WEBVTT - Manage your Credit like a Grown-Up 0:00:04.480 --> 0:00:06.920 Credit cards have always been a bit baffling to me, 0:00:06.960 --> 0:00:10.520 if I'm being honest, and I think that's because credit 0:00:10.560 --> 0:00:12.959 cards have kind of been vilified in films and TV 0:00:13.240 --> 0:00:16.599 as this slippery slope of spending that makes us believe 0:00:17.000 --> 0:00:19.560 we can buy anything we want until we can't and 0:00:19.600 --> 0:00:22.400 we're in even deeper financial trouble than before we had 0:00:22.440 --> 0:00:25.800 the credit card. Take the movie Confessions of a Shopaholic 0:00:25.840 --> 0:00:29.240 as a prime example. The opening scene talks about these 0:00:29.320 --> 0:00:32.320 beautiful women who have beautiful things and they don't even 0:00:32.320 --> 0:00:38.639 need money because they use quote magic cards credit cards. Eventually, 0:00:38.640 --> 0:00:41.720 in the film, this obsession with credit cards leads our 0:00:41.760 --> 0:00:45.839 heroin into sixteen thousand dollars worth of debt. When a 0:00:45.920 --> 0:00:48.640 story wants to show us that someone is in for 0:00:48.720 --> 0:00:52.320 difficult times ahead, there's this classic scene where their credit 0:00:52.400 --> 0:00:55.400 card is declined, and that's our first signal that a 0:00:55.520 --> 0:00:59.520 character is about to hit financial rock bottom. We're constantly 0:00:59.600 --> 0:01:02.440 present with these storylines that portray credit cards as these 0:01:02.480 --> 0:01:06.280 proverbial financial poison apples. But according to a report from 0:01:06.280 --> 0:01:09.160 the Federal Reserve System on the Economic well Being of 0:01:09.200 --> 0:01:12.240 the US household in twenty twenty one, eighty four percent 0:01:12.280 --> 0:01:15.320 of US adults have and use credit cards, so it 0:01:15.360 --> 0:01:18.440 begs the question are credit cards all bad if so 0:01:18.520 --> 0:01:21.959 many people have them? I know we have to be 0:01:22.000 --> 0:01:25.360 careful about accruing debt, but can credit cards also help 0:01:25.440 --> 0:01:28.880 us achieve good financial standing? Also, if someone could tell 0:01:28.880 --> 0:01:31.399 me how to get the most out of the rewards 0:01:31.400 --> 0:01:34.840 i'm the card, that would be great. Let's figure it 0:01:34.880 --> 0:01:37.920 all out together and start taking notes because this is. 0:01:39.520 --> 0:01:39.920 Stuff. 0:01:43.760 --> 0:01:47.080 Welcome to another episode of grown up stuff How to 0:01:47.160 --> 0:01:50.919 adult Now, Matt. When we first brought up covering credit 0:01:50.960 --> 0:01:55.720 cards and credit you were very enthusiastic about this, and 0:01:55.840 --> 0:01:58.640 it was surprising as it's not usually something that gets 0:01:58.760 --> 0:02:01.640 my blood pumping, and I want to know where does 0:02:01.680 --> 0:02:03.160 this zeal come from? 0:02:03.360 --> 0:02:05.520 So credit cards have best been described to me as 0:02:05.800 --> 0:02:09.720 a tool, and in knowledgeable hands, a tool can be 0:02:09.800 --> 0:02:12.280 an amazing thing. Let's think about like a chainsaw. Right, 0:02:12.480 --> 0:02:15.760 you can cut down trees, you can trim your hedges, 0:02:16.240 --> 0:02:20.520 but in less knowledgeable hands you could lose a few toes. 0:02:20.600 --> 0:02:23.600 You know, like credit cards have the power a really 0:02:24.080 --> 0:02:27.200 wreck havoc on someone's financial life. If you've got a 0:02:27.240 --> 0:02:30.079 twenty percent interest rate on your credit card, which you know, 0:02:30.120 --> 0:02:32.800 they can be that high. And you spend one hundred 0:02:32.840 --> 0:02:35.000 dollars in a month and you don't necessarily pay it off, 0:02:35.280 --> 0:02:37.640 you now not only owe one hundred dollars, but you 0:02:37.639 --> 0:02:40.720 owe one hundred and twenty dollars. And if you keep 0:02:40.720 --> 0:02:43.480 not paying it off, that compounds and it can just 0:02:43.639 --> 0:02:46.720 spiral out of control really really quickly. I was very 0:02:46.760 --> 0:02:48.280 lucky when I was a kid. My dad was like, 0:02:48.680 --> 0:02:51.160 if you get a credit card, you pay it off 0:02:51.600 --> 0:02:54.440 every month. There were years where I didn't have one 0:02:54.440 --> 0:02:55.959 because I was like, I don't feel like I can, 0:02:56.120 --> 0:02:58.440 you know, do that right now. But to get away 0:02:58.440 --> 0:03:00.320 from all the scary things, they can also would be 0:03:00.360 --> 0:03:03.480 something really positive, Like they are the easiest way to 0:03:03.600 --> 0:03:06.040 establish a credit history, and we'll get into that in 0:03:06.080 --> 0:03:09.000 the episode, but essentially having a positive credit history makes 0:03:09.000 --> 0:03:11.240 it a heck of a lot easier and more affordable 0:03:11.280 --> 0:03:13.760 to buy a car or a home. Also, if you 0:03:13.800 --> 0:03:15.760 spend a lot of money on dining out or at 0:03:15.760 --> 0:03:18.280 the grocery store or traveling, there are certain credit cards 0:03:18.280 --> 0:03:20.160 that you can use that will give you cash back, 0:03:20.240 --> 0:03:22.560 like actual cash back, like they'll just credit it to 0:03:22.600 --> 0:03:24.880 your credit card or travel points, so you can put 0:03:24.880 --> 0:03:27.880 towards future travel purchases, and more than anything, I think 0:03:27.919 --> 0:03:31.000 credit cards can be a bit mysterious, and I'm excited 0:03:31.040 --> 0:03:33.919 about equipping our listeners with the knowledge they need before 0:03:33.919 --> 0:03:36.600 diving into their own credit card journey. Yeah. 0:03:36.640 --> 0:03:38.480 Absolutely, I was really nervous to see where you were 0:03:38.480 --> 0:03:40.960 going with that chainsaw analogy, but you made it work. 0:03:41.000 --> 0:03:42.040 I figured I followed you. 0:03:42.080 --> 0:03:45.840 I totally follow But when it comes to credit cards, 0:03:45.880 --> 0:03:48.440 there are few sites more apt to help us understand 0:03:48.840 --> 0:03:52.600 than nerd Wallets. So we have invited Sarah Rather from 0:03:52.640 --> 0:03:55.000 the nerd Wallet team to help us figure out the 0:03:55.040 --> 0:03:56.000 basics of credit. 0:03:56.160 --> 0:03:59.840 That's right. Sarah has appeared on The Today Show, CNBC's 0:04:00.080 --> 0:04:03.080 Nightly Business Report, and quote it in The New York Times, 0:04:03.080 --> 0:04:05.960 The Washington Post, The Wall Street Journal, Business Insider, and 0:04:06.040 --> 0:04:08.840 Reuter's just to name a few of the places that 0:04:08.880 --> 0:04:14.040 seek out her advice in insights on personal finance. Hey, Sarah, 0:04:14.160 --> 0:04:17.640 welcome to the show. Before we get too far into 0:04:17.800 --> 0:04:20.000 credit cards, I'd actually like to take a step back 0:04:20.400 --> 0:04:25.840 and talk about credit. You know, like, what is it? 0:04:25.839 --> 0:04:28.719 It's essentially the ability to borrow money, That's really it. 0:04:28.960 --> 0:04:31.600 Whenever you talk about a line of credit or a 0:04:31.760 --> 0:04:34.799 credit card, or anything with credit. You know, buying something 0:04:34.839 --> 0:04:37.919 on credit, it's just borrowing money, and then you have 0:04:37.960 --> 0:04:40.080 to pay it back. And if you don't pay it back, 0:04:40.200 --> 0:04:43.680 that's where things get a little expensive or a lot expensive, honestly. 0:04:44.360 --> 0:04:47.600 So at its core, you're just talking about borrowing. 0:04:48.360 --> 0:04:52.440 So then for people who don't necessarily need to borrow money, 0:04:52.760 --> 0:04:55.479 you know, they have a debit card that is associated 0:04:55.520 --> 0:04:58.839 with their checking account, why might they want to consider 0:04:59.000 --> 0:05:00.000 getting a credit card? 0:05:00.880 --> 0:05:06.520 A credit card is a pretty quick way to establish 0:05:07.320 --> 0:05:10.240 your credit history. There are these companies that are called 0:05:10.279 --> 0:05:15.159 credit bureaus. You might have heard of Equifax, Experience, TransUnion. 0:05:15.880 --> 0:05:20.440 These are companies that gather data on your payment activity 0:05:20.520 --> 0:05:23.839 or some of your payment activity, and that information is 0:05:23.960 --> 0:05:26.640 used to calculate a credit score, which is a three 0:05:26.720 --> 0:05:30.839 digit number. It's between three hundred and eight point fifty 0:05:31.120 --> 0:05:37.720 and lenders, banks, credit unions use your credit history from 0:05:37.800 --> 0:05:41.200 these bureaus and your credit score and other financial information 0:05:41.360 --> 0:05:46.280 like your income, debts, things like that to determine whether 0:05:46.360 --> 0:05:48.320 or not they want to lend money to you in 0:05:48.360 --> 0:05:51.000 the form of a credit card or a mortgage or 0:05:51.040 --> 0:05:54.440 a car loan or anything else. Because they use that 0:05:54.520 --> 0:05:58.080 number and that information to determine how risky it would 0:05:58.120 --> 0:06:02.480 be for them to that you borrow money based on 0:06:02.520 --> 0:06:04.279 how likely they think you are to be able to 0:06:04.279 --> 0:06:08.800 pay back. So the higher your credit score and the 0:06:08.839 --> 0:06:12.320 more established your credit history, the less risky you seem. 0:06:12.640 --> 0:06:15.039 Because you've already shown a history of paying your bills 0:06:15.080 --> 0:06:17.960 on time, of paying off your debts, things like that. 0:06:18.000 --> 0:06:22.120 You've already shown that you're responsible, and so they're like, Okay, 0:06:22.320 --> 0:06:24.679 we're going to use your past behavior as an indication 0:06:24.880 --> 0:06:28.120 that going forward, you're going to continue this behavior, and 0:06:28.160 --> 0:06:29.840 so we will lend this money to you. We'll give 0:06:29.839 --> 0:06:32.080 you a lower interest rate. You're less risky to us 0:06:32.680 --> 0:06:35.120 versus somebody who maybe is newer to building credit, not 0:06:35.160 --> 0:06:37.480 as much of a history, lower credit score, a little 0:06:37.520 --> 0:06:39.400 bit more of a risk to the lender. They might 0:06:39.440 --> 0:06:41.440 still lend you money, but they'll charge you more for it. 0:06:41.760 --> 0:06:44.159 And if you are, let's say you're pretty new to 0:06:44.640 --> 0:06:47.800 the whole adulting thing, you are less likely to own 0:06:47.839 --> 0:06:50.600 a home owned car. You don't own much yet when 0:06:50.600 --> 0:06:53.720 you're like twenty three years old, So that's a good 0:06:53.760 --> 0:06:57.080 time in your life to establish this credit history because 0:06:57.160 --> 0:06:59.039 later on, when you do want to do those things 0:06:59.040 --> 0:07:00.960 when you need to buy your new car, when you 0:07:01.000 --> 0:07:03.680 want to buy your first home, when you want to 0:07:03.680 --> 0:07:09.479 borrow money to start a business, you've already established that foundation. 0:07:10.240 --> 0:07:12.400 It takes down a lot of barriers because you know 0:07:12.560 --> 0:07:14.000 you can at least get the money. You can get 0:07:14.000 --> 0:07:16.040 the money, so yeah, so that's why it's important to 0:07:16.040 --> 0:07:18.760 do that. And then when you use the credit card 0:07:18.800 --> 0:07:21.800 responsibly and you know you pay your bills on time 0:07:21.840 --> 0:07:24.040 every month, you don't charge too much, you don't max 0:07:24.080 --> 0:07:26.800 out the card, within a couple of months, you begin 0:07:26.880 --> 0:07:31.760 to see your credit score start to reflect your responsible behavior. 0:07:32.000 --> 0:07:34.880 So it's a pretty quick process and there's a much 0:07:34.920 --> 0:07:37.920 lower left compared to other forms of borrowing. So for 0:07:38.000 --> 0:07:41.760 many people, credit cards and also student loans are the 0:07:42.080 --> 0:07:46.040 first ways they begin to dip their toes in establishing 0:07:46.040 --> 0:07:49.400 the credit history. 0:07:52.320 --> 0:07:54.640 Credit cards are one of the first and easiest ways 0:07:54.640 --> 0:07:56.720 for us to start building up credit and improving our 0:07:56.720 --> 0:08:00.000 credit score. However, credit cards are super easy to get. 0:08:00.920 --> 0:08:05.000 I mean literally, you just need your name, social Security number, 0:08:05.120 --> 0:08:08.440 and income and you can get approved and get your 0:08:08.480 --> 0:08:12.560 card in the mail roughly ten days later. And because 0:08:12.600 --> 0:08:14.800 it's so easy to get a card, we have to 0:08:14.840 --> 0:08:16.640 be careful that if we don't have the funds to 0:08:16.680 --> 0:08:19.640 pay off what we spend, we could be negatively impacting 0:08:19.680 --> 0:08:22.920 our credit score. But the important thing to know is 0:08:22.960 --> 0:08:25.880 that credit cards can also offer us and our money 0:08:25.920 --> 0:08:30.720 an extra layer of security. 0:08:31.400 --> 0:08:34.400 Besides building credit, are there any other benefits to using 0:08:34.440 --> 0:08:35.160 a credit card? 0:08:35.640 --> 0:08:42.600 Yes, so credit cards have stronger consumer protections than debit cards. 0:08:42.600 --> 0:08:48.240 Do what the heck does that mean? Right? So, here's 0:08:48.240 --> 0:08:51.280 a common problem having your credit card or debit card 0:08:51.320 --> 0:08:55.200 information compromised because you use your card to buy something 0:08:55.240 --> 0:08:58.440 online and the merchant got their data compromised, or you 0:08:58.600 --> 0:09:01.000 lost your wile and somebody stole it. You left your 0:09:01.000 --> 0:09:02.800 card in an ATM and forgot to go get it, 0:09:02.800 --> 0:09:05.600 somebody took it. They are just like bots that, like, 0:09:05.960 --> 0:09:08.319 I don't know, run random credit card numbers and just 0:09:08.400 --> 0:09:11.920 try them out. So fraudulent charges happen on credit and 0:09:11.960 --> 0:09:15.840 debit cards all the time, and when it happens on 0:09:16.320 --> 0:09:19.640 a debit card, basically the law is the longer it 0:09:19.640 --> 0:09:22.600 takes for you to report fraudulent charge, the more liable 0:09:22.720 --> 0:09:25.680 you are to cover more and more of that cost 0:09:26.000 --> 0:09:29.199 out of your own pocket. And because your debit card 0:09:29.280 --> 0:09:32.559 is directly tied to your checking account. If somebody withdraws 0:09:32.600 --> 0:09:34.880 money with your debit card, that money is gone from 0:09:34.880 --> 0:09:38.240 your bank account until the bank completes its investigation, which 0:09:38.280 --> 0:09:40.400 usually takes a couple of weeks, and then refunds the 0:09:40.400 --> 0:09:43.559 money to your account. So in the meantime, you are 0:09:43.600 --> 0:09:46.240 without that money in your account, and you still have 0:09:46.280 --> 0:09:48.640 other bills to pay, and so that can make it 0:09:48.679 --> 0:09:51.080 really hard for you to afford those other bills while 0:09:51.080 --> 0:09:54.199 you're waiting for that refund. It's a little bit different 0:09:54.200 --> 0:09:55.960 with a credit cards, a little bit safer as far 0:09:56.040 --> 0:09:59.080 as the consumer is concerned. And here's why. By law, 0:09:59.360 --> 0:10:01.440 with a credit card, you're not liable for more than 0:10:01.480 --> 0:10:04.680 fifty dollars worth of fraudulent charges, and most credit card 0:10:04.679 --> 0:10:07.480 companies waive that fifty dollars entirely, so you have zero 0:10:07.640 --> 0:10:11.400 liability and it's not a matter of the longer it 0:10:11.440 --> 0:10:13.080 takes for you to report it, the more you're liable, 0:10:13.200 --> 0:10:14.800 even if it takes you three or four weeks to 0:10:14.840 --> 0:10:16.560 notice the charge because you haven't looked at your statement 0:10:16.600 --> 0:10:19.480 in a while. Once you complain, you're not liable and 0:10:19.520 --> 0:10:22.679 they will refund the money to you as a statement credit, 0:10:22.679 --> 0:10:25.199 which means, because of the way credit cards work, you 0:10:25.240 --> 0:10:27.000 essentially run up a tab for the month, and then 0:10:27.040 --> 0:10:29.120 you pay the money out of your checking account to 0:10:29.200 --> 0:10:31.880 pay the tab. You haven't actually lost any money out 0:10:31.920 --> 0:10:35.160 of your checking account. You've only lost money on your tab, 0:10:36.160 --> 0:10:38.040 and then your tab gets a credit back to it, 0:10:38.080 --> 0:10:40.600 so you get that charge taken off essentially, so the 0:10:40.600 --> 0:10:43.199 money is still right there in your checking account, available 0:10:43.200 --> 0:10:45.760 to you to pay your other bills while you work 0:10:45.800 --> 0:10:48.800 to resolve this issue with your credit card company. So 0:10:49.679 --> 0:10:51.719 your money is a little bit more secure in this 0:10:51.760 --> 0:10:54.680 particular instance when it comes to credit cards. 0:10:55.160 --> 0:10:58.120 Yeah, and I actually I learned this thankfully the easy way, 0:10:58.200 --> 0:11:00.720 because I think right after I got my credit card, 0:11:00.800 --> 0:11:02.960 I left it at the counter of a restaurant and 0:11:03.000 --> 0:11:05.680 someone had taken it spent two hundred dollars at three 0:11:05.679 --> 0:11:08.040 different department stores, oh my gosh, And then I think 0:11:08.040 --> 0:11:09.760 that they went back home and bought like an eight 0:11:09.800 --> 0:11:11.960 dollars sandwich from the deli, because that was like the 0:11:12.040 --> 0:11:13.960 last charge that they did, And I was like, I 0:11:14.000 --> 0:11:15.480 like to think that they celebrated with the little eight 0:11:15.480 --> 0:11:17.920 dollar sandwich. But luckily none of that came out of 0:11:17.960 --> 0:11:19.120 my bank account. 0:11:19.280 --> 0:11:21.920 And You're not always going to see big charges on 0:11:21.960 --> 0:11:24.040 your account all the time as a sign of fraud. 0:11:24.080 --> 0:11:26.400 By the way, really it's so easy. You know, people 0:11:26.400 --> 0:11:28.440 put their cards on autopay, they don't necessarily check their 0:11:28.440 --> 0:11:31.200 statements before paying it. You want to check your bank 0:11:31.240 --> 0:11:34.839 statements and your credit card statements every month, maybe more 0:11:34.880 --> 0:11:37.599 frequently than that. You can even set up alerts, so 0:11:37.640 --> 0:11:39.520 whenever there's a charge to your card, you get a text. 0:11:39.920 --> 0:11:42.080 You can set up alerts that will text or email 0:11:42.080 --> 0:11:44.520 you when your bill is due, or when a charge 0:11:44.559 --> 0:11:47.559 over a certain amount is put on your card, or 0:11:48.120 --> 0:11:50.599 when your credit card balance exceeds a certain amount, so 0:11:50.640 --> 0:11:52.160 you know to stop spending things like that. So there 0:11:52.160 --> 0:11:54.120 are all sorts of alerts you can set up just 0:11:54.200 --> 0:11:56.640 to remind yourself, hey, my credit card exists and I 0:11:56.679 --> 0:11:58.559 have to manage it. And it takes a lot of 0:11:58.600 --> 0:12:01.520 the guesswork out of it, because sometimes the first sign 0:12:01.559 --> 0:12:04.920 of fraud is this like two dollars charge for something random, 0:12:05.559 --> 0:12:07.360 and you don't think about it because it's two bucks. 0:12:07.520 --> 0:12:09.200 So when you look at your bill, it's not like 0:12:09.360 --> 0:12:13.280 astronomically high, but that's often a sign that they're just 0:12:13.320 --> 0:12:16.600 testing your card out to see if it's friendly, if 0:12:16.600 --> 0:12:19.480 it'll work really, and then the bigger charges come later. 0:12:20.040 --> 0:12:22.520 So many of the times that I have noticed fraudulent 0:12:22.600 --> 0:12:25.600 charges on my card, they've been very small. So you 0:12:25.640 --> 0:12:27.160 want to check your statement. 0:12:27.559 --> 0:12:30.040 Right And are there any other ways that we could 0:12:30.040 --> 0:12:33.680 go about like detecting fraud or protecting ourselves from like 0:12:33.840 --> 0:12:34.640 identity theft? 0:12:35.360 --> 0:12:38.840 So another thing you can do is check your credit 0:12:38.920 --> 0:12:41.800 reports on a regular basis, So the end of this 0:12:41.920 --> 0:12:46.160 year you can actually get weekly credit reports for free. 0:12:46.240 --> 0:12:48.760 That might be a little much, but from all three 0:12:48.800 --> 0:12:52.040 credit bureaus. You can go to annual credit report dot com. 0:12:52.440 --> 0:12:54.439 Never pay for your credit reports. You are entitled to 0:12:54.480 --> 0:12:58.600 that information for free, So annual credit report dot com 0:12:58.679 --> 0:13:00.880 you can get all three of your credit reports from 0:13:00.880 --> 0:13:04.720 the major bureaus once a week and check them to 0:13:04.760 --> 0:13:07.480 make sure every account on there sounds like something you've 0:13:07.480 --> 0:13:09.760 heard of before. Check them and make sure your name 0:13:09.800 --> 0:13:12.000 is spelled right, that your address is right, that your 0:13:12.000 --> 0:13:14.920 social Security number is right, especially if you have a 0:13:14.960 --> 0:13:17.679 common name. If your name is John or Mary Smith, 0:13:18.240 --> 0:13:20.960 you might have another John Smith's bank account, or credit 0:13:20.960 --> 0:13:24.560 card account or other account on your credit report by accident. 0:13:24.840 --> 0:13:27.680 That just happens unfortunately, So you want to make sure 0:13:27.679 --> 0:13:32.480 that report is error free because sometimes mistakes can cost 0:13:32.520 --> 0:13:35.080 you precious points on your credit score. If there's a 0:13:35.080 --> 0:13:36.760 bill or a debt that you've paid off that should 0:13:36.760 --> 0:13:38.400 have come off of your credit report, it hasn't come 0:13:38.440 --> 0:13:41.080 off yet, it's something you can dispute. So you just 0:13:41.120 --> 0:13:43.040 want to be sure that everything is accurate. 0:13:43.880 --> 0:13:45.760 So when it comes to credit scores, would you mind 0:13:45.800 --> 0:13:49.600 telling us what number or range of numbers is considered 0:13:49.679 --> 0:13:52.040 good and what might be considered bad. 0:13:53.080 --> 0:13:58.319 So credit score ranges, they range from bad. It's like bad, 0:13:58.960 --> 0:14:01.120 which sounds bad, but it's is the terminology they use, 0:14:01.160 --> 0:14:06.160 bad or poor credit, fair or average, good, and excellent, 0:14:06.440 --> 0:14:08.920 and sometimes you might see like very good thrown in there. 0:14:08.960 --> 0:14:12.600 There are different score ranges, but in general, anything above 0:14:12.720 --> 0:14:17.679 like six ninety is good or excellent, and that opens 0:14:17.720 --> 0:14:20.040 a lot of doors in terms of borrowing money, accessing 0:14:20.040 --> 0:14:23.720 credit cards, getting good interest rates on loans, things like that. 0:14:24.480 --> 0:14:27.720 Fair credit is sort of like the high five hundreds 0:14:27.800 --> 0:14:31.320 through the high six hundreds, and then anything below that, 0:14:32.080 --> 0:14:34.880 so three hundred to like five eighty or so is 0:14:35.160 --> 0:14:39.400 bad credit. So if you're keeping tabs on your credit score, 0:14:39.400 --> 0:14:42.040 which you can do with different financial apps like the 0:14:42.080 --> 0:14:45.360 nerd wallet app. You can get a score for free 0:14:45.520 --> 0:14:47.920 that might vvery once you apply for a loan. There 0:14:47.920 --> 0:14:50.160 are different scoring models, so what you get for free 0:14:50.200 --> 0:14:51.760 with an app might look a little bit different from 0:14:51.760 --> 0:14:53.880 if you were to apply for a loan what the 0:14:53.920 --> 0:14:56.160 lender uses. So just keep in mind there are some variances, 0:14:56.200 --> 0:14:58.320 but buying large like the score you can get for 0:14:58.360 --> 0:15:00.520 free on an app is elites help to give you 0:15:00.560 --> 0:15:03.400 an idea of where you are, so use that to 0:15:03.400 --> 0:15:05.800 get a picture of where you are today. And if 0:15:05.840 --> 0:15:07.960 you don't like the number that you see, then that's 0:15:07.960 --> 0:15:10.600 a sign that this is something in your life that 0:15:10.720 --> 0:15:12.640 you should focus on over the next couple of months 0:15:12.680 --> 0:15:14.680 and see what you can do to improve your situation. 0:15:15.600 --> 0:15:17.760 Yeah, it's really important. I mean, like, so my wife 0:15:17.800 --> 0:15:20.680 is European and it's not a huge thing where she's 0:15:20.720 --> 0:15:24.040 from to like have credit. It's a very like American 0:15:24.040 --> 0:15:25.640 concept in a lot of ways. And so when she 0:15:25.680 --> 0:15:28.120 came here and we got married, it was very important 0:15:28.160 --> 0:15:29.080 to be like I was like, hey, you know, we 0:15:29.080 --> 0:15:30.560 want to have a house, we want to have a car, 0:15:30.640 --> 0:15:32.160 we want to like do all the things and so 0:15:32.240 --> 0:15:34.480 I was like, it's really important for you to get 0:15:34.480 --> 0:15:36.360 a credit card. And you know, even if you just 0:15:36.400 --> 0:15:38.360 put like our groceries on it for the week and 0:15:38.880 --> 0:15:41.200 build it up. But it's amazing how quickly if you're 0:15:41.280 --> 0:15:44.040 starting fresh that you can really get into good standing 0:15:44.320 --> 0:15:45.440 if you're responsible. 0:15:48.360 --> 0:15:50.480 We'll be right back with more grown up stuff how 0:15:50.480 --> 0:15:58.800 to adult after a quick break and we're back with 0:15:58.880 --> 0:16:00.920 more grown up stuff to adults. 0:16:04.600 --> 0:16:06.800 I want to get into some credit card dues and 0:16:07.000 --> 0:16:09.600 don't And like I said in the intro, the first 0:16:09.720 --> 0:16:12.560 due that was told to me by my father was 0:16:12.720 --> 0:16:16.640 do pay off your credit card every month. Can you 0:16:16.680 --> 0:16:18.760 get into why that is so important? 0:16:19.680 --> 0:16:22.720 Yeah, So here's how credit card works. Think of it 0:16:22.760 --> 0:16:25.120 like a bar tab. You made purchases throughout the month, 0:16:25.240 --> 0:16:27.640 they get added to your tab. Then at the end 0:16:27.640 --> 0:16:29.320 of the month you got to pay your tab. The 0:16:29.320 --> 0:16:33.600 bartender is ready to collect and you get sent a 0:16:33.640 --> 0:16:36.000 bill with all a list of all the charges that 0:16:36.000 --> 0:16:39.480 you made and assuming everything is accurate, then that's what 0:16:39.520 --> 0:16:41.360 you owe and you have a payment. You have a 0:16:41.400 --> 0:16:42.320 deadline to pay this bill. 0:16:42.320 --> 0:16:42.960 You have a due date. 0:16:43.640 --> 0:16:46.280 If you pay your entire bill by the due date, 0:16:46.520 --> 0:16:49.640 then you don't owe any interests because you have no debt, 0:16:49.800 --> 0:16:53.400 you've paid your bill, you're done, so then the next 0:16:53.480 --> 0:16:57.640 month you start from scratch. Essentially, here's where it gets 0:16:57.840 --> 0:17:00.600 a little bit more complicated, because there is a cost 0:17:00.720 --> 0:17:05.000 to borrowing. Basically, if a financial institution like a bank 0:17:05.080 --> 0:17:09.240 or credit union lends you money, they charge you for that, 0:17:09.920 --> 0:17:13.240 and they charge you while you're in the payoff period, 0:17:13.880 --> 0:17:16.480 and then once you're done paying off what you've borrowed, 0:17:16.600 --> 0:17:19.879 you're done owing money for the privilege of borrowing. And 0:17:20.400 --> 0:17:23.480 so when they talk about APR or interest, when you 0:17:23.520 --> 0:17:28.000 see numbers with percentage signs after them, that is the 0:17:28.119 --> 0:17:31.840 cost of borrowing. And obviously the higher that number, the 0:17:31.880 --> 0:17:34.240 more expensive it's going to be when you don't pay 0:17:34.240 --> 0:17:35.879 the bill in full. And there are lots of reasons 0:17:35.920 --> 0:17:38.600 why people don't. It's not this, oh, well, I'm irresponsible 0:17:38.600 --> 0:17:40.400 and I'm flighty, and I think credit cards are free money. 0:17:40.440 --> 0:17:41.960 Like no, a lot of people are in a pretty 0:17:42.000 --> 0:17:45.119 tough financial situation right now. They're using credit cards for 0:17:45.240 --> 0:17:48.760 essential purchases. They're using them get by salaries or not 0:17:48.840 --> 0:17:51.639 keeping up the cost of living. They're not keeping up 0:17:51.720 --> 0:17:54.720 with groceries and medical bills and childcare and all these things, 0:17:54.960 --> 0:17:56.639 and a lot of people are using their credit cards 0:17:56.680 --> 0:17:59.480 to float these costs. So here's what happens when you 0:17:59.520 --> 0:18:02.800 do that. You run up a bunch of charges. You 0:18:02.840 --> 0:18:04.920 make purchases throughout the month, and you get this bill 0:18:05.640 --> 0:18:10.040 and you have to at least pay a minimum a 0:18:10.160 --> 0:18:12.600 small percentage of the bill, and you'll be told on 0:18:12.640 --> 0:18:15.359 your bill this is what the minimum charges, something around 0:18:15.400 --> 0:18:18.480 two percent of what you actually owe. You can pay 0:18:18.480 --> 0:18:22.440 that minimum amount and your account is considered in good standing. 0:18:22.480 --> 0:18:24.920 The bartender is happy. You've paid enough of your tab 0:18:24.960 --> 0:18:29.119 to keep them quiet for now, But you still have 0:18:29.160 --> 0:18:31.480 a remaining balance that's getting carried into the next month, 0:18:32.080 --> 0:18:34.880 and that's what you owe interest on. And the thing 0:18:34.920 --> 0:18:36.560 with credit cards, and here's how easy it is to 0:18:36.560 --> 0:18:40.320 get into massive amounts of debt with credit cards. When 0:18:40.359 --> 0:18:42.199 you apply for a card and you get accepted, you 0:18:42.240 --> 0:18:44.480 are assigned not just an interest rate, but also a 0:18:44.480 --> 0:18:47.879 credit limit. So let's say five thousand dollars. You can 0:18:47.960 --> 0:18:49.960 spend up to five thousand dollars in a month on 0:18:50.000 --> 0:18:54.200 your card before your card begins to get declined. And 0:18:54.240 --> 0:18:57.840 then once you pay at least the minimum, at least 0:18:57.880 --> 0:19:01.480 that little two percent of your total bill. You carry 0:19:01.560 --> 0:19:04.160 the debt into the next month, but you can charge 0:19:04.240 --> 0:19:05.560 up to the five thousand dollars limit. 0:19:05.600 --> 0:19:05.840 Again. 0:19:06.200 --> 0:19:09.160 It's not like, well, you've only paid you know, five 0:19:09.240 --> 0:19:11.600 hundred dollars off your bill, so next month you can 0:19:11.600 --> 0:19:14.440 only spend forty five hundred dollars because you've you know, 0:19:14.560 --> 0:19:17.119 you still have this set. No, you can charge up 0:19:17.119 --> 0:19:17.960 to the full amount again. 0:19:18.160 --> 0:19:18.560 Wow. 0:19:18.800 --> 0:19:20.880 And then you can only make the minimum payment again, 0:19:21.320 --> 0:19:23.000 and then you charge up to the full amount again. 0:19:23.240 --> 0:19:24.760 And you do that for a couple of months, and 0:19:24.800 --> 0:19:29.159 you're paying like twenty five percent interest on this card. Yeah, 0:19:29.200 --> 0:19:32.640 and suddenly, I mean, you're reaching a point where you're 0:19:32.680 --> 0:19:34.200 just not going to be able to afford to pay 0:19:34.200 --> 0:19:34.600 that back. 0:19:34.640 --> 0:19:39.360 Ever, and every month that you keep this balance, you're 0:19:39.359 --> 0:19:42.560 getting charged very high interest rates. So we're talking like 0:19:42.800 --> 0:19:46.560 between fourteen and twenty five percent interest on what could 0:19:46.600 --> 0:19:49.480 be thousands and thousands of dollars. That adds up so 0:19:49.720 --> 0:19:52.120 fast and it does not stop right. 0:19:52.200 --> 0:19:56.080 According to the Federal Reserve, the average credit card interest 0:19:56.160 --> 0:19:58.679 rate as of February, that's the most recent data we 0:19:58.760 --> 0:20:01.399