Today on the radio our guest was Bruce McClary, VP of communications from the National Foundation for Credit Counseling. The NFCC covers a lot of ground but what we focused on was the services offered by credit counselors nationwide. Most people probably think of Credit Counselors only when they are in trouble with debt, or even in court ordered bankruptcy, but they also serve a great role keeping people out of trouble in the first place. Credit counselors offer educational resources to help people budget, guide credit cessions and prepare for homeownership.
As with any financial expert, I wanted to know how credit counselors got paid. The NFCC itself is a non-profit and gets revenue from banks and lenders. They also get grants and local or regional funding for specific missions. For instance, if a state or regional institution wants to promote homeownership, they may give NFCC money with the condition that it be used to fund education outreach on the topic of homeownership in a certain area or demographic. Banks and lenders want their customers to be responsible with money, and also want to introduce more people to their services. Supporting the NFCC gives financial institutions a fairly good way to make sure they have a well prepared customer base.
Beyond the non-profit grants and institutional sources of funding, credit counselors make money from some paid services, including debt counseling for those in bankruptcy.
Here we need the usual disclosure - never take on more debt than you can handle. A financial advisor or credit counselor can help you determine what you can afford and show you what your financial life will look like when you take on debt. If you use a credit card, only spend what you can afford to pay off in full every month.
We had some excellent callers - people always want to know more about their credit score! Importantly, your credit score determines the price at which you can borrow money. It can even be used in other situations like rental applications and insurance rates!
Our first caller was aiming for a credit score of 800! Keep in mind that 850 is the highest FICO score, and last week, a mortgage lender told us that anything over 750 was golden, and getting higher would not likely make a big difference. But our caller wanted the best! She had paid off all of her cards and knew to keep cards open, it appeared that the main thing she could do was wait. Bruce gave some breakpoints where you can expect changes in how lenders view you:
- 300-500 you are rock bottom of the subprime. anything you are offered will be with a sky high interest rate. you probably won't even qualify for a mortgage.
- 500-600 is subprime territory. mortgages here can still be in the double digits (even today, when a prime mortgage can be had in the 4% range)
- (note that you may be able to get an FHA mortgage at 580)
- 600-700 is getting into prime lending for unsecured credit. you may be able to get a mortgage with some higher fees and interest.
- at 750 you are in the best of the best range for mortgage rates, and likely most other lender rates as well.
A caller asked about the statute of limitations on an old debt that he cannot pay. It is different for different states so check with a local legal services clinic. Your state Legal Bar may have more information as well. Bruce emphasized that you should not run from this problem or try to hide from a debt collector. He advised speaking with a counselor and potentially negotiating down an old debt.
Bruce encouraged people to monitor their own credit. You can get a copy of your credit report free once every 12 months from each of the major credit bureaus. The there bureaus are Equifax, Experian and Transunion. Annual Credit Report (dot) com is the website to get your credit report. You can do this online, or fill out a paper request and mail it in. Monitoring your credit is important to catch mistakes, and watch for fraud! If you spot a mistake, the earlier you catch it is better. We've written a lot more about credit here. We encourage people to monitor their credit and are happy to help you learn more about that.
A few points that came up about choosing a credit card were very useful. For your first card, do research! Sites like NerdWallet can help you narrow down cards that are available for your credit score range. Sticking with something simple, with just a cash back reward and nothing too fancy may make sense for your first card. Always look at the fees that are in the fine print, because there should be not reason that you have to pay regular fees on a card, unless you opt for one with an annual fee to get the benefits you want. A good tip that Bruce brought up was to check other sites for customer reviews, and even the CFPB complaint database (while it is still up!).
We could have talked for hours more. The important thing to remember is that if you have financial questions, there are great resources out there. The trouble is just finding trustworthy resources! Before you just rely on what you heard on the street, check with a professional financial advisor or the NFCC to get reliable information on your financial questions. Remember, if you are just looking at general advice on the internet (like this blog!) it is NOT tailored to your situation and may not make sense (or dollars!) for you.
