 | Some popular cards for people with little to no credit.

00:57:28.880 | Chase student cards, but they sometimes need a little bit of history on your credit report.

00:57:34.000 | But Discover secured cards, easy.

00:57:36.560 | Some Barclays cards have been pretty easy.

00:57:39.200 | Surprisingly, Amex cards are quite easy and they do pre-approvals on their website.

00:57:45.420 | This seems counterintuitive because they're usually more premium cards.

00:57:48.880 | Yet, we've now had four au pairs.

00:57:51.300 | And I have seen so many au pair mailers offering Amex Gold, Amex Platinum pre-approvals for them,

00:57:59.500 | despite that every single one of them moved to the U.S. within the last year and have no outstanding loans.

00:58:07.060 | And so, even with very little credit data, if not any credit data, they're getting some of these pre-approvals.

00:58:12.240 | Another one is the Capital One Quicksilver card.

00:58:14.440 | I think I've seen at least 15 letters for that in our mailbox for our au pairs.

00:58:18.400 | I would avoid Bank of America.

00:58:20.080 | I've heard that's not the best option.

00:58:21.920 | But there is a good hack here.

00:58:24.420 | To help someone improve their credit is to add them as an authorized user to a card of someone who has a lot of credit.

00:58:32.680 | Now, this is a little bit of a Your Mileage May Vary situation, but by adding someone as an authorized user,

00:58:37.960 | which for many cards can be done at ages well below 18, some of them at 13, some of them might have no minimum age,

00:58:46.580 | some issuers will backdate the user history.

00:58:50.160 | So, this isn't a published benefit, but if you go look at a lot of the MyFICO forums, which is like the Reddit for credit.

00:58:57.420 | I didn't mean to make that rhyme.

00:58:59.060 | I apologize.

00:59:00.640 | You'll see, and it says like Bank of America, Capital One, Chase, Citibank, Discover, Barclays,

00:59:08.020 | all seem to, definitely from some old forums, but backdate a user's history.

00:59:12.440 | So, what happens here is when I mentioned authorized user information,

00:59:17.120 | when you are added as an authorized user, that card now shows up on your credit report.

00:59:22.800 | So, if I have a particular credit card, I add my wife as an authorized user, that card now shows up on both of our credit reports.

00:59:29.620 | Now, let's say I've had that card for 10 years, and there's 10 years of great payment history.

00:59:34.600 | That credit card is going to show up on her credit report as well.

00:59:37.480 | And so, let's say you're an adult, and you've got 30 years of credit history, and you have a child who's just turning 18.

00:59:43.740 | Adding them as an authorized user, which you could have done when they were 15, that credit card will now show up on their credit report.

00:59:50.760 | And at least according to a lot of these forums, and in personal experience and anecdotes I've read,

00:59:55.340 | they're now going to have that credit history there.

00:59:57.280 | So, when I talked about how FICO and Vantage Scores, they need some number of months of credit history,

01:00:02.820 | this is a great way to jumpstart and boost that person's credit.

01:00:06.800 | Now, if you don't trust that person, you might not want to even give them the credit card to spend,

01:00:11.400 | have the authorized user card shipped to your address, don't even let them have access to the card if you don't want to,

01:00:17.320 | but it would really potentially boost their credit score.

01:00:20.400 | So, that's a great optimization and hack that I think is super helpful.

01:00:25.020 | Now, keep in mind, negative information is also shared.

01:00:28.560 | So, you definitely don't want to add someone to a credit card that has any negative payment history on there,

01:00:34.580 | or you might actually impact their score negatively.

01:00:37.060 | Now, I have read a lot of places that say Experian isn't including authorized user data on credit reports.

01:00:43.060 | There is a blog from this year that says it is included.

01:00:46.740 | So, I think a lot of this seems to be a little bit...

01:00:51.360 | Not gray area because it's not allowed or bad, but gray area because it's not an official rule that's published anywhere.

01:00:59.920 | But there is one more situation, which is, let's say you're someone from outside of the US and you just moved to the US and you don't have any credit, but you actually did overseas.

01:01:08.540 | There is a cool company and I actually got to know the founder because we went through a little bit of an incubator together and that's called Nova Credit.

01:01:16.060 | And what they use is they take credit reports from overseas bureaus around the world and if you have a great credit score there and you're able to confirm your address in the US,

01:01:27.560 | they can help translate that over right now to Amex and Verizon to be able to help you get approved for those loans.

01:01:36.540 | I think they also can sometimes work with auto loans and those kinds of things, but I know they have a partnership with Amex that makes it easier to get approved for an Amex card if you have good credit somewhere else.

01:01:46.480 | That's something else to keep in mind if you are non-US and you're moving to the US and you're trying to get access to credit.

01:01:52.480 | So that's all personal. I'll do a quick run through on business credit scores because I thought it was just fascinating.

01:01:58.120 | Just like there are multiple personal credit scores, there are several types of business credit scores.

01:02:02.300 | The main players here are Equifax, Experian, Dun & Bradstreet and LexisNexis.

01:02:07.300 | Though the Small Business Financial Exchange is actually a really important organization here that collects lending data,

01:02:14.120 | but it doesn't actually create reports and scores. It actually provides that data to some of those companies.

01:02:19.480 | Many of those reports include all the similar information, payment history, age of accounts, credit utilizations that you see on credit reports for personals, but for businesses.

01:02:29.240 | I pulled two of mine for my company, the one that this podcast operates under, because they were free from Bank of America and I got my scores there.

01:02:37.360 | I wanted to pull the full reports, but an interesting thing is that they are $50 to $200 each and the data is tied to the business.

01:02:45.960 | So I've opened some credit cards at different companies over my life and there's not always an easy way with a bank to change the business associated with a card.

01:02:55.100 | So for me to pull all my business credit reports, I'd actually have to pull them for four or five different businesses, which would cost, I don't know, anywhere from $300 to maybe $1,000.

01:03:06.800 | What I did do was pull the two most interesting ones that I could get for free, which were my Dun & Bradstreet delinquency predictor score, which was a 502, which according to their scale is of moderate risk.

01:03:21.360 | And the Dun & Bradstreet small business financial exchange score, which I got a 936, which puts me in the low risk camp.

01:03:29.500 | You can get those free if you have a Business Bank of America account.

01:03:32.140 | Otherwise, I think you have to pay for a lot of these.

01:03:35.340 | But one interesting thing I did notice was when I was searching every business that I've used, even if it was a sole proprietorship for opening a card, showed up when I searched.

01:03:45.220 | I think it was Experian for my business credit reports.

01:03:47.380 | I didn't pay for them, but they were all there.

01:03:49.020 | And I looked at this table, and I'll link to this article about which business credit cards report to rich reports.

01:03:55.940 | And one of the interesting things was while very few of them were reporting to personal, all the major banks that you could imagine, Capital One, Bank of America, Chase, Citi, Amex, Wells Fargo, they all report to the SBFE, the small business financial exchange.

01:04:11.240 | And so they seem to be the main source of all this information.

01:04:16.040 | Now, you can't pull that from anywhere, but that seems to be where all this information is going.

01:04:21.160 | And so if you wanted to pull a report, I would look at one that's backed by that data because they seem to have the most information.

01:04:28.640 | At least that's where most credit cards are reporting information to on the business side.

01:04:32.640 | All right.

01:04:33.140 | I think that's it.

01:04:35.440 | I tried to be as comprehensive as I could.

01:04:38.160 | I tried to cover everything I could find on credit scores, credit reports, how this impacts everything.

01:04:42.520 | I'm excited to talk about how application rules vary by bank and how you can use this data as you're playing this whole game of earning points and rewards.

01:04:50.980 | But for today, I really hope you found this valuable.

01:04:54.520 | If you have any questions, podcast at allthehacks.com.

01:04:58.080 | Otherwise, that's it for this week.

01:04:59.800 | I will see you next week.

Deep Dive on Credit Reports, Scores, and Their Real-World Impact

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