Now where do credit scores even come from? People have been borrowing and lending for millennia.
You're not born with a credit score. Your name needs to be attached to a credit account.
As your credit score goes up, the world of financial borrowing becomes your oyster.
When it drops, you face penalties. But how do you maintain a good one?
There are so many more factors that go into a great score and yes, some of them are counterintuitive.
Baby, you gotta get ready. Having a credit score is going to be really, really important to you
becoming like a big adult. Hashtag doing your big one.
What's up rich friends and welcome back to another episode of Network and Chill.
I'm your host Vivian2, your HBFF and your favorite wall street girly.
At this point, most of us have seen the all-too-true meme circling the internet.
We live on a beautiful planet that provides us with food, shelter, waterfalls.
So how do we end up with credit scores? These days, you need a good credit score
for most of the big financial moves you make in life. You want to buy a house.
Unless you're paying in cash, the bank is going to need to see a healthy credit score
before they grant you a mortgage. Autolones, personal loans, and private student loans
are the same way. Even if you're just renting, your landlord is going to want to see good credit
to feel confident that you'll pay your rent on time and let's just sign that lease.
Credit card qualification, the limits on that credit card, and interest rates are all impacted
by your credit score. Utility and service companies may even make you pay a security deposit
to start service if your credit is too low. And insurance companies may set higher premiums
for home or auto coverage if they don't like your score. Even potential employers can check
an employer-specific version of your credit report and use it to form an expectation of your
performance and responsibility. So a good credit score is pretty important for all of these
basic parts of life. But how do we land on this form of measuring our financial health?
And why is it now so integral to every move we want to make?
How do you get a good credit score? And what doors does one open for you?
Are the reports actually objective? On this episode of "Network and Chill,"
we're going to dive into the why of the credit score.
Basics and tips on improving yours and explore what you can do to get around some of the imperfections
of the system. Support for the show comes from Walmart. If you're ready for summer vibes but
don't want to spend a lot, Walmart's got your back. Right now, Walmart's dropping prices
with thousands of rollbacks and more on summer party essentials. From grills, to coolers,
and even slushy machines. So whether you're firing up, cooling down, or just getting ready for
a weekend in the sun, and as your time to save, shop and save in the Walmart app online and
in stores today. Okay, let's start with the basics. A credit score is a three digit number, typically from
300 to 850, that is supposed to be a reflection on your ability to repay alone. You aren't born
with a credit score. You are credit invisible until your name becomes associated with a credit
account, which can happen at any age. Once you are on a credit account, it usually takes upwards
of six months of reported history to have a calculated score. At least one of the three major credit
bureaus, Equifax, Experian, and Transunion, will need to receive reporting on your new credit
activity. If those first six months are perfect and you have on-time payments, you'll typically
be given a score somewhere between 580 to 670, which lands in the fair range. And that can open
the door for your next line of credit. Any score below 580 is considered objectively bad,
and will make it much harder to qualify for any kind of borrowing. A score in the 760 to 739
range is good, 740 to 799 is very good, and 800 to 850 is excellent or exceptional. Side note,
I'd be remiss not to mention that credit score is a bit of a misnomer. Technically, you can have
multiple credit scores. In fact, dozens. But they're all generated by two main scoring companies,
FICO and Vantage Score. Because different lenders, bureaus, and loan types use different formulas
to calculate a credit score. That's why you can have multiple scores at once. That said, if there
aren't any errors, they should all be relatively within the same ballpark, so any score you check
is still likely a good indicator of your credit health. So, as your credit score goes up, the world
of financial borrowing becomes your oyster. Seem like one
misfortune leads to another? Well, it kind of does. But your credit score is always changing
to reflect your money moves, and I'm going to make sure you know how to fix a bad one.
Now, where did credit scores even come from? Ancient Mesopotamians kept clay tablets that documented debts, loans, taxes, and more, while other
cultures used word-of-mouth to keep track of payments and borrowers' reliability. Yeah,
Aunt Gertrude was never going to pay that loan back. By the 1820s, American businesses became so dense
that the old ways of rumors and neighborly vouching for potential borrowers couldn't cut it anymore.
Enter, the mercantile agency founded in 1841 by abolitionist leader Louis Tappen,
the agency strived to centralize and systemize word-of-mouth into organized ledgers located in
New York City. These early reports were immensely subjective, with biases against Jews,
people of color, women, the poor, you name it. Then, the turn of the century saw a trifecta. Master
surveillance of borrowers, sharing of information amongst lenders, and a system of rating those borrowers
that the lenders could then act on. Starting the sound familiar, you'll recognize this one too.
In 1956, over a hundred years after the founding of the mercantile agency,
engineer Bill Fair and mathematician Earl Isaac decided it was time to do something about the
subjectivity of credit scores and founded Fair Isaac and Co. Or FICO. FICO used an algorithm
to determine people's scores, making lending based on hearsay a thing of the past. As scores
standardized, computerized reporting took off and the number of credit bureaus in the US shrank
from 2000 to just the three we have today. Just a few more important factors in this history lesson.
First, the Equal Credit Opportunity Act was passed in 1974, which banned lending discrimination
based on gender and marital status. This was the first time women had the right to open and
own a credit card in their own name. Shortly after in 1976, we remembered everybody else,
and the Axe Anti-Discrimination List was expanded to include race, nationality, religion,
age, and receipt of public assistance. Two decades later, another huge move in 1995,
Fannie Mae and Freddie Mac began requiring credit score submissions for new mortgage loan
applications, and our society's reliance on credit scores was complete. Now that we've made it
back from the past into the present, let's talk about what it means to have and use a credit score
in the world today. The first step, of course, is getting one. Like I said, you're not born with a
credit score. Your name needs to be attached to a credit account, and there are a couple pretty
easy ways to make that happen. A great first step is to open a secured credit card. These cards
require an upfront cash deposit, typically between $200 to $500. That amount is your spending
limit with your credit card, which you can then use for purchases, and the lender will report your
payment history to the credit bureaus. Now, you're building credit. When you feel like you're in a
good place, you can quote unquote "graduate" your secured card to a more traditional card with
better perks. Many credit unions and banks also offer credit builder loans exactly for the purpose
of building your credit. Unlike a typical loan, the lender won't hand you the cash right away,
but will instead put it in a savings account for you. You'll make fixed monthly payments on it,
and the credit bureaus will see your credit history bills until the loan is paid off, and you
unlock the savings. While you make those loan payments, you might as well get credit for payments
you're already making. Have your rent and utility payments added to your credit report.
Pay those bills on time, and you will literally get credit for doing so. There are some great options
when it comes to rent reporting services, things like rental karma, turbo tenant, rent reports,
and boom to name a few. They're not free, but paying a little bit to build or improve your credit
now might save you buckets of money in the future. And finally, though this isn't for everyone,
if you're just starting out and under your parents' wing or an older sibling,
or if you have a supportive spouse with a great credit history, they can add you as an authorized
user on their credit card. You don't even have to use their card. Just having your name under
theirs means that their positive usage will be essentially leached onto your name. This gives
your credit profile a big boost. Pretty sick, right? This is a particularly great way to start
building a strong credit history for your kids. That way, by the time they turn 18 and have to get
an apartment or they try to buy a car, they'll be in a much better place than maybe you were at
that age. Okay, so you now know what a credit score is and how to get one. Follow these action items and you can't go wrong. One, always pay your bills and debts
on time. This is truly the most important thing that you can do. Set up auto pay for everything
that you can, put reminders or alerts in your phone, whatever you have to do to make sure you are
never ever late with a payment. Two, find out how much credit you have available to you,
aka your total credit limit, and then avoid using more than 30% of it. That is going to prevent
dinging your credit score. If you really want to be an A plus plus student, if you can keep your
usage less than 10% of your total credit limit, that's really going to help boost your score.
Three, keep your oldest credit cards open. If it's a card with a yearly fee, you can downgrade it
to a free one. You want your credit history to be as long as possible. And if the problem is the
reverse, you got a junkie card for your first one. You don't get a lot of perks. You could one,
try upgrading it, and if you can't upgrade it, just put a small recurring charge on it every single
month. This is what I have done for
For my now oldest credit card, I just put a Netflix subscription on it every single month,
and then I don't have to worry about it being auto-closed by the bank, but it's not really
earning me as many points as some of my newer cards.
4.
Diversify.
Having both revolving credit, like credit cards, and installment loans, like auto or student
loans, will make you look ready to handle anything.
This type of diversity helps to boost your credit score.
5.
Be sparing in your credit applications.
Any open a new card or apply for a new loan, when you thought it through, run the numbers,
and are sure it's the right choice for you.
Each time you apply for a new line of credit, there will be a hard inquiry, and your score
will reflect that for a little bit.
6.
Check your score regularly, either through your bank, or go to annualcreditreport.com.
If there's a drop you weren't anticipating, look into it, and dispute any inaccuracies
or fraud.
So now that you have a pretty good credit score, how do we make it great?
We should hopefully go without saying that whenever possible, you should not carry a balance
on your credit card.
There are so many more factors that go into a great score, and yes, some of them are counterintuitive.
According to FICO, there are five factors that contribute to the calculation of your credit
score.
Payment history, amount owed, length of history, credit mix, and new credit.
Think of it like a job interview.
Your future employer wants to know that you're reliable.
You have experience in the field, but don't jump from one job to job too often, and that
you'll get your work done on time.
That's the same thing that lenders are looking at.
All of these factors contribute to your three-digit credit score, which is used for quick,
often automated decisions or estimates.
Qualifying for a credit card, getting pre-qualified for a mortgage, you even use it yourself to
monitor your credit health.
A credit report is a more detailed breakdown of your borrowing and payment history, and
includes a little more information.
When potential lenders or landlords check your credit report, they're going to see personal
information, your name, birthday address, past and present, social security number, and
employers.
Your credit cards, your loans, and how much money you owe, both hard and soft credit inquiries,
if you pay your bills on time, severe financial infractions like bankruptcy, tax lane, civil
judgments, and run-ins with collections.
On the flip side, there are aspects that they can't see.
Your age, income, and employment status don't count toward your score or appear on your
report.
In 2025, neither does medical debt that's under $500 or that hasn't made it to collections.
So think of your credit score as your GPA and your credit report as all the individual
grades you received for each class that made up that GPA.
It's often needed for the final step in a loan-acquiring process.
You can get pre-approved for a home loan with just your credit score, but once you actually
apply for a mortgage, the lender will look at the full report to make sure they think
you're a good candidate.
Then lords, insurers, and even employers like to see your whole credit report to get
a fuller picture of your trustworthiness as a borrower.
There's another key difference here, and it's how the score and the report are acquired.
To get your credit score and learn about your general credit health, potential creditors
will do what's called a soft inquiry.
This allows them to determine if you're worth more of their time, and it does not have
an impact on your credit score.
Think pre-approvals.
Once the lender determines that they'd like to move forward, you can authorize them to
make a hard inquiry to get your full detailed credit report.
They should never be done without your express consent, as it will show up on your credit
report.
A hard inquiry will lower your score just a few points, which is completely normal.
But remember, to steer clear of allowing too many in a short period of time, or lenders
will become wary and your score will drop substantially.
It's worth noting that if you move out of the US, your credit score doesn't follow you.
You'll start with a blank slate.
For better or for worse, you need to follow the guidelines of your new country to build
a positive score there.
These can vary wildly.
For some countries like Canada, Australia and the UK, they use comprehensive scoring just
like us, although the aspects that factor in have some differences.
Many European countries, like Germany, where everyone starts with a base score and the
Netherlands, which has a central registry instead of individualized scores, use negative
reporting, which is actually pretty positive.
This method only tracks bad financial behavior, like defaults.
And there are other countries like France that do income-based lending, with no formal score,
potential lenders look closely at your income and assets to make their own decision.
If you're thinking of moving internationally, the best thing to do is open a bank account
as soon as you can, and then you can still follow many of the steps for getting in the game
I talked about earlier, opening a secured credit card and establishing a solid payment
history, add consistent income to that, and your new country will learn to love and to
lend to you.
Now, let's talk a little bit about inherent biases and things that can go wrong.
There's a huge amount of nuance in the credit scoring system, and it is far from flawless.
Remember the 1974 and 1976 Equal Credit Opportunity Act that did away with all credit-related
discrimination ever, and everything was perfect after that?
Yeah, I wish.
Don't get me wrong.
This was a hugely important step, but it didn't magically solve the inherent biases of
the system that exist outside of the letter of the law.
Despite the leaps and bounds we've made in societal equity since the early 1800s, credit
scoring still has a little too much in common with the subjective approach of the mercantile
agency.
I mean, gosh, imagine if they had taught this stuff in high school.
But instead, it's so easy to grow up thinking that this is a concept for economists and
financial professionals and feel overwhelmed by terms that never got taught to you.
This is by no means your fault, it's a failing of the school system, and you're taking an
amazing step by being here today and staying curious.
Credit biases come in many shapes and sizes, but as you may have already guessed, they tend
to target lower income folks, people of color, and women.
It's certainly hard to compete for an apartment as a first-generation American against someone
whose parents opened a credit card for them when they were five.
Because as we've learned, credit scores value a strong history, right?
Well, that means if there was disparity in redlining in your community's past, that's
going to be perpetuated in your credit score.
Additionally, lower income communities often get caught in a catch-22.
With that obvious means and loan history, lenders are less willing to work with these communities
meaning the loans that can be found tend to be much more expensive and set the borrower
up for payment failure.
And credit scores tend to weigh essential payments like rent, less heavily than elective
payments like credit cards.
Top all of this off with embedded miscalibration and scoring models that tend to put women six
to eight points lower than men and you certainly have an imperfect system.
But don't give up hope.
While these inequities and bad credit won't be fixed overnight, Rome wasn't built
in a day.
Always somewhere to start, those steps I shared for how to get into the credit game can be
used to build back from a bad credit score too.
When your score drops, don't panic.
Time can heal a lot of wounds, including a bad credit score.
Keep making on-time payments toward your debt, avoid hard inquiries, and get credit for
paying your bills.
If you're feeling overwhelmed by debt, avoid four-profit credit repair companies and reach
out to the National Foundation of Credit Counseling instead.
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Now onto our Q&A portion, first question, my score just tanked.
How do I find out why?
In many of your financial apps, you should be able to see your month to month score and
the change.
Sometimes in those apps, you'll be able to click on and they'll tell you what dinged your
score.
But if you can't, the truth source really is going to annualcreditreport.com.
This is a government sanctioned website and you'll be able to get your full credit report
and we'll put the link in the show notes so that you can click it as well.
Question number two.
Is there anything I can do about my credit score dropping when I pay off alone?
Shouldn't that be a good thing?
This is such a great question.
People might actually notice that when they finish their final student loan payment or
their final car payment, their credit score actually drops.
And you're like, what gives?
This is because you have now lost one of those installment credit plans.
So you have either less diversity or your overall outstanding credit balances now shrunk.
Ultimately, even though your score may ding initially, over time, you're going to see
your score not only recover, but actually improve after that thanks to your responsible
credit behavior.
So I wouldn't let it bummy out too much.
I'm hoping that in the next couple months, you don't need to apply for something new.
But paying off an account, paying off alone is a good thing.
Up next, if closing a credit card can negatively affect my score, what can I do with one?
I don't want anymore.
What I recommend for people who don't want a card anymore and that card does not have
a annual fee.
So there's no harm in you having it is, I mentioned this earlier, but putting a small
recurring charge on that card, I like a subscription.
So either Spotify or Netflix or Hulu or whatever.
That way, you keep the card open to keep your credit history long.
Just turn it on auto pay and then you don't have to worry about it or think about it anymore.
This is going to keep your credit history long and keep that card in good standing alternatively.
If you don't want that card anymore, but you like that financial institution and they
have better cards, you can always upgrade, say you have something like the Chase Freedom,
which is a no fee card, you might be able to upgrade that card.
that to a Chase Sapphire Reserve or Chase Sapphire preferred,
which has a lot more travel perks.
Next question, what does it mean for my credit score
when I notice fraud on my account
or get a letter about a data leak?
What can I do to protect myself?
So a couple different things.
One, always look at your credit card statement
before you pay it.
I am actually someone who goes through
either with a highlighter or with, you know,
I'll use my mouse to like highlight things that are okay.
And then if I see something that I don't recognize,
I will actually call my credit card company
and be like, hey, this wasn't me.
I'll look up what that might have been,
but it usually isn't me.
This has happened.
So just make sure that you are doing that.
Additionally, I think it's really healthy
to check your credit score once a month.
You can typically find it pretty easily
in your bank portal, your financial services portal.
I would certainly be very, very careful
about responding to sketchy emails or texts.
There's a ton of fishing scams out there.
And probably the most important,
you can also freeze your credit.
You can basically contact all three
of the different credit bureaus and freeze your credit.
Basically say, hey, no new credit accounts
can be opened under my name.
No new hard inquiries can be put onto this account.
Yes, it's kind of annoying to do.
And then it's even a little bit more annoying
when you actually then do need to go apply
for a loan, you have to unfreeze your credit,
but it just prevents anyone else
from being able to do this as well.
So I think it's certainly worth doing.
Additionally, I just want to call out
that a credit freeze is free.
A credit lock is a product
that somebody's trying to sell you.
So just make sure if you're freezing your credit,
it's a true freeze.
This is a fun and interesting question.
Do criminal charges affect a credit score?
So directly, no.
If you get charged for something,
it's not going to ding your credit score.
That said, if while you are in jail,
you miss a payment on something
that could certainly affect your score.
I think coming out of our correctional system,
oftentimes we find people who have prior convictions
have a harder time finding jobs
or holding down employment,
which could then make debt harder to pay back.
So while a criminal charge does not directly
impact your credit score,
it can certainly impact your credit score on the back end,
just because it'll be harder for you to get money
and have a job as well as anything that you miss
while you are locked up could be a bit of a problem.
Ooh, a spicy one.
Should I be concerned about marrying someone with bad credit?
How will that impact me?
Point blank, yes, when you are marrying someone,
you are not just choosing your life partner, your lover,
you are literally making a financial decision.
And I think if my partner who I one day
would want to be my legal spouse had bad credit,
I would need to know why.
Do you have bad credit because maybe you grew up
in a tough house and a tough family
and your mom opened up a credit card in your name
when you were eight and racked it up
and didn't pay it off and something happened.
I like, you can get a little nuance there.
Or is it because you got a car that you couldn't afford
and then didn't make payments on it?
That art, those are two very different conversations.
Something that I find to be really challenging
is you have to remember going forward
if you two decide to buy a car together,
buy a home together, rent an apartment together,
you are going to be on that paperwork together.
And if that is the case,
their bad score is going to get you worse terms
or not get you the loan at all.
Alternatively, you'll have to apply for those things
just yourself independently
and you would not have the bonus
and the benefit of having a spouse.
When my husband and I applied for a mortgage,
we were able to get more like a larger loan
because both of us had good credit
and both of us had decent jobs that paid high income.
If one of us had had a decent job with high income
but a really bad credit score,
we probably still would have only put one person on the application
but then they'd only be able to look
at that one person's income.
So I would just say, yes, I would be concerned
but I don't think it's necessarily
an immediate grounds for like breaking up.
I would sit down with this person and ask them
what happened, what is your plan to improve this?
And I would be very wary of opening up any sort
of lines of credit or loans with this person
because they may have a history
of not paying back their debts.
And last question, I'm not ready for all of this.
What can I accomplish without a credit score?
Baby, you got to get ready.
Having a credit score is going to be really, really important
to you becoming like a big adult,
hashtag doing your big one.
But prior to having a credit score,
you should be able to open up a checking or savings account.
You would be able to get a federal student loan,
like a subsidized, a federal subsidized student loan.
There are alternative loan options where you can borrow
against things like your 401k.
But again, I really don't like that.
I just think that sitting here and saying,
you're not ready for this is tough
because life comes out you fast.
And having a good credit score
is going to make your life a lot easier
and save you a lot of money.
So I encourage you to sit down maybe
with a trusted friend, trusted adult and discuss it
because the sooner you understand the credit scoring system,
the earlier you can take advantage of it
and make it work hard on your behalf.
Okay, thank you guys so much for sticking with me.
Through this one, I know it can be a little overwhelming
to think of all of the different factors
that go into a credit score and how it affects you.
But hopefully, this episode was a good guide
to help you through the system
and make you feel a little bit more empowered
to improve your credit score
and make smart money moves with it.
Got any more questions?
Drop them in the comments and leave us a review.
I love you guys and I'll catch you next week.
Bye.
Thanks for tuning into this week's episode
of Network and Chill, part of the Vox Media Podcast Network.
If you liked the episode, make sure to leave a rating
and review and subscribe so you never miss an episode.
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Bye.
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