Get The Tea On The Good, The Bad, And The Ugly Of Your Credit Score

Get The Tea On The Good, The Bad, And The Ugly Of Your Credit Score

A personal finance advocate shares how to make it work for you.


Didn't know April is Financial Literacy Month? Well, now you do. And what better excuse to get your finances in check or figure out how you'll add to your already lit bank accounts? Let's get into some knowledge about credit. It's an issue we all face as we look for ways to reach financial freedom and the best road to where the money resides. Sadly, the stats reflect harsh realities for many of us. Fifty-four percent of Black adults report having no credit or a poor to fair credit score (below 640).

Image via Giphy

Carmen Perez, Varo Bank's personal finance advocate and creator of MakeRealCents.com, a financial fitness platform, shares the good, bad and ugly on credit. Perez, an award-winning professional who's worked for Citi and Morgan Stanley, successfully paid off $57,000 of her own debt in less than three years.

"My finances were a hot mess up until I was able to commit to a plan," she shares. After facing a lawsuit from a private lender, she had to use her last bits of savings to hire a lawyer. She readjusted her budget, completely cut out luxuries like eating out and investing in cable, and reinvested her time into a photography side hustle to bring in more cash. She also kept a close eye on her finances and savings via the cash envelop system, and by the end of 2018, she was debt-free.

It's always good to know where you are before creating a plan to get to where you want to be. So, let's get into some credit 101:

Your Credit Score: The Basics

A credit score, also referred to as your FICO score, is a number that lets lenders know how much of a risk it would be to lend you money. The score ranges from 300 (the lowest) to 850 (the highest). "It is a benchmark that lenders use to gauge how likely a person is to pay back what they owe based on past data. The more you pay things back and on time, the better your credit can be, which can help you borrow money at a lower rate for things you may need," Perez says.

There are three major credit reporting bureaus, TransUnion, Equifax and Experian, and each uses different reporting methods, thus you could have up to three different scores.

"The misconception is that we have one credit score, which is inaccurate. We have multiple, and it depends on what we're applying or aiming for," Perez says. "Your bank, for example, could be showing you a FICO score that might be conducive to opening a credit card, but your score might be different when applying for financing for something else."

Also, various things can impact your credit score, from late bill payments or rental debts to outstanding medical bills and tax liens. On the positive side, a long history of maintaining accounts in good standing, or taking on debt that you're able to manage and pay back consistently over time, are all actions that can contribute to a great credit score.

You can access your credit scores for free via AnnualCreditReport.com, and each report will have specifics on the types of accounts you have on record (such as credit card, mortgage, and student or car loans), the date those accounts were opened, information on your credit limits or loan amounts, as well as details about your payment history. Credit reports also have history on where you've lived and sometimes where you've worked. You'll want to make sure all information is up to date and accurate, especially since some information could be from fraudulent activity, a reporting misake, or an old debt of more than several years that should have dropped off.

For more information on your credit reports, look into resources offered by the credit bureaus, including apps that offer weekly updates on your credit score, credit report information, and credit products available to you. Other easy-to-use and super-helpful websites on understanding your reports are CreditKarma.com and USA.gov.

Image via Giphy

Your Credit Score: The Good

The benefits of having a "good" credit score, which is one that falls generally at a 700 or above, is access to more housing options, more confidence when applying for a loan, and lower interest rates when you get approved. "Good credit allows you to secure better housing and, in some cases, will enable you to bypass having to put a deposit down if you rent," Perez adds. "If you plan on owning, good credit can help you secure a mortgage with better financing terms for you in the long-term. The lower your interest rate, the less you'll pay in interest over time."

"You'll feel less worried about getting denied, which can help you focus more on the things that matter, like negotiating a good interest rate."

But what about if you have no credit at all (i.e. no active accounts being reported to the credit bureaus or your credit history is so limited that there's no score)? Perez recommends getting a secured credit card, one that requires a deposit but offers other great benefits for people who haven't built credit.

"Get one at bank or financial institution that you're looking to have a long-term relationship with---one that offers access to other products. You might put up $500, for example, to open the account, and it will give you access to other products later that you might find beneficial such as home and auto loans."

She also urges women to put some serious thought and research into making decisions about what cards might be best for them. Looking to resources like Nerd Wallet or reading up on your current bank's credit card options (along with the fine print) are your best bet. Be sure to get details on annual fees, card closure policies, and payment protocols.

Image via Giphy

Your Credit: The Bad

In some cases, with a credit score that is below 640, a lender sees you as a higher risk for default or nonpayment of a loan. "If you haven't been good at paying back the money you've already borrowed, lenders will be more hesitant to lend you money," Perez says. "Since they are lending you the money, your loan terms, whether it be a mortgage, car loan, or credit card, will be more favorable for the lender than they will be for you. And since the lender is taking on all the risk, their reward is being able to charge you with a higher interest rate. Interest over time can add up and take away money that could be going toward your future self, like investing for retirement."

Though cash is king, when it comes to buying a home or even renting an apartment, you may need a cosigner to vouch for a loan. "Getting someone else to cosign on anything can be pretty tricky, especially when you already have bad credit," she continues. "You may also be subject to paying high deposits, which can deplete you of cash that could be going toward things like your savings or retirement."

Image via Giphy

Your Credit Score: The Ugly

In Perez's case, she was sued for an outstanding debt, and this is a common practice for some lenders as well as medical service providers and property management companies. Accounts that have reached collections stages and wage garnishments can not only deplete your pockets, but they can indeed negatively impact your credit score. A bad credit score can even affect your employment opportunities. "Sometimes employers will run a credit check on you before giving you the job," she says. "If your credit isn't in a good place, they may not extend the offer."

But you can take bad credit and turn your situation around. Perez recommends looking at all your credit reports and disputing anything that might be out of date or inaccurate. Then address the open accounts with balances that are past due. "Get on the phone with your lender. Explain your situation. See if they have a hardship program, and get the information on what that actually looks like. Get those details up front first, and then go from there." Perez also suggests freezing your credit card and pausing on use versus closing them, something that could negatively impact your credit. If possible, remain in communication with companies or lenders you owe to negotiate a plan for resolving your debt. "If you get the no the first time, continue to call to see if you can get yourself on a payment plan. That's better than [the lender] hitting up your credit because you're not making payments."

There are also credit-card debt relief options offered with the understanding that many are facing pandemic-related hardships, and community resources to get help in building budgets or exploring other debt-relief options.

Perez is also a big advocate of finding a way to earn more income via a side hustle and paying down at a pace that takes into account your current lifestyle and necessities. "Make sure you're prioritizing your bills. If you're in a hole and trying to make it out, it's time to put a budget in place and figure out where your money is going."

Are you a member of our insiders squad? Join us in the xoTribe Members Community today!

Featured image via Shutterstock.

A Black woman in a white bathrobe with a white towel wrapped around her head smiles

With a YouTube channel that boasts millions of views from her hair and skincare tutorials, beauty influencer Candice Jones knows what it takes to look great on the outside. But when it came to her mental wellbeing, Jones started feeling a disconnect. “Because a lot of the things that I was seeing on social media like: take a bath, pour you some wine,” Jones tells xoNecole about her initial attempts at self-care. “I was doing all of those aesthetic things, but it wasn't making me feel better.”

Keep reading...Show less
The daily empowerment fix you need.
Make things inbox official.
We Are Still Under SZA's CTRL

This month, SZA released the deluxe version of her debut album CTRL in observance of the fifth year anniversary of the album’s release. Featuring previously unreleased tracks, including an alternate version of “Love Galore,” which fans got an opportunity to hear during one of the Grammy-winning singer’s live performances, the revamped collection of songs has given fans a chance to reflect on life when the album first came out vs. now.

Keep reading...Show less
This Full-Time Content Creator Went From Making $15 An Hour To Six Figures In A Year

Money Talks is an xoNecole series where we talk candidly to real women about how they spend money, their relationship with money, and how they get it.

Full-time content creator Yvette Corinne has made waves in the content creation space. On the outside looking in, while some might feel like you have to have hundreds of thousands of followers in order to make a full-time living as an influencer, Yvette has managed to bring in six figures with a highly engaged Instagram community of more than 24,000 followers. And how did she do it? Well, her journey to wealth wasn't one without struggle. The Los Angeles-based micro-influencer got her start in content creation through blogging in 2016. That would lead to her growing her following on Instagram, which allowed her to balance her part-time retail job with being a part-time content creator.

Keep reading...Show less
Taraji P. Henson Wants A ‘Stress-Free’ Life After 50

Taraji P. Henson has been putting work in Hollywood for decades before finally getting her flowers after she landed her most beloved role as Loretha “Cookie” Lyon on Fox’s Empire. Before Empire, however, she starred in the cult classic Baby Boy in 2001, the 2005 film Hustle & Flow, and the 2008 film The Curious Case of Benjamin Button where she claimed she only made $40,000 and starred in many other roles. She has also released her own natural hair care line TPH by Taraji in 2020.

Keep reading...Show less
The Dating Trends Defining The Way We Date This Summer

The only thing constant in life is change and if these past couple of years have shown us nothing else, it’s that life be life-ing. Amid the pandemic, we saw (and continue to see) a lot of change in the way we lead our lives. It shifted the way we work, the way we approached our health and lifestyles, and the way we dated. This year is shaping up to display change in a different way, as many of us enter a season of a new normal and adapt to dating trends that better mirror who and how we are today. The weather is heating up and so is the potential for romance, as once again, we are shedding our homebody ways and radiating big “we outside” energy.

Keep reading...Show less
Exclusive Interviews
A Black woman looks into the camera and gives a closed-mouth smile. She's wearing a black turtleneck

Miss Diddy Kicks Off BET Awards Weekend With 'A Toast To Black Hollywood'

Her annual event to celebrate the culture has a new name and more intention than ever before

Latest Posts