The link between Trump tariffs and your credit score

At first glance, Trump tariffs and your credit score might seem unrelated. One involves international trade policy, and the other involves your personal financial reputation. But when tariffs raise prices on everyday goods, many consumers feel it in their wallets. Over time, those higher costs can influence how people use credit, and that is where things start to connect.

Tariffs raise prices, not just headlines

New Trump administration tariffs in 2025 affect, or will affect, imports from countries like China and Mexico. That includes everyday consumer items such as electronics, home appliances, and clothing. As of early 2025, some of these tariffs have already taken effect, with more scheduled in the months ahead.

During the previous round of tariffs under the Trump administration, researchers at the National Bureau of Economic Research found that nearly the entire cost of the tariffs was passed on to U.S. consumers in the form of higher prices. This pattern suggests that current and future tariffs could raise everyday costs for American households again.

When household expenses rise, many rely more heavily on credit cards or loans to make ends meet.

Credit behavior may shift under pressure

Higher prices often strain budgets, especially for households with limited savings. That strain may trigger changes in how people use and manage credit, such as:

• Rising credit card balances. Spending more without paying it down can increase your credit utilization ratio, a factor that may lower your score.
• More borrowing. Some consumers apply for new credit lines to cover shortfalls, which can result in hard inquiries and new account openings.
• Late or missed payments. Keeping up with due dates may become more difficult if finances are tight.

Any of these shifts can affect credit scores, sometimes significantly.

How lenders may respond to economic uncertainty

Trump tariffs contribute to broader economic uncertainty. When inflationary pressures rise, lenders often become more cautious. They may:

• Tighten approval standards.
• Reduce credit limits on existing cards.
• Offer fewer low-interest or promotional products.

If access to affordable credit shrinks, consumers already under financial stress may face fewer options, leading to riskier borrowing or higher interest costs.

Who might be most affected?

The impact of Trump tariffs is not distributed equally. People most at risk of credit disruption include:

• Consumers with limited income or no emergency fund.
• Households already carrying high-interest debt.
• Workers in industries sensitive to trade-related shifts.

These groups may feel the effects quickly, especially if prices rise while wages remain flat.

Managing credit under pressure

You cannot change tariff policy, but you can take steps to protect your credit health. Consider these actions:

• Review your credit report regularly. Spot changes or errors early by using free credit monitoring tools.
• Avoid unnecessary debt. If possible, delay large purchases or switch to lower-cost alternatives.
• Set up autopay or reminders. This helps ensure bills are paid on time, which is critical for maintaining your score.
• Track spending closely. A tighter budget may reduce the need to borrow.

Even small steps can help you stay in control of your credit during turbulent times.

Credit Sesame can help you stay informed

If you are concerned about the financial impact of rising costs, credit monitoring may offer some peace of mind. Credit Sesame provides free tools to track your score, get alerts about changes, and receive personalized credit tips.

Knowing where your credit stands can help you make better decisions, especially when the economic landscape changes.

What to watch in the coming months

More tariffs are expected to roll out later in 2025. If price increases continue, the pressure on consumers may grow. While not everyone will experience credit challenges, those already on the edge may find it harder to keep balances low and payments on time.

Understanding the relationship between Trump tariffs and your credit score may help you prepare for these possibilities before they affect your financial footing.

Staying ahead of tariff-driven credit stress

Trump tariffs may be aimed at protecting American industry, but they can also have real, personal consequences. When trade policies make everyday goods more expensive, the ripple effects often reach credit cards, borrowing habits, and payment behavior. Staying mindful of these connections and managing your credit with care can reduce the risk that broader economic shifts will hurt your financial health.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

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Economic ups and downs have been making headlines lately, with new tariffs, market swings, and rising costs putting extra pressure on household budgets. When inflation climbs or interest rates shift, your credit can be affected, sometimes in ways you don’t expect. Staying ahead of these changes starts with understanding how they might reach your wallet.

Managing credit during economic uncertainty is about more than just paying bills on time. It means watching how you borrow, spend, and protect your financial future, even when the headlines overwhelm. You can employ practical strategies to help keep your credit steady, no matter what the economy throws your way.

1. Know where your credit stands

The first step in protecting your credit is understanding your current position. Check your credit score regularly and review your credit reports for errors or unexpected changes. During periods of economic uncertainty, catching signs of fraud or reporting mistakes is useful.

Credit monitoring tools can help you stay on top of changes that might impact your score.

2. Track your spending patterns

When prices rise or income becomes less predictable, your budget might shift without you realizing it. Monitoring your spending helps you spot trouble areas before they lead to high balances or missed payments.

Use a budgeting app or spreadsheet to keep tabs on where your money is going and identify spending that can be trimmed or paused during tight times.

3. Keep credit utilization low

Credit utilization — the percentage of available credit you use — is a major factor in your credit score. Even if you make all your payments on time, high balances can still lower your score.

Aim to use less than 30% of your available credit across all cards. If possible, pay down balances strategically to reduce your utilization and free up credit in case of emergencies.

4. Avoid taking on new debt unless necessary

Lenders may tighten requirements or increase rates during uncertain times, making credit more expensive. Applying for new credit also triggers a hard inquiry, which can cause a temporary dip in your score.

If you don’t need new credit right now, it may be better to hold off. Instead, focus on managing existing accounts responsibly.

5. Set up automatic payments to avoid mistakes

One of the easiest ways to protect your credit score is to pay every bill on time, every time. Even one missed payment can hurt your score and stay on your report for years.

Consider setting up automatic payments or calendar reminders for all your accounts. This small step can prevent unnecessary damage, especially when your financial stress level is high.

6. Stay in touch with lenders

If you’re struggling to keep up with payments, don’t wait until you’re behind. Reach out to your lenders or creditors as soon as possible. Many offer hardship programs, forbearance options, or temporary adjustments that can keep your account in good standing.

Being proactive may help preserve your credit and reduce the long-term financial impact of a missed payment.

7. Watch for changes in interest rates

Economic instability often leads to fluctuating interest rates, especially on variable-rate credit cards and loans. If your interest rate increases, your monthly payments might rise too, even if your balance stays the same.

Check your statements for interest rate changes, and consider transferring balances to lower-rate options if available. You can compare options to see if you can reduce your interest costs.

8. Keep older credit accounts open

The length of your credit history matters. Even if you’re not using an old credit card, closing it could shorten your credit history and increase your utilization ratio, both of which may hurt your score.

Unless a card has high fees, keeping it open (and active with small, regular purchases) can support your score during unstable times.

9. Protect your identity and accounts

Fraud and identity theft often spike during periods of economic stress. Criminals may take advantage of distracted consumers or overwhelmed systems.

Monitor your credit accounts for unfamiliar charges and consider setting up alerts for suspicious activity. Tools can help detect fraud so you can respond quickly, before it impacts your credit score.

10. Make a backup plan for credit access

If the economy continues to worsen, access to credit could shrink. Banks may lower credit limits, tighten approval standards, or close inactive accounts.

To stay prepared, consider building an emergency fund — even a small one — and evaluating your credit options. Know which cards or lines of credit are most stable, and avoid sudden changes that could spook lenders or impact your score.

How to manage credit during economic uncertainty

Staying calm and focused during economic uncertainty can feel challenging, but your credit doesn’t have to suffer. You can protect your score through even the roughest economic waters by monitoring your accounts, staying ahead of payments, and avoiding high-risk financial moves.

Credit monitoring tools, personalized tips, and insights can help you make confident decisions when the economic outlook is unclear. Take small steps now to secure your credit health and keep your financial options open for the future.

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Understanding credit can feel overwhelming, but breaking it down into its fundamental components can make it more manageable. This article will explore the ABCs of credit, including key concepts, types of credit, and essential tips for managing your credit effectively.

A – Assess your credit

Credit score

Your credit score is a three-digit number used by lenders to evaluate your creditworthiness. Typically, it ranges from 300 to 850, with higher scores indicating better creditworthiness. Familiarize yourself with the scoring system and check your score regularly through various credit monitoring services, such as Credit Sesame’s free daily credit score.

Credit report

A credit report provides a detailed account of your credit history, including your borrowing habits, payment history, and outstanding debts. You can obtain a free credit report summary from Credit Sesame or one from each of the three major credit bureaus (Equifax, Experian, and TransUnion) at AnnualCreditReport.com.

B – Build your credit

Getting started

If you’re new to credit or looking to improve your score, consider a credit builder account, such as the Sesame Credit Builder, together with Sesame Cash. These accounts can help grow your score with everyday purchases like gas, groceries, or monthly bills. Make sure to have a good mix of credit accounts.

Types of credit

There are two main types of credit—revolving and installment.

• Revolving credit. This type of credit allows you to borrow up to a certain limit and pay it back over time. Credit cards are the most common form of revolving credit.
• Installment credit. This type of credit involves borrowing a fixed amount and repaying it in installments over a set period. Examples include personal loans, auto loans, and mortgages.

C – Control your credit

Managing debt

Keeping track of your debts is crucial for maintaining good credit health. Create a budget to manage your spending and ensure that you can meet your monthly obligations.

Paying on time

Your payment history is one of the most significant factors affecting your credit score. Pay your bills on time and keep your credit utilization low (ideally below 30% of your available credit). Set up reminders or automate payments to avoid late fees and negative impacts on your score.

Credit utilization ratio

This ratio measures how much of your available credit you are using. A lower ratio is better for your credit score, so aim to use less than 30% of your available credit at any given time.

Regular Monitoring

Stay proactive by regularly monitoring your credit report and score. This will help you catch any errors or fraudulent activity early on, allowing you to take corrective action promptly.

Understanding the ABC of credit is essential for making informed financial decisions. By assessing your credit, establishing and building it wisely, and controlling your debt, you can achieve a healthier credit profile and greater financial stability. Remember, credit is a tool that, when managed effectively, can open doors to better interest rates, loans, and opportunities.

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1. FICTION: Checking your own credit score frequently lowers it.

FACT: Checking your credit score is considered a “soft inquiry” and does not impact your score.

When you check your own credit score, it is classified as a “soft pull,” which does not affect your credit. Soft inquiries include checking your score through free services or when a potential employer reviews your credit. In contrast, a “hard inquiry,” such as applying for a credit card or loan, can temporarily lower your score. Keeping an eye on your credit report is a good financial habit.

2. FICTION: You have one credit score.

FACT: You have multiple credit scores, even if most people refer to their “credit score” (singular).

Different credit bureaus (Equifax, Experian, TransUnion) calculate scores based on slightly different information. Each bureau collects data independently, so you have several credit scores depending on which report is pulled. Additionally, different scoring models, like FICO and VantageScore, may weigh factors differently. For example, FICO scores are the most commonly used in lending decisions, while VantageScore is also widely available for consumers.

3. FICTION: Closing a credit card improves your credit score.

FACT: Closing a credit card can hurt your score by reducing your available credit and altering your credit utilization ratio.

When you close a credit card, you decrease the total amount of available credit, which can increase your credit utilization ratio (the amount of credit you use compared to your total credit limit). A higher ratio negatively impacts your score. It is often better to keep older accounts open (even if you do not use them) to maintain a longer credit history and more available credit.

4. FICTION: You must carry a balance on your credit card to build credit.

FACT: You can build credit by using your card and paying it off in full each month. There is no need to carry debt.

Carrying a balance unnecessarily leads to interest charges. Lenders want to see responsible credit usage, which means charging small amounts and paying the balance in full each month. This demonstrates that you can manage credit without falling into debt, and it helps your credit score without costing you money in interest.

5. FICTION: Paying a bill late just once does not affect your credit score.

FACT: Even one late payment can drop your credit score significantly, especially if it is 30+ days late.

Payment history makes up 35% of your credit score, so paying bills on time is crucial. A payment that is just a few days late may not get reported to the credit bureaus, but once it is 30 days late or more, it will likely be reported and can cause your score to drop by 90–110 points. One way to avoid this is to set up automatic payments or reminders.

6. FICTION: A higher income means you automatically have a better credit score.

FACT: Your credit score is based on your financial habits, not your income level. You can have a high income and a low credit score, or vice versa.

Your credit score is determined by factors such as payment history, credit utilization, and the length of your credit history. A higher income may help you manage credit better, but it does not directly influence your credit score. Someone with a modest income can have excellent credit if they manage debt responsibly, while a high earner could have poor credit if they frequently miss payments.

7. FICTION: Marrying someone with bad credit lowers your credit score.

FACT: Your credit scores remain separate even after marriage. However, joint accounts or co-signing can affect your credit if not managed responsibly.

Your credit reports and scores are yours alone. However, if you open joint credit accounts or co-sign for loans together, both your credit histories are linked to that account. If your partner misses payments or runs up high balances on joint accounts, it could affect both of your credit scores. Communication and shared financial responsibility are key to keeping both scores healthy.

8. FICTION: You must always pay to check your credit score.

FACT: Many services now offer free access to your credit score.

Some companies charge for credit scores, but you can access your TransUnion VantageScore 3.0 score for free through Credit Sesame. Many banks and credit card issuers offer free credit score monitoring to their customers. Additionally, websites like Credit Sesame provide free access to your credit score, making it easier to keep track of your financial health without paying extra.

9. FICTION: Maxing out your credit card is fine as long as you pay it off each month.

FACT: Maxing out your card, even temporarily, can hurt your credit utilization ratio, which impacts your score.

Credit utilization is the second biggest factor in your credit score after payment history. Anything above 30% of your total credit limit can lower your score, even if you pay off the balance at the end of the month. To protect your score, aim to use only a portion of your available credit.

10. FICTION: Once a debt is paid off, it disappears from your credit report.

FACT: Paid-off debts can stay on your credit report for up to 7 years, but they show as “paid,” which is better than leaving them unpaid.

Even after paying off a debt, the history of the account stays on your credit report for several years. However, paid-off debts are seen positively compared to unpaid or delinquent accounts. Over time, the impact of past negative information fades, but paying debts is always a good move.

11. FICTION: All credit scores range from 0 to 900.

FACT: Most credit scores, like FICO and VantageScore, range from 300 to 850.

The most commonly used credit scoring models, FICO and VantageScore, both range from 300 (poor) to 850 (excellent). Some specialized credit scores may have different ranges, but 850 is the highest achievable score for most consumers.

12. FICTION: You do not need to worry about your credit score until you want a loan.

FACT: Your credit score affects more than just loans. It can impact renting an apartment, insurance rates, and even some job opportunities.

Landlords, insurers, and even some employers use your credit score as a factor in decision-making. A higher credit score can help you secure better rental agreements, lower insurance premiums, and, in some cases, make you more attractive to potential employers in certain industries.

13. FICTION: Once you have bad credit, you are stuck with it

FACT: Bad credit can be improved with time, responsible credit use, and paying off debts.

Credit scores can recover from past mistakes by consistently making on-time payments, reducing overall debt, and avoiding new hard inquiries. It may take time, but practicing good credit habits leads to gradual improvements.

14. FICTION: Having too many credit cards hurts your score.

FACT: It is not about how many credit cards you have but how you manage them. Keeping balances low and paying on time is what matters most.

Having multiple credit cards doe not negatively affect your score as long as you keep your credit utilization low and make timely payments. In fact, having available credit and using it responsibly can boost your credit score by demonstrating strong credit management.

15. FICTION: Your credit score should be perfect if you have never been in debt.

FACT: No debt means no credit history. Lenders want to see that you have managed credit responsibly over time to build a strong score.

Credit scores are built through the responsible use of credit. Without any debt or credit accounts, there is no credit history to evaluate, which makes it harder for lenders to assess your creditworthiness. A mix of credit types (like credit cards, loans, etc.) used wisely is key to building good credit.

16. FICTION: Using a debit card builds your credit.

FACT: Debit card use does not affect your credit score because it is not a form of borrowing. Only credit-related accounts are reported to credit bureaus.

Debit card transactions are tied directly to your checking account and do not involve borrowing money, so they do not get reported to credit bureaus. To build credit, you must use credit products like credit cards or loans, demonstrating your ability to manage borrowed money.

17. FICTION: A good credit score stays good forever.

FACT: Credit scores can change depending on your financial behavior.

Your credit score is dynamic and can change depending on your credit usage and payment history. Regular good financial behavior (like paying bills on time and keeping balances low) is necessary to maintain a good score. Late payments, high credit utilization, and taking on too much new debt can cause your score to drop, so it is essential to keep practicing good credit habits.

18. FICTION: You cannot get a loan with no credit history.

FACT: It is harder, but options like secured credit cards or loans are designed to help you build credit from scratch.

If you do not have a credit history, you can start building it with secured credit cards or credit-builder loans specifically designed for people new to credit. These tools can help you establish credit and improve your score over time.

19. FICTION: Credit bureaus decide if you get approved for loans.

FACT: Credit bureaus only provide the data (your credit report and score). Lenders use this information, but they ultimately decide if you are approved.

Credit bureaus collect and provide information about your credit history but do not make lending decisions. Lenders analyze the information in your credit report, along with other factors like income and employment, to decide whether to approve your loan or credit application.

20. FICTION: Bankruptcy completely erases all your debt and resets your credit score.

FACT: Bankruptcy can discharge many debts but damages your credit score for up to 10 years.

Bankruptcy can provide relief from many types of debt, but it does not wipe out everything. Certain debts, such as student loans, child support, and tax obligations, typically survive bankruptcy. Additionally, the negative impact on your credit score can last up to 10 years, making it harder to get new credit.

Understanding credit fiction vs fact is crucial for managing your financial health effectively. Knowing the truth means you can make informed decisions about your credit and avoid costly mistakes. Recognizing these myths helps you navigate the world of credit with greater confidence and clarity. A firm grasp of credit and credit score can help you maintain a strong credit profile and achieve your financial goals.

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It’s no surprise when a personal loan is declined because of a poor credit history. But getting rejected for a loan despite having a good credit score can be frustrating and confusing. Even individuals with excellent credit can face denials. Here are some obscure reasons why you might be turned down and what you can do about it.

Debt management missteps

There are a couple of ways your credit management habits, even with a good score, might raise red flags for lenders.

• Pyramiding Debt. This refers to the practice of repeatedly paying off existing debt with new credit. Lenders may deny your application if they see a trend indicating that you don’t have the capital to manage your debt effectively. Fix this by reducing your spending and paying down your existing debt to improve your credit utilization ratio. Demonstrating a stable income and responsible credit management will make you a more attractive candidate for new credit.
• Credit utilization maneuvers. While a low credit utilization ratio (amount of credit used compared to total limit) is ideal, drastically increasing your available credit to artificially lower your credit utilization can backfire. It might suggest that you’re constantly seeking more credit. Fix this by consulting with your lender to understand what specific actions they would like to see. This might involve paying down some of your current debt or increasing your income. If you decide to close credit accounts, prioritize closing newer ones since older accounts are more beneficial to your credit score.

Debt-to-income tightrope

The amount of credit you have access to compared to your income can also play a role in loan approvals.

• Too much available credit. Having an excessive amount of available credit with a modest income can be a concern for lenders. They worry about the potential risk of you taking on more debt than you can handle. Fix this by talking to your lender to discuss their specific concerns and see if there are ways to address them, such as reducing your credit limit on certain accounts. If increasing your income is an option, that can improve your loan application’s attractiveness in the long run.

The inactivity trap

Lenders want to see a record of responsible credit usage, not just open accounts.

• Inactive credit lines. Simply having credit cards and loans isn’t enough; they need to be active. If you haven’t used your credit cards in several months or if your loans are in deferment, lenders may view your recent credit history as insufficient to gauge your ability to repay Fix this by using your credit responsibly. Make regular payments on existing loans or use your credit cards periodically. If you need a new credit card, consider applying with local lenders, such as credit unions or your bank.

Economic downturn

Even a good credit score might not be enough in an uncertain economic climate.

• Economic factors. Sometimes, lenders might deny your application due to worsening economic conditions in your area. Even with solid credit and a stable job, lenders may be cautious about issuing loans in a volatile economic climate. Fix this by shopping around for other lenders. While multiple credit inquiries can impact your score, 2 or 3 in a year are considered normal, and any resulting dip will be temporary.

Mortgage loan blues

There are a few additional factors more specific to mortgage applications.

• Down payment shortfall. Most mortgage lenders require a down payment, typically a percentage of the property value. A lower down payment increases the lender’s risk and might lead to rejection. Fix this by saving diligently to increase your down payment. Consider delaying your home purchase to reach your target down payment amount. Explore government loan programs or down payment assistance options that might require a lower down payment.
• Savings slump. Lenders want to see a healthy amount of savings to cover closing costs and unexpected expenses. A lack of savings can raise concerns about your financial stability. Fix this by creating a budget and focusing on saving consistently. Aim to save enough to cover at least 3-6 months of living expenses in addition to closing costs.
• Employment hiccups. Stable employment and a history of consistent income are crucial for securing a mortgage. Recent job changes or gaps in employment can be red flags for lenders. Fix this if you’re self-employed by being prepared to document your income with tax returns and financial statements. Consider waiting to apply for a mortgage until you have established a consistent employment history.

Understanding these potential reasons for loan rejection can help you take steps to improve your creditworthiness and increase your chances of approval in the future.

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Getting your first credit card is a big step in life. It can make paying for things convenient, and can be seen as a true sign of adulthood.

How you use your first credit card can set the stage for your financial future. It’s up to you to decide which path you’ll take. Will you pay your credit card bill on time and in full each month to avoid paying interest, and build your credit history and grow your credit scores? Or will you pay the bill late and start other bad habits that damage your credit scores?

The higher your credit scores, the more likely you are to qualify for loans with the best terms and lowest interest rates. Buying a home or car may be easier and cheaper if you have good credit habits. A good credit score can also make it easier to rent a home, get a cell phone plan or start utilities without paying a deposit.

If your credit score is excellent, you are likely get asked by credit card companies to open a high-end card that has a great rewards program.

Here are some of the best ways to use that first, shiny card to create good lifelong habits:

Pick a card that meets your goals

Your first credit card may not have all of the benefits you want, but remember that credit is a lifelong habit. If you’re looking for incredible credit card benefits such as award miles and concierge services, it may take years and perhaps a hefty annual fee before you qualify.

It can pay off to shop for your first credit card and not accept the first offer that arrives in your email or mailbox. Find the best interest rate available. If you ever have too much debt on a few credit cards, look for a card with a 0% introductory APR period so you can consolidate those debts and pay them off without interest. 

Using your first credit card right from the start

The training wheels for your first credit card can be a few small charges that you know you can pay off completely when the bill arrives in about a month.

A small, recurring charge such as a subscription to a streaming service is a good start to learning how credit cards work, and is an affordable way to get a monthly credit card bill.

Pay on time

Paying all of your bills on time is the best way to improve your credit score, and your credit card bill is a regular bill that the credit reporting agencies will check to see if you pay it on time each month. Payment history accounts for 35% of a FICO credit score.

Lenders like responsible borrowers. Starting a history of on-time payments with your first credit card shows how responsible you are. Late payments stay on a credit report for seven years and hurt a credit score.

Pay balance in full each month

Making the minimum credit card bill payment on time can improve your payment history, but a better way is to pay off the balance completely each month. This helps you avoid interest charges and falling into debt, and keeps your credit utilization ratio low.

Keep a low credit utilization ratio

A credit utilization ratio is the amount of credit you’re using compared with the amount of credit you can access. A low ratio is seen by creditors as a sign that you have good control of your money and aren’t using too much of your available credit. Credit utilization accounts for about 30% of a FICO credit score.

The ratio is calculated by dividing your balance by the card’s limit and multiplying by 100 to get a percentage. If you have a $2,000 balance and your credit limit is $10,000, your utilization ratio is 20%. Keeping the ratio under 30% is a good goal, and under 10% for the best chance of improving your score

Here are some ways to lower credit utilization:

• Pay down credit card balances.
• Keep card balances down
• Ask for an increase in your credit limit.
• Do not spend up to any new credit limit

Keep accounts open

It’s tempting to close a credit card after paying off a high balance. You may never want to see that card again. But it can help your credit score by showing a long history of responsible credit management, including paying off a credit card balance. Length of credit history accounts for 15% of a FICO score.

However, you may want to close an account if the card’s terms aren’t beneficial to your finances and credit. If you want to keep a longtime card open but it has an annual fee, ask the lender if the card can be downgraded to one without a fee.

Watch out for fraud

Checking your credit reports for free at least once a year is a good way to protect your credit card from fraud and identity theft. It also helps find fraud in other areas, such as with your daily banking accounts and investments.

Check your reports for fraudulent activity such as new accounts in your name that you didn’t open. Also look for simple errors such as misspelled names and wrong addresses.

Credit Sesame has free credit monitoring with real-time alerts for important changes made to your TransUnion credit report.

Don’t open a bunch of cards at once

Don’t open multiple credit accounts at around the same time, which can make you look more risky to lenders. Hard inquiries done by lenders when you apply for credit cards hurt your credit score a little every time one is initiated.

Stick with one credit card for a while and space out new credit applications by at least six months per card.

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1. How old are you and what is your yearly income?

I am 24 years old and my yearly income is about $200,000.

Financial success came quickly to James. He is a popular influencer who produces videos on a variety of platforms. That visibility has allowed him to attract sponsorship deals from several brands. Combined, these comprise most of his income.

Right now, James says about 70% comes from brand deals and 30% from platforms.

A potential downside of such quick success is that it can be hard to sustain. However, James is confident that he can keep the money flowing in. I’ve done this for a year now. Every month has been consistent. If you’d asked me a year ago, I’d have had doubts about how stable it would be. But now that I’ve been able to do it pretty consistently I’m more comfortable with it.

Though James is confident in his continued success, he isn’t taking it for granted. He is saving money, and looking to grow his business pursuits.

As rewarding as his brand and platform efforts have been, James plans to diversify by cultivating other sources of income. I want to expand into other things so I’m not just dependent on brand deals. The biggest thing is I want to come out with a clothing business. That’s something I want to have going on in the background even while I keep doing my videos. Also, YouTube Shorts is coming out with a monetization program in February that should give me another income stream.

Being single and having no one else to support, James has total freedom to plot his own financial course. He thinks there can be a time and a place for discussing financial plans with a significant other, but he’s not there yet.

I don’t see the need for it if you’re just dating. Maybe at the point where you’re going to move in together or get married. If you want to make a lifetime commitment, it’s probably important then.

In the meantime, James relies on his own ideas and efforts to make the most of his financial opportunities.

2. How much is your rent or mortgage?

James is a college student, and despite his high income he has found the the type of cost-effective solution for living off campus that many students would envy.

My rent currently is $385 a month. I live in Orem, Utah. Things are pretty cheap here, and I live in a house with a bunch of roommates.

While he’s satisfied with his living arrangement, James is thinking ahead to owning property. He views it not just as a place to live, but also as an additional income source.

I think my first property I’d like to be a primary residence for myself but also rent out some rooms to people to help with the mortgage. After that, I’d like to get into AirBnB arbitrage – you know, buying properties and renting them to AirBnB guests instead of having long-term leases. I like the idea of getting income from other properties.

For now though, James is content to stockpile savings until mortgage rates come down. It’s just a waiting game. I’ve been sitting on a lot of savings because I don’t want to buy anything with mortgage rates so crazy this year.

Despite his elevated income, James faces an obstacle to buying a home that is common to many young adults: his credit and employment history may be too limited for him to qualify for a mortgage on his own. I might have to get my parents or someone to cosign the loan because I don’t have the type of income history that looks good for credit.

3. What’s the last thing you purchased?

The last thing I purchased was this fairlife protein shake.

Even for less modest purchases, James is careful not to buy things he can’t afford. I would never use credit unless I have the money to pay it back right away.

4. What do you spend the most money on?

I probably spend the most money on clothes. It’s a problem.

James says this in a lighthearted way that shows it’s a problem he has firmly under control. While he may occasionally splurge on his clothes habit, he’s careful not to spend more than he can afford.

Mostly though, I don’t think you should buy something unless you could pay for it several times over. I think people make the mistake of spending everything they earn. I may be guilty of that sometimes, but I think saving is so important. A lot of times people get their paycheck and immediately blow it on something.

5. What kind of car do you have? How much is your monthly car payment?

My car is a 2018 Tesla Model 3 and my monthly payments are about $700 a month. I bought it used because the prices were way too high for new ones. The used ones were more in my budget.

New cars tend to depreciate as soon as their first owner gets behind the wheel. That often makes used cars a better bargain.

The choice of car James made was based on two distinct sides of his personality. One is that he likes to keep a finger on the pulse of popular trends. The other is that he is pragmatic about money. His explanation for buying a Tesla: I always thought electric cars were cool, and it’s a better long-term investment.

When it comes to financing cars, consumers often find it convenient to let the dealer arrange a loan. However, this doesn’t always get them the best loan terms. James got his loan through the dealer, but not without doing some comparison shopping first to make sure the terms were competitive.

I did look around a little bit, but the dealer had a great rate for me.

6. What’s the most expensive thing you own?

The most expensive thing I own is probably my Tesla.

When it comes to insuring his prize possession, James’ made a practical decision common to young adults. His car is insured through is parents’ auto policy. It’s a lot cheaper that way, but I’ll probably have to get off their insurance soon as I get older.

Auto insurance companies vary with respect to how long they permit an adult child to stay on a parent’s policy. In general, this can be a money-saving approach for adult children who still live with their parents or are students.

Piggy-backing on a parent’s insurance policy can give a young adult time to build up a safe driving record. It can also give them time to establish a favorable credit score. Like a person’s driving history, credit history can often influence insurance rates.

7. How much do you have in savings?

I have about $100,000 in savings.

Here, James is well ahead of the curve for his age group. According to the Federal Reserve, the median household asset value for Americans under 35 is just $40,700.

Obviously, his high income helps. But it also matters a great deal that James has made savings an immediate priority. This has allowed him to accumulate that $100,000 in savings very quickly. It took probably a year to build that up. Maybe six to eight months.

In fact, his savings have grown so quickly that James hasn’t figured how to invest it yet. That’s one of my weak points. It’s just sitting in a bank account right now, but I need to talk to someone about doing something more active with it.

While James recognizes the importance of putting his money to work with investments, he maintains a healthy skepticism about the type of investments he wants to pursue.

I think there’s a lot of get rich quick schemes nowadays, like with the whole cryptocurrency world. I’ve seen a lot of people fail at that kind of thing so it makes me more cautious. I’ve seen more people succeed in real estate so I think that’s a little more reliable.

8. Do you have student loans? If so how much?

I don’t have any student loans.

James recognizes that he’s at an advantage not to have to rely on loans to finance college, as well for being able to earn money in a non-traditional way. I’m definitely privileged not to have loans. In college it’s hard to work while you’re going to school. It’s a lot of hours for not much money.

9. Do you have credit cards? If so, how many?

I do have credit cards and I think I have around four.

There are different types of credit cards, and looking to take advantage of different credit card characteristics has shaped how James has chosen his cards.

I mainly got my first one because I was right out of high school and it was a student one so I could get it easily. Then I got a travel card because I started traveling a lot. When I got a loan from my bank, they offered me a credit card so I added that one. I also have a Creator Card. Different scenarios led me to getting different credit cards.

With his range of credit cards, James chooses which to use according to how he’s spending the money. My main one that I use is the Delta Sky Miles card because that gives me points for traveling, and I travel a lot.

10. What’s one of your financial goals?

One of my financial goals is to have about $30,000 coming in every month passively.

Passive income is money from investments that a person doesn’t have to actively work to earn. Because there are limits on a person’s time, adding passive income to ongoing active earnings can be a key to building wealth.

James plans to continue to pursue and expand his career as a content creator and representing brands. But his goal of adding passive income to the mix is why he has his eyes on eventually investing in real estate. It would be awesome to have multiple properties bringing in that kind of income. It will probably take years to get there, but that’s the end goal.

11. What’s your credit score?

My credit score is around 755 and I verified that using the Credit Sesame app.

Young adults often have trouble building credit. With a strong credit score at age 24, James is a case study in how to build credit quickly and successfully.

First, James started to establish credit early. He got his first credit card when he was just out of high school.

Then he began using credit regularly. But here’s the key: he also made a habit of quickly paying off his credit card balances.

I pay them off in full weekly. Sometimes every couple days. I think I get that from my parents and family. My parents are penny pinchers. They are Korean and very traditional in that way. So I’m very careful with how I use credit. I’ve never missed a monthly payment.

Those credit habits help his credit score in two ways:

• Payment history is the most important factor in credit score. By using credit regularly and making each payment on time, James has established a strong payment history.
• By paying his balance off quickly and in full, James has made sure that only a small portion of his credit limits is typically in use at any one time. Keeping credit utilization low is favorable for credit scores.

James keeps an eye on his credit score, but he doesn’t set specific goals for where he wants it to be. He’s confident that maintaining good credit habits will do the job.

As long as I’m doing the best I can to pay stuff off quick, I know it will be good.

You may also be interested in:

• 11 Money Questions | The Money Plug
• 11 Money Questions | MoneyCoachVince

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post 11 Money Questions | It’s James Seo appeared first on Credit Sesame.

Debt consolidation has several potential advantages. They include fewer payments, better interest rates and more time to repay. But how does debt consolidation affect your credit score?

Debt consolidation and credit scores: first, the bad news

Most forms of debt consolidation involve using a new loan to pay off two or more old accounts. And applying for a new loan usually means authorizing a “hard pull” of your credit report. According to FICO, each hard pull, or inquiry, causes your credit score to drop as much as five points. That drop is temporary — inquiries remain on your credit report for two years but only impact your credit score for one.

Five points might not seem like a big deal. But what if you apply for more than one consolidation loan or even prequalify with more than one lender? The impact could be minimal or significant depending on the consolidation loan you choose.

How different loan applications impact your credit score

You can apply for some types of financing multiple times in a short period and FICO only counts it as one inquiry. They include auto loans, mortgages, home equity loans and home equity lines of credit (HELOCS). That’s because FICO recognizes consumers often apply multiple times as part of their rate shopping behavior and it doesn’t mean they’re buying a bunch of cars or getting multiple mortgages.

However, if you consolidate with a personal loan or a balance transfer credit card, prequalifying or applying multiple times could knock a lot more points off. If your lower credit scores put you into a different credit grade, it could cause lenders to offer you worse credit terms. Be especially careful about authorizing too many inquiries if you plan to apply for a home loan in the next year. That’s because mortgage rates are highly sensitive to even small credit score changes, and because a tiny difference in interest rate can add up to thousands of dollars over the life of a loan.

Debt consolidation and credit utilization

Once you consolidate your debt, good things may happen to your credit score. Consolidating credit cards reduces your credit utilization ratio. Credit utilization (also called “amounts owed” by credit bureaus) makes up 30% of your credit score. And you should try to keep that ratio as low as possible.

How do you calculate your credit utilization? By dividing your total credit card balances by the sum of your credit card limits. For instance, if you have three cards with credit limits of $3,000, $2,000 and $10,000, your total credit is $15,000. And if your balances are $2,000, $2,000 and $8,000 (totaling $12,000), your utilization is $12,000 / $15,000, which is 80%. That’s very high and would probably drag your credit score down considerably.

How consolidation loans affect credit utilization

But suppose that you consolidate your credit cards. What happens to your utilization then?

That depends on the type of loan you use to consolidate. Remember that credit utilization only counts revolving, unsecured debt. For most people, that’s their credit card accounts. So if you take out an installment loan to pay off the $12,000 in credit card debt, your utilization drops to zero. The calculation is $0 / $15,000 and the answer is zero.

You get the same result if you use a cash-out refinance, home equity loan or home equity line of credit to consolidate your credit cards. Zero credit utilization, even though you owe the same amount of debt. Simply changing the type of debt you have can do wonderful things to your credit utilization and your credit score.

Consolidating with a balance transfer credit card also lowers credit utilization, but not to zero. That’s because the new account is also a revolving credit line, which counts in the utilization calculation. Let’s assume that you consolidate your $12,000 with a $15,000 zero-interest balance transfer credit card. You’d calculate your utilization like this:

• Add up your credit limits: $3,000 + $2,000 + $10,000 + $15,000 = $30,000
• Divide the sum of your credit balances (still $12,000) by your total credit limits.
• Your utilization equals $12,000 / $30,000, which is 40%.

Paying off credit card debt: more good news

Once you’ve consolidated your credit cards, you’ll steadily pay down your new loan balance until eventually it’s gone. As you do this, you’re adding more positive repayment history to your account. Those are both good for your credit score.

As long as you commit to paying your credit card balances in full each month, and make all loan payments within 30 days of their due date, your credit score should keep heading in the right direction.

Dealing with overspending

One of the biggest reasons people fail at debt consolidation is that they run their credit card balances back up after zeroing them out. Then, they have a new consolidation loan in addition to credit card balances. This can do disastrous things to their finances and harm their credit scores.

If you believe that you cannot resist the temptation to overspend, consider credit counseling from a reputable non-profit. And perhaps closing out some or all of your credit cards.

Closing out your credit cards

Your credit counselor might advise you to close some or all of your credit cards. How does debt consolidation affect your credit if you close those accounts?

Closing a credit card voluntarily does not hurt your credit. And closing credit cards if you owe no balances will not harm your credit utilization or your score. However, if you close one or more credit cards and have a balance on an open credit card, your utilization will be higher and it will probably drop your credit score.

If, for instance, you closed out all credit cards except one with a $1,000 limit, charging just $500 would give you a 50% utilization ratio. But if you keep $15,000 of credit open, charging $500 would give you just 3% utilization.

There are two forces in play:

• Closing most of your credit leaves you vulnerable if you need to charge in the future.
• Leaving lots of available credit open leaves you vulnerable to running up balances.

The right decision for you depends on your priorities, debt management skill and discipline. If you’re worried about overspending, close your accounts. But if you’re more concerned about access to credit or your utilization ratio, keep accounts open. If you’re not sure, ask a credit counselor to help you make a budget and recommend a course of action.

You may also be interested in:

• All There is to Know About Debt Consolidation

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post How Debt Consolidation Affects Your Credit Score appeared first on Credit Sesame.

A dashboard in a car is designed to give you a lot of essential information at a glance. Imagine you have a personal finance dashboard. Who would it indicate? You car’s dashboard gives you feedback on how you’re driving and the condition of the vehicle. In a similar way, there are six basic numbers you can look at every month to get a quick impression of your personal finances. These give you the big picture on how you’re using money and credit, and what shape your finances are in as a result.

1. Monthly spending = speedometer

Your monthly spending is the equivalent of the speedometer on your personal finance dashboard. Just as a speedometer tells you how fast you’re driving, you should also keep an eye on how quickly you’re spending money.

Your driving speed needs to be put into context. There’s a world of difference between doing 60 miles per hour on a stretch of open highway as opposed to racing though downtown traffic at that speed. Your speed has to be judged in relation to the speed limit.

In financial terms, your spending has to be evaluated relative to your budget. Having budget tells you how quickly you can afford to spend money, like a speed limit tells you how fast you can go in a car. Each month, you should take a look at whether you’re within the limit, or need to slow down your spending.

If you’ve exceeded your budget due to unusual expenses, think of this like speeding up to pass another car. As long as it’s temporary and you slow back down again, you should be okay.

Like the speed of your car, spending has a way of creeping up over time. That’s something you need to beware of. If your spending accelerates steadily, eventually your budget is exceeded.. That’s why you need to regularly check your rate of spending to make sure it’s generally staying within the limits of your budget.

2. Available credit = gas gauge

When people get a credit card statement, they often look only at one thing: the minimum payment they need to make that month.

Perhaps they also look at the total amount they owe. But they should also pay attention a couple other key numbers on the statement: the size of their credit line, and how much of that credit line is still available. Think of this as the gas gauge on your personal finance dashboard.

The credit line is the amount you’re allowed to borrow on the card. The credit available is the amount of the credit line minus the amount you already owe.

Like a gas gauge, the credit available shows how much you have left. Instead of fuel, credit available shows how much more you can borrow.

If using credit has been fueling your lifestyle, and the amount of credit is low, you are running out of gas, metaphorically speaking.

Ideally, you should try to use well under than half your credit line at any one time. That’s like having more than half a tank full of gas available at all times.

3. Retirement savings = oil pressure gauge

Like retirement savings, oil pressure is something you need to keep an eye on or else you may run into serious trouble down the road.

A precise gauge can give you detailed information. So, ideally you have done some detailed planning for how much money you need at retirement, and how much you need to save each year to reach that goal. That way you can check your progress against that plan.

Unfortunately, a lot of cars these days don’t have an oil pressure gauge. They just have an oil warning light instead. That’s not as good because it only comes on when there’s already a problem.

Too many people take the same approach to retirement savings. They don’t measure it regularly. They only realize there’s a problem when they get close to retirement and it’s too late to do much about it. Keep an eye on your retirement savings, just as you do the oil in your car.

4. Credit score = temperature gauge

An engine might run hot for a variety of reasons. The temperature gauge can be compared to your credit score on your personal finance dashboard.  A lot of things can affect credit score. Like a temperature gauge, it can be a good first warning that you need to take a closer look at what’s going on.

Waiting until you get turned down for credit to find out your score is too low is like waiting until there’s steam pouring out from under your hood to realize your engine’s running too hot. Better to check the gauge now and then. Sign up for credit monitoring so you are updated daily on changes to your credit status before things go too far.

5. Net debt or savings = engine warning light

Most people have a mix of debt and assets. The key to building wealth over time is to make sure your assets exceed your debt.

In most cars, when an engine light comes on it indicates something needs attention. If the light isn’t flashing the problem isn’t yet critical. It’s the same if you find you have more debt than savings.

Having a net debt position (essentially, a negative net worth) can be survived if it’s a temporary condition. If you find that to be the case, the key is to have a plan for how to bring your debt down below the level of your assets. Don’t ignore the warning and keep going on the way you were before, or this problem could get serious.

6. Missed payments = flashing warning light

Speaking of serious problems, that’s what a flashing warning light on a dashboard means. The personal finance dashboard equivalent is if you are regularly failing to pay your bills.

This means you have a serious problem that is quickly getting worse. Missed bills mean additional expenses. They can also damage your credit for years to come.

If missing payments is anything more than  a very rare mistake, you need to sit down and come up with a plan to resolve your debts. You may need professional help to do this. Don’t try to ignore he flashing warning light. It doesn’t just mean trouble is coming; it means trouble is already here.

Checking your personal finance dashboard

When you check your personal finance dashboard, you know things are running smoothly if:

• Monthly spending is within your budget and is less than your after-tax income
• You’re using about a third or less of your available credit
• You have a retirement plan and your savings are on schedule
• Your credit score is at least 670 and holding steady or rising
• You have more savings than debt
• You rarely if ever miss paying bills (less than once every few years)

Otherwise, see what you can do to remedy the situation. If you can’t figure it out yourself, look for someone to help you fix the problem.

You may also be interested in:

• Are You Financially Comfortable?
• Five Tips on How to Become Financially Independent

Disclaimer: This guide to buying a house and getting a mortgage is for informational purposes only and is not intended as a substitute for professional advice.

The post What Is Your Personal Finance Dashboard Telling You? appeared first on Credit Sesame.

Twitter Space recorded July 7, 2022. Conversation starts at 2:30 mins

Credit Sesame @creditsesame All right. Let’s go ahead and get started. Hi everyone. Welcome to today’s Twitter Space! We’re going to be talking about why your credit score matters. We’re joined with Irene Day, aka the Credit Queen Irene. 

Irene’s a licensed and bonded credit repair specialist and you can learn more about her by following her on her social channels. She’s @theirenerenee on Twitter and @creditqueenirene on Instagram, So, without further ado, Irene, welcome. Do you want to start off by talking a little bit more about who you are and how you got interested in credit?

Irene Renee @theirenerenee Sure. So, how did I get interested in credit? Like everybody else, I fell on hard times. Credit was crazy. I think the lowest credit score I had was 410. I think that was rock bottom for me. 

I had heard about credit repair and everybody that I saw who were doing credit repair were people that, like, I would not trust with walking my dog, let alone my personal information. So, I just started doing research on what credit repair was … the legality around the credit repair industry. 

One of the things a lot of people do not know is that credit repair is an actual financial service, so you have to be licensed. You have to be bonded to legally perform these services. So I just started doing a bunch of research. I officially started my company in March of 2017, and a few months later, in July, actually five years from today, today is my five year quit date anniversary. Five years.

Credit Sesame @creditsesame Happy anniversary.

Irene Renee @theirenerenee Five years ago I quit my job of 13 years, to pursue entrepreneurship full time, and that’s what I’ve been doing ever since.

Credit Sesame @creditsesame Amazing. Well we’re happy to have you, and we’re excited to listen in and hear more about everything that you’ve learned, and hopefully, you’ll drop some knowledge on us. So we’re going to start off talking about just how credit scores work?

Irene Renee @theirenerenee So, a credit score is basically a numeric value of how you have been able to prove yourself financially. So a lot of times, I hear people all the time saying, “I don’t really know, I got a bad credit score because I don’t use credit.” No, you don’t have a bad credit score because you use credit. You have a bad credit score because you don’t know how your credit score works.

So, typically your credit score is made up of five parts, and this is either your FICO or your Vantage Score Payment History.

If you have a friend that you know likes to borrow money from you and does not like to pay you back on time, they’re gonna have – they should have – a bad credit history with you. Same thing with lenders, and because banks don’t know who you are individually, everybody has a number. Everybody has a score based on your financial habits.

PAYMENT HISTORY is 35% of your score.

CREDIT UTILIZATION is 30% of your score. 

One of the ways that I see people lose out a lot in this category is being afraid to actually have credit. I tell people all the time. Just because you have credit, like just because you have open credit cards, that does not mean that you have to have debt. And I think a lot of times people coincide having debt with having credit, and that’s not the case.

INQUIRIES are roughly 10% of your score. I see people a lot complain like, “Oh, you know, I got all these inquiries on my credit score. I mean, on my credit reports, and that’s why my score is low.” That’s not why your score is low. You can have 400 inquiries on your credit reports. You can have 4 inquiries on your credit report and it’s still going to be less than 10% of your score. So if you are ever in the situation where you need to figure out why is my credit score so low, it’s not your Inquiries.

CREDIT MIX is extremely important. What is credit mix? Having installment accounts. So those are things that you pay a fixed monthly payment on.

Have a good mix of installment accounts and revolving accounts. One of the things I see a lot, especially on the internet, you’ll see somebody like, hey, what did y’all do to fix your credit score? Now what I would need to do to fix my credit is not going to be the same thing that Ashley would need to do to fix hers.

Credit mix, so making sure you have installment accounts, which are those accounts that you have fixed, you make fixed monthly payments on. And you have revolving accounts – these are going to be your Visa cards, your Mastercards, your American Express cards, your Capital One cards like any open revolving credit cards where you have a set credit limit.

Those are going to be your revolving accounts. Those are the things that you need to focus on when you are in the process of either building or rebuilding your credit.

Credit Sesame @creditsesame Awesome. Thanks for breaking it down like that. So what is considered a good credit score?

Irene Renee @theirenerenee Umm…  So the word “good” is relative right. So it just depends on what you’re trying to do.If you are trying to get a car, maybe, 680 – 700 might be considered good depending on the type of car you’re trying to get, like the actual cost of the car.

If you’re trying to get a house, I know some lenders can approve you as low as 580. Of the things to keep in mind about credit scores, especially when it comes to things with fixed APR’s like your mortgage or your car loan, you want to have as a rule of thumb, 720 plus. 720 plus is good.

Right, so seven anything, 720-up ideally is considered good credit, and anything 760 and up is considered excellent. Once you hit that 760, you’re good to go. A lot of times I see people like “Oh my gosh, I need to get an 800 credit score”. You’re going to get the same interest rates with a 760 credit score as you do with 800. Same interest rates.

Credit Sesame @creditsesame So it depends on what you’re trying to accomplish. It’s all relative based on that?

Irene Renee @theirenerenee Yep.

Credit Sesame @creditsesame So, let’s get into the five reasons that your credit score matters, and I think this one is probably one of the most surprising ones. How can your credit score potentially impact your employment?

Irene Renee @theirenerenee So, your actual employment history is not reported on your credit reports. However, if you have a job where you need a security clearance, like if you’re in the military, or if you do anything in the financial space, like work in a bank, or if you work in a credit union, you cannot work in these areas or in these spaces with poor credit.

They actually pull your credit reports. We recently had a client, she was on the verge of losing her security clearance because she was a victim of COVID, and her credit score dropped 130 points. So, once she enrolled in credit repair, we were able to give her documentation to show that she was actively working on repairing her credit, so she didn’t lose her security clearance and in turn lose her job.

Credit Sesame @creditsesame That’s insane, that’s crazy. You don’t think about how your credit score can impact your employment, but it does. 

Irene Renee @theirenerenee Car insurance #2. A lot of people think our car insurance is based solely on our driving history or whether or not we’re in an at-fault or no-fault state. Your credit, your personal credit score, is one of the factors that is going to determine how much you pay in monthly insurance premiums.

If you get a cell phone, we all wanna have the latest iPhone, the latest Samsung, getting approved to be able to lease a phone or do the monthly payments or even for services is reliant on your credit score. I remember when I got my very first phone line in my own name.

I had no credit. So, no credit, bad credit – they are the same thing. I had no credit. I had to give a rise in the $400 deposit – for a cell phone.

#4 Renting. Right, apartments. Depending on where you live, or if it’s through a property management company. If it’s a private landlord depending on their actual process, your credit matters.

Me, personally, being somebody who owns rental property, as long as I don’t see any evictions on your credit and you got a stable income – you’ve been on your job for a year or two – I will probably rent to you. 

But a lot of high-end apartments, like I’m in Cleveland, a lot of the high end apartments downtown, if you don’t have at least a 700 credit score, you’re not moving into any of those areas. And that’s with a good income or without a good income. If your credit score is not considered good, you’re not moving into these spaces. 

I think a big misconception about the way credit works is people just assume that if you make good money you should have good credit and that’s not true at all. I’ve seen a study that came out that said 70% of people that make over $250,000 are living paycheck to paycheck.

Credit Sesame @creditsesame Wow!

Irene Renee @theirenerenee So just because you make a lot of money, that does not correlate with you having good credit.

Credit Sesame @creditsesame Right?

Irene Renee @theirenerenee Or having good financial habits. Did I do five or did I do four?

Credit Sesame @creditsesame I think you did four, but let’s talk about buying a house. so, how does your credit score factor into buying a house? And can you talk about the different mortgage loans and what credit score you need to qualify for them?

Irene Renee @theirenerenee So, the minimum score that you need is going to depend on the individual lender. If you do a qualified mortgage, (a qualified mortgage is anything that is backed by Fannie and Freddie). So the VA loan, USDA loan, FHA loan, conventional loan are all qualified mortgages.

Each lender is going to have different guidelines for you. One of the things when it comes to homebuying, they’re going to take your debt-to-income into consideration. And they’re going to take your actual income into consideration, like the money that you have, how much is the house that you’re trying to buy, and they are going to take your credit into consideration. 

I’ve got an outstanding income, right… but my credit might be kinda shaky. You’re gonna have higher approval odds because you’re very strong in other areas.

So buying a house in general is going to be a tandem of the three. I’ve seen people with low incomes and a high credit score get phenomenal rates. 

One other thing to keep in mind when you are home buying: You don’t want to just get approved, you want to be able to get a mortgage and have a reasonable rate – especially with everything that is going on with the economy right now. You don’t want to be that person who got approved for a house but now is cash poor because a lot of the money that they make monthly is going towards the home payment or mortgage because they got approved with a crappy interest rate. Interest rates matter.

Credit Sesame @creditsesame Yeah, for sure.

So, here’s a quick little mathematical situation. Someone who has a 620 credit score, they end up getting a 4.35% interest rate on a house for a 30 year fixed loan. The house is about $432,000. Their total payments made will end up being $855,000. Someone with the same fixed loan, same house price with a 760 credit score will end up getting an interest rate of 3.9%, so their total payments made will be $769,000. It makes a huge difference.

Irene Renee @theirenerenee It’s a huge difference

Credit Sesame @creditsesame Yeah.

Irene Renee @theirenerenee It’s a huge difference. And a lot of people don’t think about that on the back end: How much will I end up paying overall? They think about it for the moment, but when you get a mortgage, this is going to be one of the biggest – if not the biggest – purchase that you make in your lifetime.

Credit Sesame @creditsesame Absolutely, yeah. So let’s talk about buying a car. So how can you get better loan terms with a better credit score, especially when buying a car? And what kind of credit score do you need to end up getting qualified to buy a car? And what’s the optimal one?

Irene Renee @theirenerenee So two things that you need to know about car buying when it comes to your credit,  one is that you’re going to get a better interest rate with your credit union. So if you are somebody who banks with a credit union, I would start there. You can actually ask the bankers at the credit union what credit scores you will need to get approved for a car loan there.

You’re always gonna get much more favorable interest rates on your own versus somewhere else unless you have 760-up credit. So, unless you are going to Mercedes with top tier credit, you would be better off trying to get funding on your own, through either your credit union or your bank. So that’s one thing.

And each lender, again, they’re going to have different different guidelines. So, GMAC or Allied, they might have a minimum 620 requirement if you make $50,000 a year. And then if you make less than that, they might have a minimum 680 requirement. So, it’s going to depend on your credit and your finances when you’re done. When you’re doing subprime limit lending, and that’s basically when you’re not in that top bucket of credit, when you’re not in that premium credit score category. Anything under that is considered subprime.

So what options, or what approval guidelines are there? It’s going to vary lender to lender and consumer to consumer based on what you have going on. So that’s one thing. Two, you have the right to shop around when it comes to interest rates. So when you buy a house or when you buy a car, you can actually shop around different lenders for rates. This is why if you ever go to the car dealership and your credit wasn’t top tier, and they ran your credit, this is why a lot of times we’ll have like ten inquiries, or even fifteen inquiries from the one credit pool, because they tried to shop you around to see who would pick you up and who would give you the best rate.

One of the things to keep in mind about that, because you went to the car dealership, and you got fifteen inquiries on your credit, because you got those fifteen inquiries within a thirty day time period, they’re only going to be scored into your credit score as one inquiry.

So it might not look the best on your credit report, but from a credit scoring standpoint, it’s only one account. It’s one inquiry. And that’s for homebuying and for auto buying.

Credit Sesame @creditsesame Yeah, that makes sense. So you had brought this up a little bit earlier, but I thought it was a really interesting take, and I wanted to learn more about it. Why do you think, with everything going on with inflation and the impending recession … Why is having access to credit so important, especially right now? And why should having a good credit score matter with everything going on with the economy?

Irene Renee @theirenerenee During recessions or depressions, like the recession in 2008, that was the biggest transfer of wealth that we’ve seen since the Great Depression.

The way that people get rich is by using other people’s money. So you want to make sure that you have as much access to other people’s money as possible. So, when these opportunities arise, you can take advantage of them.

I tell people that even if you are not trying to be a full time investor, even if you are not trying to be a full time entrepreneur, you need to have some type of other income outside of your nine to five. Because, with the way the inflation is going, all of that money we printed last year and before that, the value of the dollar is going to continue to drop. But, your job is not going to give you raises based on the rate of inflation. So, it’s like you’re going to feel the bacon going up to $8 a pack instead of $5 a pack… you’re going to feel that.

So you need to make sure that you are doing what you need to do to get other streams of income outside of your primary source of income.

Credit Sesame @creditsesame Super important, yeah for sure. Do you have any side hustle recommendations or things that you would recommend to people if they want to expand and diversify their income?

Irene Renee @theirenerenee Uh, no! I tell people when you are a jack of all trades you’re a master of none. And I like being the master of the things that I’m master at, even with the real estate that I own.

Credit Sesame @creditsesame I love that

Irene Renee @theirenerenee I have friends and people in my network that have assisted me with being able to own six houses.

I was like, yeah! I have the capital and I have the credit to be able to maneuver this type of way, but I know nothing about real estate. I just know as a landlord I’m supposed to make sure you’re not living in an old crappy place and I’m taking care of the stuff that needs to be taken care of. But as far as rehabbing properties, flipping properties, stuff like that, that’s not my lane. I don’t want it to be my lane.

Credit Sesame @creditsesame Right.

Irene Renee @theirenerenee And I also feel like, as individuals, we all have different things going on, so I wouldn’t say to you that you could go and do this for a side hustle, as you might not even like whatever that is that I suggested. So I think it’s very important to be very self-aware of what works for you, what interests you, what connections and resources you have available to you, and then go from there.

Credit Sesame @creditsesame That makes complete sense. So, let’s kind of shift gears here a little bit into credit repair.

Irene Renee @theirenerenee OK.

Credit Sesame @creditsesame What’s a credit repair tip that you’d like for everyone to know, or you think everyone should know about?

Irene Renee @theirenerenee So, one of the biggest misconceptions about credit repair is that credit repair is debt relief. So people think once I sign up for credit repair, if I get accounts deleted, I no longer owe those debts. That is absolutely false.

I see people use this as a marketing tactic, and every time I see people use this as a marketing tactic, they have no license to do credit repair. They are not bonded as a credit repair organization, or even as a business. It’s just stuff that they got off of YouTube. It’s not anything that people actually need to know. 

I think when it comes to finances, it’s a lot easier to tell people what they want to hear instead of what they need to hear. And that’s why so many people have been able to be manipulative when it comes to what credit repair services actually are.

So, if you decide to sign up for credit repair, just know any debts that are removed from your credit reports, if they are still within the statute of limitations, they are still your debts. You are still legally responsible for those debts. You are still legally responsible to settle or take care of those debts.

And, I think that’s something that’s very important to know coming into the credit repair space.

Credit Sesame @creditsesame One-hundred percent! And I don’t think a lot of people realize that, so that’s super interesting to know. Well, those are all the questions I had Irene. Is there anything else you’d like to mention that you think people should know about credit or credit repair?

Irene Renee @theirenerenee I think in finances, if it sounds gimmicky, if it sounds like too good to be true, it is! Trust your gut. Especially as a woman, I think our intuition is unmatched … our feelings to be able to scope out something that’s not right. Trust yourself. If it sounds too good to be true, it absolutely is. And men, if something sounds too good to be true, tell your woman, and she’s gonna tell you like, “Nah, don’t even get dropped off into that!”

Credit Sesame @creditsesame One-hundred percent great advice. Well, Irene, thank you so much for joining us. Do you wanna give a little shout out to yourself, let everybody know where they can find you again before we sign off?

Irene Renee @theirenerenee Oh my God, you guys, I’ll be on Twitter. But listen, I’m just, you know, I’m a whole mess on Twitter. I’m talking about my personal life, I’m talking about my dog… I love my dog.

I’m talking about this bruise that I got from the Fourth of July on Monday, from doing this DIY slip and slide in the backyard, and I talk a little bit about credit and taxes on here.

But I do a lot of  the financial stuff on Instagram.  So if you guys wanna follow me over there at creditqueenirene, I’m smiling real big in my profile picture. Or you guys can follow me here on Twitter at @theirenerenee. Just know that it’s a lot of personal stuff over here too.

Credit Sesame @creditsesame As Twitter is, as Twitter should be, right there.

Irene Renee @theirenerenee Yes.

Credit Sesame @creditsesame Thank you so much Irene. This space will be recorded if any of you guys want to go back and listen to it.  We’re going to be doing these twitter spaces every Thursday in July,  so we’ll see you guys back here next Thursday for another one. 

Thanks again, Irene.

Have a great day everybody!

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• Low Income and High Credit Score: Is it Possible?
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• How to Develop Good Habits for Building Credit Score
• The Challenges of Having No Credit or a Low Credit Score

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for formal professional advice.

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