Money Donuts® Episode 5: Financial Check Up Part 1: Credit Scores

Steve:
Welcome to this week's Money Donuts podcast. We're a little short because we're missing a big part of the podcast. James can't join us this week, so Cooper and I we're holding down the fort.

Cooper:
We may not even need James after this.

Steve:
We can kick James out.

Cooper:
I like it. We're on the same page. Just kidding, we love James.

Steve:
Isn't it funny how we both had that same idea of, "Let's just get rid of James"? You know the listeners are going to be like, "No, we need more James. He brings..." I don't know what James brings to the podcast, but he brings something.

Cooper:
I mean, sometimes I think he carries the podcast, personally. But we shouldn't tell him that, his head might get too big.

Steve:
Exactly. So, this episode is all about financial checkups. It's 2021 and it's a new year, and it's time to take a look at where we're at. So we're actually breaking this up into two different parts, part one this week and part two next week. This one's all about financial checkups and credit scores, and then next week is all about quick tips for dealing with debt. But you know that I want to talk about donuts before we do anything else. So Cooper...

Cooper:
Yes.

Steve:
I picked out the cinnamon twist donut for this episode.

Cooper:
Why? Tell me why.

Steve:
Oh, do I have to have reasons? I can't just say a donut?

Cooper:
Well, I don't know, maybe you can.

Steve:
Well, I picked the cinnamon twists because sometimes financially you get a little twisted inside, and you kind of get a little confused. But if you can untwist it, and you can break into the donut, there's some delicious cinnamon goodness inside.

Cooper:
Okay, I'm on board. And it's a classic. Sticking to the basics, kind of like we talked about in budgeting, is going to be key to giving yourself a financial review. I'd say, it's like a foundation of donuts.

Steve:
Good. I'm glad I tricked you. Okay, so we're missing James, but we do have a special guest with us today, which is fantastic. Heather's with us today. She's a Royal comprehensive lending specialist. So Heather, thanks for joining us. And what does a comprehensive lending specialists do at Royal Credit Union?

Heather:
Well, we wear many, many hats Steve, but the most important thing that we do is we specialize in financial reviews. We actually call out on all of the dealership loans that come through Royal Credit union, we review the credit reports and find potential interest savings, and give you a phone call. "Hey, Steve. I see you just bought a car, we just wanted to make sure you didn't have any questions on that loan. Also, I see that you have a loan through Capital One Auto, just wanted to let you know, we can drop that rate by 3% saving you a $2,000 in interest. Are you interested in doing something like that?"

Steve:
That's fantastic. So you're all about saving our members' money and just helping them out?

Heather:
That's what we do, yes. I always say we wear capes because we are like the superheroes of Royal Credit Union. We just swoop in, we save you a bunch of money, we put you back on track financially, and we leave you to it.

Cooper:
Well, Heather, our financial education department actually has capes. So if you ever want to really fit your part, come down and borrow one from us.

Heather:
Oh, Cooper, you'd never get it back. I just have to keep it all the time.

Steve:
So Heather, financial checkups, it's a new year, what should some more members be thinking about?

Heather:
I think that the most important thing to think about is, we all have budgets, right? So, if you're struggling financially, and actually with the new year you're like, "Hey, I want to throw some more money in savings. I'm not sure what this world is going to bring after this pandemic, I want to be able to throw some extra money into a savings account." Just taking a look at what you've got going on, sometimes we tend to go to Starbucks a couple extra times a month, and that can add up really quickly. Yes, the lattes are super fantastic, I completely concur with that. However, it should be a special event not a weekly event. I always say going to Starbucks can take $25 a week, even going twice. And if you add that up that's a hundred dollars a month. A hundred dollars that you could put into a savings account. That is significant.

Heather:
So, I guess I would just look at your monthly budget, your subscriptions that you have out there. Sometimes we sign up for things, forget about them through Amazon or wherever it may be, and make sure that you're utilizing everything that you have, and also looking at your interest rates on what you have. Right now interest rates are super low. They're low for mortgages, they're low for vehicle loans. Just making sure that you're not paying more than what you need to so that you can cut down on principal.

Cooper:
So Heather, when it comes to free financial reviews, how do they start? So, is it when a member gets that loan and you give them one? Do they call you beforehand? What are you actually looking at with that member? What did they have to tell you? Can you kind of give us the lowdown on that?

Heather:
Well, a financial review can be originated a lot of different ways. We get emails through rcu.org. We have a link to help members just email us quick and let us know what they're looking for. We'll email them back a template that they can fill out just to let us know kind of what they're looking for, whether it's, "Hey, I'm almost at retirement. I want to make sure that my budget, when I retire is set up," or, "Hey, I'm having a baby, what do I do? I'm so scared." Going over those budgets, sometimes it's college kid, sometimes it's just members who are in the middle thirties and they're like, "I just want to make sure I'm doing all the right things." So, it can originate through email, it can originate through a checking account or opening. We do financial reviews obviously when we're calling out, and sometimes referrals come over from other departments as well. So it can be originated in a lot of different ways, just in making sure that we're acting as their financial doctors.

Cooper:
Checking on your credit report is something that I talk about quite often when I'm out doing financial presentations. And I want to hear from your perspective, why is it important to check that besides just checking on what kind of debt you have, making sure you got the right information? Why are we checking our credit report? What's the point?

Heather:
Because your whole life I feel like you always want to build your credit score, right? You want to get the best rates that you possibly can and spend the least amount of money in paying interest, and the most amount of money receiving interest. Unfortunately, sometimes we can miss that occasional medical bill. We can miss a cable bill, whatever it may be. You cancel your cell phone through AT&T and go with Verizon, and you didn't realize that you were going to get charged $400. Unfortunately, those are negative impacts that will go onto your credit report. And I would have to say it's 50/50 with members that don't even know that they have certain collections sitting out there. I mean, if there's a medical bill for $50, they can pay that, they just didn't realize it was there. So it's that education. And then you do pay that collection.

Steve:
How often can you actually pull up your credit report? Or will it start hurting your actual credit?

Heather:
Steve, that's an excellent question. You get a free credit record each and every year, in that doesn't cost you anything. You can log onto a website and get your credit report, actually from all three bureaus. There's TransUnion middle, Equifax is the western side, and then Experian is the eastern side. And you're probably going, "Why is that? What do you mean central, west, east?" It's actually where the financial that you are originating from. So for instance, the Capital One, and they're based out of San Diego, California. Well, they're going to report to two bureaus. They're probably going to report to the Equifax and the TransUnion. So, wherever you send your payments is usually the bureau. So you want to do your financial checks on all three of those, because there's a lot of times where we don't know that there's any fraud or incorrect reporting on other credit reports when we don't typically use what's here in the Midwest.

Cooper:
Speaking of credit scores, so FICO is kind of, I always say it's the golden standard of credit scores because it takes into account all of those credit bureaus and gives you a real life picture kind of of your credit versus just using one of those credit reports. Do you find that to be true, Heather? Or do you want to talk why a FICO credit score?

Heather:
Sure. I think that FICO is great, yes. I think that instead of focusing on what credit bureau it is or if it's a FICO score, I would say that the number one thing that most people don't understand is that each individual bank or credit union, whatever it may be, every institution uses their own credit scoring system. So, when you get your credit pulled at a dealership, and you get told your credit score is 900, that's not necessarily true throughout all of the banks and credit unions that your credit score was pulled through, right? Royal Credit Union, for instance, doesn't go up to 900. We don't even have that score. One thing that I just like to always bring to the forefront of everybody's mind is that, those credit pull systems are completely up to the financial institution. So, you can't compare them throughout the whole financial world.

Heather:
Just know that if you make your on-time payments and you don't open up a bunch of credits within a 12-month period, and you can just pay your debt, that your credit score is going to increase. Now if you buy some big items, a lot of members they go out and buy a house, they buy a car, and then they buy a trailer to carry their four wheeler that they bought, and that's all within 12 months, guess what? Your credit score is going to go down, you just took on $300,000 in debt. Now you have to be in the rebuilding process. So my main goal on those members is to just educate and just say, "You know what? Yeah, your credit score is substantially down from where it was when you first did your application for your house, but you can rebuild by not doing anything else for a while."

Cooper:
Awesome. So make your payments on time, make sure you're paying off debt, don't apply for debt all at once, that's what's going to get you to that good score.

Steve:
Heather, when you talk to members, what are some of the most common topics that come up in your conversations?

Heather:
I would have to say, "Why do you think my score is so much or my interest rate is so much higher at these other financial institution?" And to be quite frank with you, I have no idea. There's no way for me to tell or anyone to tell what the credit score was at that point when they took that loan out, or where was the economy at that point in time. And so if you took out a loan in 2012 when everything kind of took a dive, then your score or your rate's going to be a lot higher at that point than what it would be today.

Heather:
So, taking all of that into consideration and explaining that, loan to value is another one that comes up quite frequently. "How can I possibly be so upside down in my car when I make my on-time payments every month? I have a decent interest rate, how does this happen?" It's vehicle depreciation. Every year your vehicle gets older. Maybe you have it parked in a garage, well, then your loan to value isn't going to depreciate as much, but it's still a year older. So unfortunately, it just happened.

Steve:
All right. I want to thank Heather for joining us this week. We are actually going to bring her back on the next episode so she can talk to us a little bit more about financial reviews, budgeting and debt. So, stay tuned to next week, and hey, thanks for listening.