Money Donuts® Episode 9: Credit Donuts Can Be Delicious!

Cooper:
But on a positive note, I bought a new plant yesterday.

James:
Okay. What did you go with? Another fake plant?

Steve:
Spider?

Cooper:
No, it's a snake plant and they're supposed to be indestructible. And I bought it at Festival Foods, when I went in to buy bananas and English muffins. And I came out with a plant. And a pizza.

James:
Did you have a money mindfulness moment? I know, Steve, you're going to ask that probably right?

Cooper:
No.

Steve:
I was more concerned about the bananas. Did you actually bring the bananas home?

Cooper:
Yeah. I got three.

Steve:
Okay. So did you pick up this plant, and you're like, this plant is not on my grocery list.

Cooper:
I looked at it. I said, I love you. I've always wanted one. It's a sign. And I took it home.

Steve:
Welcome to another episode of Money Donuts with the sprinkles. You know, I think the sprinkles is really catching on. I was walking down the street yesterday, James, and this random guy was like, Yo, Steve, we love the sprinkles. And I was like, we love you too. And then they were like, get James on board. What are we talking about today?

Cooper:
Oh, we planned on talking about credit.

Steve:
I was thinking about building credit and credit cards and just overall is credit cards a good idea?

Cooper:
Yeah. They are. You know, it's fun. We have a debate like this in one of my classes. Credit cards can be good or bad. It depends how you use them.

Steve:
So what is the debate usually about?

Cooper:
Do you think credit cards are good or bad?

Steve:
And what do most people say?

Cooper:
Yes or no.

Steve:
That is the most politically correct answer. All right.

Cooper:
Technically.

James:
So I feel like this was a good jumping off point. What's your answer?

Steve:
Just wait. Whoa. Before we get into the nitty gritty of how you feel about credit, we got to talk about donuts.

James:
Sure. Yeah.

Cooper:
But do we agree on my donut?

Steve:
We probably should get into the conversation about apple fritters right now.

Cooper:
I love them. How do you not love them?

Steve:
Nobody likes apple fritters. And I'm thinking-

Cooper:
They do too. Because they're always sold out at the donut place.

James:
Because they don't make a lot of them. Because they're not popular.

Cooper:
They're very popular. There's definitely a whole tray.

James:
So remember when we did our podcast about passwords and security? Two topics that nobody even likes, that's kind of disgusting. We originally-

Cooper:
Like a raisin cookie?

Steve:
You're trying to get me fired up with the raisin cookie.

Cooper:
You got me fired up with the fritter.

Steve:
Well, what James is saying is that nobody likes fritters, and cooking fruit in donuts is a terrible idea.

James:
It sounds smart. Right? It sounds healthy. Like, oh, we'll put some fruit in at donut. This is going to be great. And then you bite into it and you're like, where is the yeasty goodness? It's been replaced partially by fruit that doesn't have any flavor.

Steve:
The only thing that makes apple fritters worth eating, and you're going to agree with this, is the cinnamon.

Cooper:
No, I like... No, I'm there for the glazey part..

James:
So why are apple fritters relevant to credit? How do they go together?

Cooper:
Because people just don't want to deal with it so they don't get them.

James:
So apple fritters aren't popular.

Steve:
But yet, some people really like apple fritters. And maybe-

James:
I think maybe it's just that they don't know that much about apple fritters.

Cooper:
And how good they are.

James:
Yeah. So once you learn a little bit more about them, maybe you'd want to, maybe... All right, maybe.

Steve:
I've been known to eat an apple fritter or two.

James:
If that was the last thing-

Cooper:
So you like them?

James:
I wouldn't choose it first.

Steve:
Yeah. I would agree with that.

Cooper:
Think about... I don't want to be a sprinkle anymore.

James:
That's just how I feel about credit, is the way that we also feel about apple fritters. Like maybe I just need to learn more about them. Some of the biggest purchases you'll ever make are bought on credit, like your house or your car, or your college education. Think about that.

Steve:
So is there some things that you should really use credit for? And then other things that you should not use credit for? Like if I'm going to go to Italy, should I put a bunch of... Put it all on credit?

Cooper:
Automatically, I say no. But here's the thing with credit, and this is what I always tell people. So we talk about how finance, they're personal, right? So using credit responsibly is the key. It's not necessarily what you're using it for. You know, there are things where I'd be like, well, I'd suggest you save for that. But you know, if you're going to pay it back on time, if you are making your other payments, all of that, I mean, it's just being responsible with your credit use.

James:
I mean, I think that's the part that freaks me out a little bit. Because it's like, am I going to hold myself accountable for this in 30 days, or 60 days, or whenever payments start? Maybe I'm going to get the star card because I can save $10. I'm not going to think about the consequences right now. I don't know.

Steve:
Is that just an internal struggle that each person has to answer for themselves? Or do we have, do you usually have that conversation? And there's something you can ask yourself that says, yeah, maybe you can deal with credit. Or maybe credit's not the best.

Cooper:
You know, part of it is being accountable to yourself, right? So we want to make good financial decisions for ourselves. We want to look at our budget. We want to look at our payments. We want to look at our income. You know, we should have a feel for what's going on in that world. But also, as you are sitting down to apply for a loan, or if you're going online. Talking it through with that loan officer at your financial, or financial advisor, whoever you go to, id key as well.
Because they can really help you take a look and be like, okay, is it worth paying an extra $200 payment? You know, it's going to decrease the extra cash you have by that much. So looking to see if you can actually afford something. Car loans are a great example. Get pre approved. You know, it seems really easy to buy a brand new fancy car when you can extend the payments out for 84 months. But really can you afford a $50,000 car? Yes. Because you're spending the payments out. Is that going to be the best financially, and for that vehicle? Maybe not. Getting pre-approved helps you know what you can actually afford.

James:
Yeah. I think in my case, some of that comes back to the budget thing too. So when you're having that freakout moment, even before you go to your financial, I just to feel comfortable myself, I have to look at my numbers and be like, all right, what am I, how much money is coming in each month? How much money is going out each month? Is there a difference there that is going to work?

Cooper:
Exactly. And how do you feel currently? I mean, are you struggling? Are you good? Do you always have extra money you're putting in savings? Do you want to decrease?

James:
Are you asking me personally? Or is this just a general question for everybody?

Cooper:
I think it's a general question for everybody.

Steve:
But if it speaks to you.

Cooper:
Yeah. Then answer it. But you know, that's a good point too. The whole, okay, well, is that money going to decrease from what you're contributing to savings? Is that worth it to you? Are you on track to meet your retirement goals, your down payment for your house goals, your X amount whatever goal.

Steve:
But I'm young. I don't need to think about retirement goals.

Cooper:
Oh my goodness. That's a whole nother podcast.

Steve:
I know.

Cooper:
The answer is you do.

Steve:
Staying, stay tuned for the next Money Donut episode. All right. So what's the craziest thing that you've ever taken out on credit?

Cooper:
Ooh. I don't know if I have a craziest one, but my probably not smartest decision to take something out on credit was probably a spring break vacation when I was in college. So I got my student loan money back, which should have just been paid back towards that loan. And I went to Mexico.

James:
Wow. That's a once in a lifetime right there.

Steve:
Yeah. You probably don't regret it.

Cooper:
I don't regret it. It was super fun. So it was great. I mean, I don't regret it. But I regret having more student loans than I should.

James:
Yeah. In my case, I briefly owned a BMW for a few months.

Cooper:
Wow.

Steve:
Oh yeah, I remember this story.

James:
It turned out to be a pretty terrible experience just because it needed a lot of repairs. Like you can afford to buy the Beamer, but you can't actually afford to own the Beamer, was my experience. So I bought it on credit just like, it's kind of the only way I can afford to buy a car. Like not everyone has upwards of $10,000 sitting around to buy a car with. Right?

Cooper:
If you didn't know, we are in our Chippewa falls, south location today, recording this podcast. Which has been really exciting. And we decided to, on the fly, bring in an expert. So we have Kurt here today and he's a member account rep three, which means he knows all the things... Why? Do you want to do it?

James:
No.

Cooper:
You can do it.

James:
It was like a little superhero introduction. That's all sorry, doo doo doo doo.

Cooper:
Its Kurt.

James:
Member account representative three. Doo doo doo doo. I didn't mean to throw you off your game. I'm sorry. I was thinking, do you work with members that are just sort of scared of credit and it's frightening to them?

Kurt:
Yeah. There's a lot of people that are definitely scared and unsure about credit and just kind of what credit all entails, who looks at it, kind of like what you guys were saying before. So we always break down the basics of what builds credit score, what can hurt a credit score, and who looks at it. And just the fact that it's becoming more and more important as time goes on too.

Cooper:
Okay. So when you're sitting there talking to a member, who's like, I don't get credit. I don't want to do it. You know, what do you tell them? Like, why do we actually need credit now? Like why is it so important? Why is that history important? Why do we need it?

Kurt:
One reason it's so important, especially to start early, is because it affects you for such a long period of time before it actually can be changed. So it'll stay on your credit score for a long time. So any decisions you make now will affect you long into the future, until it actually either drops off your score, or something else happens to build it back up. So a lot of things we go over are just the basics. What builds the credit score, like the major portions, as in 40% of a credit score is payment history. And then the main portion that a lot of people don't know about, that 30% that builds a score, is the amount of your credit limit versus how much of revolving debt you actually have on those lines of credit. So just going over those pieces that most people don't know about. And then giving them the basics of that.

Cooper:
I think that's a good thing to touch on, too. So Kurt mentioned that it can take a while for things to fall off your credit score, that credit report. So that's if you miss a payment, or if you're delinquent on a loan, had something go to collections. Some things can take five-ish to seven years to fall off there, depending what they are. Some can take 30 day. But that's why it's so important to build those really strong habits. Why are you confused?

James:
I thought, I don't know. I thought it was always seven years. I didn't know there were some that could be five. And I didn't know that there was any about 30.

Cooper:
I could've been wrong.

James:
I don't think most places would report a 30 day delinquency.

Cooper:
Well. It depends. If you had something on your credit score, if you had a small amount in collections, like a medical bill, typically if you pay that off in full, that collections agency will contact those credit bureaus and will-

Steve:
I think the bottom line is it's a long time. Like that's going to, it could potentially affect... The decisions that you make in college could affect your ability to buy a family car once you start a family, right? Or to buy that house when you meet someone, and you actually want to move in with them.

Cooper:
I'll be in my thirties and seven years. Ooh.

Kurt:
Yeah. One weird thing too, is a lot of people don't talk within families about credit, or just finances in general. So it's kind of a weird stigma that happens in the world. And if you can't talk about it within your family, it's very difficult to learn from mistakes, or learn the good habits that they've already had within the family. So one thing I try to do is always make sure people are open within their families. Like if a parent's with a kid, to start talking about credit. And just building good habits with budgets and stuff like that.

Cooper:
Ooh, I have a good question, Kurt. So if you have a couple that comes in and they want to buy a car loan together. If one of them has a very poor credit history and score, and one has a really high credit history and score, are you going to be able to do that loan for both of them? Could it affect their likelihood of getting approved? You know what I'm saying?

Kurt:
Yeah. Typically as long as there's one good person, one good credit score.

Cooper:
One strong credit score

Kurt:
Yeah. That person will be able, or that couple will be able to get that line of credit, or loan, or vehicle, whatever they're looking for. And then what you want to do is have them as co-borrowers. So then they build the credit together. Instead of one just being left off that credit building opportunity.

Cooper:
Yeah. So important to discuss that. Because if you both had really poor credit scores, that could really hurt your financial future together. So having those conversations is important, like Kurt said.

Kurt:
Yeah. One interesting thing too, is when a parent comes with a child, too, it's kind of the same situation. A lot of people will just do co-signing. But really you could help your kid get a better interest rate if they just co-borrow instead of co-sign. And responsibilities are different, but typically it's just more important for most parents just to get their kid a better interest rate. Which they don't know about that all the time too.

Cooper:
So if I have a credit card here at Royal Credit Union, and suddenly have a child that I need to get a credit card for, can I just add them as an authorized signer? Or can... I don't know what that noise meant.

James:
We were talking about how do you add someone as an authorized user on Royal's credit card?

Cooper:
Yeah. To help that kids start building credit.

James:
I think you have to talk to us. You can't do it on your own. Right?

Kurt:
Right. And plus it would just be better to come in. So then we can talk about building credit, too, with your child as well. So it just, all in all, it would be better to just come in. And then get the basics of credit, have your child there to talk about that.

Cooper:
So do they have to, is the child applying then? Or are you just able to add them without that whole big process of filling out an application?

Kurt:
Most people just come in and get a credit card with their child. So yeah, usually it's just building credit on their own. But I know I've heard of a lot of good circumstances where people have had their kid as an authorized user when they were very young, and then just built credit that way. But typically the way to go has been just having your kid get a credit card with you as... On there jointly.

Cooper:
Awesome. Can you request a balance? I know sometimes you'll apply for a card and they'll just be like, Hey, here, we can offer you $2,000. But if I want a smaller balance, like 500, can I say, "Hey, Kurt, I really want a credit card. But I want that small balance. Can we do that?"

Kurt:
Yeah, we can do lower lines of credit to start, and then build up later. A lot of credit building opportunities do come with having bigger lines of credit. And also a lot of people don't know about that. Keeping your balance down on revolving lines of credit. So as long as you're comfortable with having that small line of credit, like 500, and you're keeping it a lower balance and not maxing it out, you should be okay. But a lot of people don't know about that. So some people, once they find that out, then they'll up it to like a thousand or something. So then they can keep it more around that 10 to 30% range of your revolving line of credit.

Cooper:
Awesome.

Steve:
What is the number one question that you find members coming in and asking you?

James:
About credit? Or about anything?

Kurt:
I was going to see where he was going to go wit that.

Steve:
Let's go specific.

James:
Okay. Okay. Leave it open ended, all right.

Steve:
Let's go with specific credit.

Kurt:
I think the problem with credit is people don't know what questions to ask. So I think the main thing is for us to be well versed in credit, to be able to provide some information for the members. And then they can ask questions off of some of the information we provide them. Just like how to build credit and what hurts credit. And then they'll usually ask questions after we start providing information. So I think it's such a... Credit's such a difficult thing for a lot of people that they don't know the right questions to ask.

Steve:
Yeah. What are some of the red flags that people are missing about, maybe they don't even know they have bad credit, or how would one even know?

Kurt:
I would say the biggest thing I see is charge offs that people don't know about. And a lot of them can be medical charge off accounts. And that hurts their credit score. I know our loan underwriters don't necessarily look at, or they don't look at the medical charge offs as a decision-making piece. But if you're looking to build your credit, paying those medical charge-offs will really help your credit score. Or any charge off.

Steve:
What would a medical charge-off be?

Kurt:
Just any type of medical bill that maybe they had in payments, and then they just maybe forgot about it. Or just didn't have the funds at that time to pay it. And then just got charged off to a collection agency.

James:
Or I can share an example of this, from my wife's perspective. When you get a medical care service provided to you, sometimes you get multiple bills. So you'll get one from the clinic or the hospital, you'll get one from the physician themselves. Then maybe you'll get a separate one from the lab, if you had a lab service done. Or an x-ray done, you'll get one from the x-ray technician, or something like that. So keeping track of all those moving pieces can be hard. And if you lose track of one of them for $35. And it just, they're not going to remind you. They're not going to send you anything else. They'll just, it'll just be a charge off because you didn't pay for it. They'll send it to collections. It goes on your credit report. And then you're like, uh-oh.

Kurt:
That's a really good one. Yeah.

Steve:
So I haven't gotten a medical bill from my ER visit from a year. Do you think they charged it off?

James:
Maybe it depends on the amount. But I can say if it's a smaller one, maybe it just is more likely to go to charge off then for them to nag you about it or whatever.

Kurt:
Yeah. I see a lot between a hundred and $500 for charge offs. And they're usually pretty easy for members to take care of. So, I would say the easiest place to check to see if you have any out there is just to get the free credit reports from TransUnion.

Cooper:
So that's a good plug for us to remind you to visit annualcreditreport.com, and get your free credit report from all three credit bureaus once a year.

James:
And a lot of times when you get your credit report, there'll be some explanation from the place where you got it about what the different stuff means, right? So it's not like you just get this sort of cryptic piece of paper, at least, hopefully not. There'll be maybe some color coding or different stuff, like the status of your account or something. And it'll come with a guide that explains what's going on.

Steve:
Let's talk specifically about credit cards for a minute. I feel like I get into the path of opening new credit cards for specific no interest, or yeah, like you said, there's some sort of $10 benefit. And I've gotten away from that sometimes, but it depends on the offer and when I'm buying, that I open a credit card and I'm... In my head, I know that I'm just going to pay it off and then never use it again. But that's not a good idea either.

Cooper:
Correct. I think it kind of goes back to your question, are credit cards good or bad? And it depends. It goes back to that responsible credit use. You know, if you are rolling [inaudible 00:19:01] silver, doing a balance transfer can be a really awesome idea, right? It makes sense to open that new card, get a lower interest rate, save yourself money in the long run.
If you're just opening a credit card to have no interest, to pay something off, well, could you save for that? Or save half of it. Could you use an existing credit card with a lower limit, and budget to be able to pay that off? You don't have interest on a credit card if you pay it off in full before that next statement, which is awesome. So you know you probably have at least two paychecks in there. Can you divide it up between those two paychecks? Are you doing it to get rewards? Rewards are a great reason to use credit cards, cash back.

Kurt:
Yeah. There's a lot of people that do the whole, they put all their bills on credit cards and just pay them off.

Cooper:
Yep. Budgeting for what you spend on your credit card can be really helpful. You know, I think a lot of people tend to just swipe, swipe, swipe. Because it's not real money. You know, I can just buy whatever. But that's where you get caught up in that struggle. Not actually being able to afford what you've been buying with that credit card. They can be great for emergencies, but sometimes buying groceries can be too much. Because you're like, oh, I just need to run to the store for 10 more things. Well, it's easily $40 every time you go, if you go twice a week.

Steve:
And then you get all those houseplants. And it just really adds up.

Cooper:
It was only $7. Buy, if I buy a new house plant every time I go, it's more than coffee.

Steve:
You only have to buy a house.

Cooper:
I know I don't really have the proper lighting for plants. So it like, they take up my windows.

James:
There you go. Snake plant. Perfect.

Cooper:
Exactly.

Steve:
Snake plant.

James:
The flip side is that, but if you have a credit card, you have a potential emergency source of funds? If you need it in a pinch, you can access that. You can get the rewards. And maybe you can even use it to control your spending, if you use it smart.

Steve:
Yeah.

James:
Instead of saying like, oh my goodness, my bank account balance is so high, in a credit card, it's always sort of the opposite. Like I'm taking away from my credit limit. So maybe if that helps you mentally, maybe that's a better way to budget.

Cooper:
That's a good way to look at it. Yeah. You know, credit cards can be a good tool when you're just starting out. You can get them with a lower balance. And just put your gas on there, or your phone bill. Just putting something on there and then paying it off. You know, credit is essentially just a history of... Well, credit is technically borrowing money with the agreement to pay it back. That credit history is just a record of you making a payment and paying it back, making payment, paying it back. Doing those positive things that help you in the long run. I mean, donuts are kind of like credit cards, right? Like they're so good that you just want to eat the whole thing all at once. Kind of like that credit line. But taking a bite and savoring it-

Steve:
Ooh, We should talk about balance transfers.

James:
So Royal's credit card has no fee balance transfers at any time. Which is sort of unique, because a lot of places will have no fee balance transfers in the beginning. But then after a month or two, they'll charge you a percentage of the balance to roll it over to the new card. So the whole idea is that you have a balance that exists on a different credit card. You're going to transfer that balance to your Royal credit card. Hopefully get a much lower rate than you're paying on your other credit card. And at the same time, you're going to avoid paying a fee to have that money moved to Royal. The money that you owe.

Steve:
If you have multiple credit cards like that, can you roll different credit cards?

James:
Yeah.

Steve:
Oh really.

James:
Yeah. There's no limit. You can do as... Like up to your credit limit, I guess I should say.

Steve:
Oh yeah. That makes sense.

James:
But if you have six of them with a hundred dollars each, and you really wanted to go through the steps of transferring it, you absolutely could.

Kurt:
Royal has a really great interest rate on our credit cards. So that's why that's a good choice if you have a higher.

James:
Yeah. One of the surprising things, this also surprised me when I started working at Royal, is that our credit card has one low rate for everyone. So if you qualify for the card, you get the low rate. It's not like there's tiers, or different levels based on relationship or some point like that. So I think that's really cool.

Steve:
I remember when I moved to town and I saw a ad for Royal about their credit card rate. I thought, oh, that's a real, really low rate. I should really see if I can get their credit card. And I never did. I just paid down my, I did what Cooper said. I just started paying down my debt.

Cooper:
I have a Royal credit card because I transferred my other credit card balances when I was an intern, because I was irresponsible with my credit.

James:
Jeez. Cooper, the financial wild child. Mexico vacation, credit card debt off the chain.

Cooper:
But that's why I teach personal finance while I share my story with people.

Steve:
And if you're lost out there, what can, what steps could people take to maybe contact Royal to get some advice or come into an office? Is that a good idea?

Cooper:
Yeah. We have our certified credit union financial counselors in all of our offices. So they are a great place to start. There's some other organizations in within the state of Wisconsin, that can be really great to contact too.

James:
No, I was just thinking, just taking that step is probably the biggest challenge, like asking for help or saying I need help. So if you want to do it slightly more anonymously, you can ask for a free financial review online. And we can even do that by phone.

Cooper:
It can feel scary to have to go in and be like, Hey, I'm Cooper. I really am struggling with my debt and finances. Can you help me? You know, we have all struggled, and Royal's definitely not here to judge. But that can be a hard thing. So I like that suggestion.

Steve:
So if you liked this Money Donut, all about credit and credit cards, guess what? We'll probably talk about this in every single episode from here, until we're done making this podcast.
If you have questions or topics that you'd like to us to talk about, or financial questions that you want answered, let us know.

Cooper:
You can find us at rcu.org/Podcast. That was fun. Bye.