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Managing Your Money, Part 3: Understanding and Protecting Your Credit

For the 3rd and final episode of this series, we spoke with Melinda Croes, Training Institute manager for the Credit Builders Alliance, about understanding and protecting your credit along with the function of nationwide credit bureaus and credit reports, how credit scores are calculated, how to build credit and more.

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Melinda Croes
Training Institute Manager for the Credit Builders Alliance

Brian Stone
Policy Analyst, Students and Young Consumers, CFPB

[Beginning of recorded session.]

Brian Stone: Welcome to our third episode of the Financial Intuition Podcast where you can find your inner financial intuition one money topic at a time. The goal of the podcast is to educate, inform, and engage our audience with tools and resources created to help them make more informed financial decisions. These tools and resources be found on our website at You can also click the link in the show notes below for more information. This is the third episode of a three-episode Money Management series which focuses on, one, financing your future and how to pay for higher education; two, managing your money as a young adult; and three, understanding and protecting your credit.

Before we get started, I'll read our Consumer Financial Protection Bureau standard disclaimer. This podcast is being produced by the Consumer Financial Protection Bureau and is intended to generate discussions about understanding and protecting your credit. The questions asked and topics discussed were developed in coordination with the presenters and may not represent the Bureau's policy on any particular matter. Any opinion or view stated by the presenter are the presenter's own and may not represent the Bureau's views. Nothing said in this podcast by a Bureau representative constitutes legal interpretation, guidance, or advice from the Bureau.

Hello, everyone. I'm Brian Stone. I'm a policy analyst in the section for Students and Young Consumers. Our section creates tools and resources for those working to help students, young adults, and their families manage their money, build credit, save or pay for college, and repay student debt.

Today we have Melinda Croes. Melinda leads the implementation of in-person and virtual training services offered through the Credit Builders Alliance Training Institute in addition to managing the development and expansion of the CBA's core supplemental curricula. Prior to joining the CBA, Melinda worked at the University of Chicago's Financial Education Initiative, writing a financial education textbook for high school students. Additionally, she spent over 15 years developing and managing financial wellness and match savings programs for low-income individuals at Heartland Human Care Services in Chicago. Melinda is a licensed social worker and hold a Master's in Social Work degree from the Jane Adams College of Social Work at the University of Illinois in Chicago. She received her Bachelor's in Art and Psychology from the Trinity Western University in British Columbia, Canada.

We're excited to gain insight from Melinda on understanding and protecting your credit. So without further ado, let's hop right in. Welcome, Melinda.

Melinda Croes: Hi, Brian. Thanks so much for having me.

Brian Stone: Well, let's start with you telling our audience a little bit about yourself and your work.

Melinda Croes: Sure. Sure, I'm happy to. So, as you mentioned, my name is Melinda Croes, and I am the Training Institute Manager at Credit Builders Alliance, or CBA. So CBA is a nonprofit network that's focused on helping our members bridge the modern credit reporting system and helped millions of individuals with poor or no credit participate in the financial system by building strong credit scores. My role is in providing training and consulting services to help people better understand and build their credit.

Brian Stone: Thank you. So, as we well know, you know, credit is an important topic. How do you normally explain it and break it down for your clients?

Melinda Croes: For sure. For sure. It can be a little bit tricky, and what can be tricky about it is that when we talk about credit, the first thing a lot of people think about is debt. But credit and debt, they are not the same things.

We definitely want to use credit responsibly and as a tool that can help us give access—or get access to financial products and services that we need at the lowest cost possible. So when we think about credit, we're really talking about a few different things. So, one, your credit history or your credit file; two, your credit report; and three, your credit score. And I'll just briefly explain each of those things.

So your credit history or your credit file, that is a record of your transactions that you make involving the use of credit. So that could be things like a charge on a credit card or a loan that you're making a payment on, and I like to use a little bit of a comparison between some academic terms that you might be more familiar with.

So one way to think about your credit history or your credit file is like a grade book that has all of your assignments recorded in it, and it shows your entire reported history, not just any one assignment or test. And then from there, we move to your credit report, which is a record or snapshot of your credit history at a specific moment in time. So there's three major companies that general credit report, and those are Equifax, Experian, and TransUnion. And the information that you have in each of your credit reports from those three credit bureaus may not be exactly the same, and young adults who are just starting out and who have not used credit yet will likely not have any information on their credit report until they open up a line of credit, like a credit card or a loan.

So after you get that credit card or loan, you'll start to see those accounts show up on your credit report, and then going back through our academic comparison, your credit report is kind of like your school transcript. It's a record of how you've managed each of your accounts over a limited time frame.

And then from there, we move to the credit score, which might be something that you're more familiar with or you hear about or maybe even talk about with your friends, and your credit score is a summary of your credit report boiled down to a three-digit number that we compare to your GPA, or your grade point average. And this number is designed to illustrate for lenders and businesses the likelihood that you are going to pay them back and that you are going to pay them back on time. So a person who doesn't have a credit report, you're not going to have a credit score, but if you do have a credit score, there's different scoring systems. And it's important to understand what each of those means.

The most commonly used credit scoring system is 300 to 850. If you have an 850, that's really, really excellent, and you're doing really well. You're going to get approved for any loan. You're going to get the best interest rates possible. So the higher your score is the better.

The credit score has five different components to it, and those are payment history, credit utilization which basically means the amount of debt that you have, the length and age of credit history, credit mix, and inquiries or your applications for credit. And all of those are important, but payment history or how you pay your bills and the credit utilization or how much debt you have, those are the most important components if your credit report and your score. So that's the three main things that we think about when we're talking about credit.

Brian Stone: Right, right. Yeah, that's definitely—I know when I give financial education classes, especially this summer, younger folks always talk about thinking about your credit score and credit report kind of like your adult report card. So it's a transcript—

Melinda Croes: Exactly. I love that.

Brian Stone: Yeah. That follows you around. You know, you take your classes. They show up in your transcript, and then you get a GPA. And some GPAs are better than others, but yeah, I think, like you said, it gives young people a sense of how this tool, which can be complex at times, actually works. So that's great.

I know one point I did want to bring up, I think you mentioned about the scoring models, and so there are three major credit bureaus—Equifax, Experian, and TransUnion—but two, I guess, predominant models that are out there. Would you mind speaking a little bit more about those two scoring models?

Melinda Croes: Sure. The two major scoring models are FICO and VantageScore. Most commonly used is VICO, but VantageScore is growing in popularity as well. And both of these scoring systems will be used by the credit bureaus, and within each of these scoring systems, they each have different variations. So it's like whenever you get an update on your phone or a new model is released, there's going to be some updates and there's some upgrades. And it will work a little bit differently, and that's kind of how the credit scores are as well.

So you might have a credit score—let's just say, for example, it might be Experian and it might be a FICO 8.0, and your credit score might be 780 with that credit score. But then you go and you look at your TransUnion, and it's also a FICO 8.0, but they factor in different things a little bit differently. So, with that score, you might be at a 760. So it's a little bit different, but that's nothing to be concerned about. That's just normal because each of these are different companies, and they're using different data points and prioritizing them a little bit differently in order to calculate the score for that particular scoring model.

Brian Stone: Great. You mentioned a lot, but what are some important aspects about credit a young person should be aware of?

Melinda Croes: Yeah. Thanks for that question. I was thinking this through, and I was thinking about all the different misconceptions that I hear about credit when I'm talking to my friends or my family members or even some young folks in my family. And there's a few that I think really, really need to be clarified.

So a lot of people think that paying their monthly bills like their rent or their utilities or their phone bills, they think that that helps them build credit, and those items actually are not going to show up on your credit report or be factored into your credit score at all unless they end up in collections as a result of nonpayment. So in order to build credit, you do need to have a line of credit that reports to the three credit bureaus. So that's an important distinction to make. Your rent and all that, your phone bill, it's not going to help you build credit.

Another misconception that people often have is that they think that if you check your own credit report and score that your score will go down, and that's just not true. When you check your own credit, that's considered a soft inquiry or sometimes it's called a "soft hit," and it doesn't impact your credit score at all. Your credit score will only be impacted when you make an application for credit, and that could be applying for a credit card or a store or through a bank or a credit card company, or it could be something like applying for a loan.

I also often hear people who might be struggling to pay their bills. They talk about skipping payments on their credit accounts or being late, and we would really, really encourage folks who are struggling to reach out to their lenders and explain their situation to see if any other kinds of accommodations can be made before they're late or before they skip any payments. We don't want people to be doing that because whenever you skip a payment, you will see a really significant drop in your credit score. It can even be up to 100 points, and then remember that the lower your credit score is, the riskier you will be seen by lenders. And that means that creditors may charge you more in interest, and you'll also get those late fees and things like that. So that's important to always pay your bills on time if you're able to.

So those are some of the key points that I think are really important for a young person just starting out with credit to know, but there's also so many great resources out there, including those offered by the CFPB where you can learn a lot about credit. And I'd encourage folks to learn all they can before they start using credit so that you are well informed and prepared and can make the best decisions possible.

Brian Stone: Along the lines of credit, you know, building credit and the five aspects of credit that you mentioned before, is it necessary to have a credit card to build your credit, and if you do, how do you use it? What's the proper way to build credit?

Melinda Croes: Yeah. So it's not necessary to have a credit card, though that is probably the most common way that people go about using credit. So some people don't want to have a credit card because they are afraid of overspending or getting into a lot of debt. So there are other ways to build credit.

So something, a product out there, is called a "secured credit card," and a secured credit card means that you make a deposit first. It's usually several hundred dollars, and that's kept in an account. If you don't pay your bill, the bank will use that money to cover your debt. Typically, the secured card is a starter product and used by people who don't qualify for an unsecured card. An unsecured card is what we generally think of when we think of a credit card. It's a card that you don't have to put a deposit down on.

But with a secured credit card, if you pay your bill on time each and every month, you'll likely be able to graduate to an unsecured card after about 6 months of use, depending on the lender. So that's one way to build credit if you're maybe nervous about getting into debt.

There are some other good options like a personal loan or a credit-builder loan that you could use in order to build your credit score. Folks might also want to look up something called "social loans" or Lending Circles and rent reporting. Those are newer options that can be used on building credit.

Brian Stone: Yeah, yeah. On the credit-builder loan, I know we just published, recently published some research that spoke to credit-builder loans, and we will make sure to link that in the show notes.

We'll transition to utilization, which sort of goes back into those five components you mentioned, and it comes up a lot, especially connected with credit cards. Someone might get a credit card and not fully understand how to use it. Let's say, for example, a bank says, "You've been approved. Your credit limit is $1,000," and that first credit card in the minds of some young people is like, "Oh, this is free money. This is a free $1,000 that I can spend." But how would you tell a young person to use that first $1,000 credit limit or how they are responsible to use that card and that cause future harm, I'll say?

Melinda Croes: Exactly. That's a great question. So sometimes people think, "I have that $1,000. I'm going to spend it all," and that is absolutely not what you want to be doing. So we want to be focusing on building our credit score in the best way possible, and that means that we're going to keep our utilization rate low.

So the term "credit utilization" is just kind of a fancy way of saying like how much of the credit that you have available to you are you using, and then we would break that down into a percentage. So if you have that $1,000 credit limit and you're spending $300 on it, you are utilizing 30 percent. That's your credit utilization rate.

So we know that people with the best credit scores are keeping their utilization low. So you do want to be using that credit card because you need to generate activity in order for there to be a score. So going back to some of our academic examples from earlier, like, let's say that you're in a class, and it doesn't have any assignments or anything due. You're never going to get to a 4.0 GPA if there's never any assignments due. So you have to be using that, turning in assignments, showing that you can responsibly use your credit card each month in order to build your credit score.

So like some of the examples that you gave earlier, like maybe putting your gas for your car or a streaming service or a small purchase onto that credit card and then paying that off in full every month is a great way to build your credit, but also always keeping that credit utilization low, especially when you're trying to build your credit. And a good rule of thumb that many people follow is keeping your balance below 30 percent of your available credit, but even lower is better, and again, making sure that you're making those payments on time. Otherwise you're going to get those late fees, and it's going to negatively impact your credit if you're 30 days or more past due.

Brian Stone: Great, great. And so once we sort of get to that point—so we have the card, we understand utilization—how do we make sure—we're using the card. We're paying it off every month like we're supposed to. How do we make sure that the information is being reported accurately when you have balances or usage and it's accurately reported on our credit score? And then if it's not, what should we do?

Melinda Croes: What should we do? Exactly. So, hopefully, folks aren't running into things being inaccurate yet at this point, but that does certainly happen. So you can access your credit report from Equifax, Experian, and TransUnion at Generally, those are available to you once per year, but due to COVID-19 and the current crisis, you can actually get one of those reports each week from each of the credit bureaus. And we would recommend taking a look at those to make sure that everything is accurate on them. So you want to make sure that your name is spelled correctly, and whenever you're applying for credit, you also want to use your full legal name as well. Otherwise that can create some confusion. There's a lot of people named John Smith or Jose Garcia out there. So make sure that you're using your full name, your birth date, Social Security number or ITIN.

And you also just want to make a habit of checking it regularly. It's not something that you need to do every day or every week unless you have some serious concern. So I like to recommend that folks put a reminder on their calendar to check it about every 4 months, and as it turns out, we've got Presidents' Day. And a lot of people have a long weekend around that time. So you might have a little extra time. We've got Memorial Day, and we've got Labor Day. So for me, I just put it on my calendar for those weekends, and I make a point of checking my credit each of those weekends to make sure that everything is accurate.

There are also other services that can be used as well. Some of those are free, and some of those charge money. But we'd really recommend that you get in the habit of checking your own credit and keeping on top of that because you want to be on the lookout for identity theft and making sure that everything that's on there is accurately reported and belongs to you.

If you do find that there are some incorrect items on your credit report, you can do something called "filing a dispute," and that can be done through the website or through other credit education sites. You can also mail in your dispute to the credit bureaus, and that is a free service that you can take advantage of.

Brian Stone: Yeah. And I think it's pretty important to highlight "free," so free at

Melinda Croes: It's free, yes.

Brian Stone: Yeah. So you don't have to put in your credit card information. It's not like a free trial and they will charge you after the first week.

Melinda Croes: Right.

Brian Stone: It's completely free, and so—because what we do see a lot of times is that people don't fully understand that they could, you know, file these disputes online or file them by mail. And then they see a service that says, "Hey, we can do it for you," and it can get a little murky in that some services—not all of them, but will tell a consumer to send them money and they will resolve the issue and then, you know, like—or make payments to that person or company, and then, you know, the issues don't get resolved. So we want to be very clear it's something you could do yourself, and that's the way is set up—

Melinda Croes: Yes.

Brian Stone: —for ease of use and you to be able to see your credit report and then again file a dispute.

So if there's one thing you'll want our audience members to know, what would that thing be? And maybe there are a couple things, but we'll just say one. But if you have more, feel free to—

Melinda Croes: Oh, I might have more than one.

Brian Stone: Okay.

Melinda Croes: There's really three kind of important points. Like, if you don't remember anything else, write these three things down. You need to have at least one credit product open that you are using in order to generate activity, and that will help to build your credit score. If you are using a credit card, you want to keep those balances low at all times, if at all possible, and to pay your creditors on time each month. We can't emphasize that enough. Make those on-time payments. If you don't, there are serious consequences that will come from that.

Brian Stone: Again, thank you for joining us today, Melinda, and sharing your expertise with our audience. We also appreciate our audience for tuning in. To stay connected, please visit our Podcast page on, and so you don't miss future episodes, sign up to be notified of new releases.

So today we heard great advice from Melinda on understanding and protecting your credit for our listeners. We would like you to walk away with the following takeaways outside of everything else that was mentioned. So, understanding there's three major credit bureaus: Equifax, Experian, and TransUnion. Additionally, how scores are calculated, and that scores are unique to each bureau. Understand tools and tactics to build credit. Please check the show notes for additional information. Last but not least, understand how to file a dispute, pull free credit reports, file a consumer complaint, fraud alerts, or credit freezes on your credit report.

And as always, remember to continue to develop your financial intuition and learn money management lessons you can use now to help you build a future you want tomorrow. Thank you.

[End of recorded session.]