Episode 15
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(Music): [00:00:00] Music intro...,

Matt: Welcome back to quest exploration. This is Matt Jennings, chief executive officer of quest federal credit union. I'm joined by my co-host today. Brian sprang. He is our chief information officer Brian, how are you today?

Brian: Doing well? How are you Matt 

Matt: Great, thank you. I'm glad you're doing well. I know you've been in the midst of a big migration of email slash printer projects, and I'm sure you're about to pull your hair out.

So. Yeah. All right. Good. Well, thank you very much for taking care of that. Uh, we are joined today by a couple of our experts in the lending field. I think you've heard, but both of them speak before, uh, Krane Stahler is our vice president of consumer lending. And Jessica Shepherd is our vice-president of real estate lending.

That doesn't mean that's all they do. That's just what they have oversight of both Jessica and Krane can do your consumer loan or your real estate. But that's a lot to ask of one person to have oversight and policy management and et cetera of everything that we offer as a credit [00:01:00] union. So we broken that down.

You've heard from Shannon almond before Shannon is the vice president of ag quest and member business lending. So we kind of keep those silos for lack of better words, separate. And, uh, these two folks that are with us today are going to talk about something that's near and dear to me, and that is how to get credit started for a young person.

Now it's not always young people that are getting their credit started sometimes as Krane learned recently, not too long ago, that sometimes more mature of age people haven't used their credit in a while and need to get it restarted or get their score built back up. So this is a hot topic. Uh, credit scores are.

On many different levels. And we can talk about that some more, but, um, you know, utilities will look at your credit. Um, um, internet providers, dish, satellite TV providers, insurance companies, obviously your mortgage lender or your car lender is going to look at your credit score and really why it becomes so important is because your credit score [00:02:00] affects what you pay ultimately in a fee or an interest rate.

Sometimes utility companies in particular cell phone companies will charge a little more if you don't have credit or you've got a weak credit score. Uh, we know that interest rates on loans increase as your score low. And they decrease as your score increases or becomes better, and that can have a huge impact on your mortgage or your car loan.

So enough for me, I'm gonna kick this over to Jess and Krane and just let the two of you, um, hash this out and share the conversation. But let's just start with, we have a, let's say a 17 year old, 18 year old senior in high school, getting ready to head off to college or to the military or to start their career.

Um, what, what is some simple advice right off the get, go about how we can get, get credit started and headed down the right path. 

Krane: Great question. [00:03:00] Um, like to basically always lead off with don't get in the habit of opening credit cards. Uh, one of the first things you're bombarded with, especially if you go off to college is lots of credit card applications.

You know, that's, that's one of the first things you can get started with, but can easily hinder your credit. Um, and it's always great. If you were wanting to come in and just simply start building credit, we have a great option here. We call the Sheriff's secure route where we can borrow against a savings account or something, and then you can always have a co-signer to help get a better rate right off the bat.

And then we have different ways to counsel and kind of get members started off on the right foot. 

Matt: So the, the credit card thing is that I'm glad you brought that up Krane because, you know, It is a valuable tool in building a credit score, but opening too many credit cards, especially too fast can totally wreck your credit score.

And you read some stuff online that says, this is the way you do it. And really it's not. Um, and I would, you know, note to parents out there, a note to young people out there. Buy a trashcan shredder, take it with you to [00:04:00] college or your first apartment. And when those things come drop them in that shredder, don't throw them away because somebody else could get their hands on them.

But run that through that shredder. Just sort of forget about them and, and talk to a professional in the field, whether that's us or another financial institution about how to get this going. So, Jessica, I know you have helped a lot of people and you've talked in schools about this. Um, talk to us a little bit about that share secured piece that Krane was talking about.

We obviously know, share secured and it sounds, you know, maybe scary to someone, but how simple is that? 

Shared 

Jessica: secured is actually very simple. Um, a member has the opportunity to save 500 to a thousand dollars, even $250. They deposit it into a bank account. And then we secure those monies and with a shared secured loan, they get the best rates that we have.

Matt: So even if you have no credit score, you're still going to get the lowest, because really the risk to the credit union is zero [00:05:00] because you've got $500, let's say in your account. And we're using that $500 as collateral for the 500 that we're going to loan. Heaven forbid it didn't get paid. There's no loss.

So we're willing to give up a lot of interest rate in return for the security that that provides us. So, Jess, I'm going to clarify this because I know we speak about shares and shared. That's credit union lingo for savings and checking, which is fine. Let's stick with our terminology. But in layman's terms, when we talk about shares, that's a savings account.

When we talk about shared draft, that's a checking account. So when you're talking about shares secured, it's really just their savings account or a money market or a small certificate of deposit. They may have something like that. So, okay. So we've talked about sheriffs secured. Let's talk a little bit about.

You know, we've got a young person, whether it's, you know, mom, dad, grandma, grandpa, older, brother and sister, something like that. At what age do you recommend someone try to [00:06:00] start their credit? And at what age can they do it on their own? And or do they have to have a. 

Krane: So for starting the credit. Um, we've done quite a few where we've had high school are still coming in the age of 16, 17, having a parent or grandparent goes on.

So that's perfectly fine. I mean, it's going to report, they're going to get some credit going and stuff, um, 18 in order to go on your own. And generally speaking, you have to be gainfully employed before you can apply. Um, we can make certain very rare exception that share secure and being really the only option.

Um, so members start a job, whether, you know, it's ongoing to not just the summer, ideally, but you know, ongoing employee, we can get them started right off the bat with getting their credit built on their own. There's options, but you know, at a little higher rate, if they don't already have their credit established, we can do that with personal loan, which is usually kind of the fallback option, but ideally holding, you know, a vehicle they might hold free and clear or something of that nature before we jumped into a credit card, even.

Matt: Right, and not that we wanna, you know, encumber or take advantage or anything [00:07:00] like that. But you know, a lot of young people will have a affordable car that maybe mom and dad or grandma and grandpa bought for him as a 16 year old gift to, Hey, now you can go to work. You can drive yourself to school. That's an excellent tool to be able to say, Hey, we don't want to take your car or anything like that, but you can offer that title as collateral to get a small loan and.

Um, you know, can, could someone, I guess, theoretically say I've got this car that's worth $3,000 and I want to borrow a thousand and then just put that thousand in my savings account and let's let that money sweep back over. As a, you know, kind of flexing your muscle, uh, doing a dumb bell curl kind of way 

Krane: Done it numerous times, the exact way. And then simply set up, we've talked about it and, you know, discussions before, but doing that automatic fund transfer each month out of that money that we put into their accounts are really, you know, it's out of sight, out of mind for them. They don't have to worry about being late. And definitely don't have to worry about losing their vehicle because they're never missing a payment that way.

Matt: Okay. [00:08:00] Jessica, is there any time that you. Take out a loan and pay it off too quick. You know, like everyone, I think there's a misconception that I took out a loan and I paid on it for three months and now I have a credit score. That's not always the case, is it? 

Jessica: It is not typically I tell my members that they should have the loan for at least seven months, because it takes time for the credit bureau to establish.

Uh, credit. And oftentimes, just as you said, Matt, uh, members feel as though if they pay it off quicker, it helps get a score higher, faster, and that's not necessarily the case. So I typically tell my members seven months.

Matt: Okay. So a credit score and, you know, I, I, when I go into schools and talk to kids about this and, and, you know, as they're preparing for a career or college and how important it is to have some form of established.

Um, two less than the cost of student loans and things like that. Um, that it's a lot like lifting weights. If you lift weights consistently and, and walk or run or [00:09:00] swim something that's healthy for you, you're going to become. Okay. And, but if you overdo that you can do damage to your body. If you don't do it at all, well then whatever fitness you had will go away.

So let's assume that someone did come in and they got that thousand dollar loan against their shares or a car title, or a mom or dad just co-signed with them to get a personal loan and they pay it off in seven months. They let the money transfer. Maybe they've got a part-time job that they're thrown a little bit extra.

And then they don't take out any additional credit. They don't do anything with that for a period of time. Does their credit score diminish? 

Jessica: Over time it does, yes.

Matt: Okay. All right. So again, it's like that fitness, uh, example of you've got to continue to stay fit with your credit score. 

Jessica: That is correct.

Matt: Um, Krane, is it a wise idea to then go out to Kohl's and Walmart and bass pro and game stop and not, I probably shouldn't [00:10:00] be saying retailer's name's Brian.

I knew this, but, uh, but I'm just using that as real world examples. We probably shouldn't be going out and open and all these retail cards for 300 and 500 and 600. 

Krane: No. And I mean, that's a very common thing for people to capitalize on. Especially during the holiday season, you know, they might be great rates at a store or wherever they might be.

Um, if they want to go the credit card route, it's better to have, you know, at least one, maybe two cards in your wallet or your purse or wherever you might carry. Um, and then, you know, keeping them paid off, but you definitely don't want to get the habit of creating what we would call pyramiding debt. So opening different credit line items, multiple loans in a short period of time.

Cause that, that becomes. But ideally having a universal card, you know, whether it's a quest card, obviously wouldn't be what we would prefer to see you have. Um, but something that you can use anywhere, not just at a department store where, where you're open it through. Um, and that's, once again, that just kind of falls right back into when it's done the right way, that's going to be the perfect tool to maintain your credit to where you don't ever worry about losing [00:11:00] that score, that you've worked so hard to establish.

Matt: Okay. I'll throw this out to both of you. I mean, I, I still do some loans on occasion, but it's really. Where I got my start in the credit union, but it's really not my role anymore. And I still have people that, uh, I still have people that come directly to me. Um, just because they're used to me and that's fine, but, um, you know, we have, I used to use the rule of thumb where you don't ever really want your credit card balance to roll over for any long period of time.

You want to try and keep that paid down and, or paid off routinely. And I would always use the rule of thumb of like, I don't want my balances to be more than about three months worth of what I make that way. Heaven forbid I lost a job. I got laid off. I got her. Couldn't go to work, et cetera, that I could still get that amount paid down.

So can we talk a little bit about, you know, and I know everyone's, income's different, but what's a safe [00:12:00] level of credit to have to be healthy and fit with your. Uh, to be healthy and fit with your household budget and or, um, what limits on a card should we avoid crossing or maybe not limits, but thresholds is a better word to not do damage to a score.

Krane: You mind if I take the credit card portion on that Jess? So one of the biggest things we like to lead off when we're starting a member off with credit is a simple counseling piece of the 30% rule we refer to it as, so just for simple math, we'll say you have a thousand dollar limit on your card. If for any reason you have to carry a balance, we would recommend not carrying more than $300, 30%.

Um, a simple way to look at it is for every percent you have utilized. It's about that many points. It's going to hold your score down. So we've had members where they've had quite a few cards and maxed out that we might do some sort of a consolidation loan. They can literally make it a credit jump 90 to a hundred points from one month to the next.

So that's kind of the easiest way to look at, like, it's going to drag your credit down to where [00:13:00] anything you go to borrow after that, when that score being held down, you're going to have it a higher rate. So keep those cards paid off, not to mention the interest. So for the balance you carry from one month to the next one billing cycle, that's what you're going to be charged your interest.

Keeping it paid off or carrying a very little balance helps keep that money in your pocket to where it just goes towards your payoff, not your prints or your interest. Pardon me going forward. So that's the biggest thing, I guess that's to answer your question with the credit card is, you know, 30% ideally no balance, but keeping it paid paid off each month.

Matt: Very good. Jess, let me ask you this, you know, your, you Krane, Jennifer Nelson, our mortgage committee internally that reviewed mortgage requests and pretty much any mortgage we have, regardless of the type or the amount. Um, but I know you're, you're the, the queen of, and it pains me to say it, but I'm going to say it.

You're the queen of real estate and you do know it inside. Um, so if she's down there giving me the eye roll, like you're a jerk, but you know, whatever we're having fun today. So [00:14:00] Jess, when you look at a real estate loan, and I know you've got a lot of factors specific to real estate, but when you're looking at a real estate loan, you have to look at the whole picture.

What's the auto loans. What's the, you know, what's other household expenses, what's credit cards, things like that. Any pointers from a real estate perspective, since this is about. How do we establish a credit score? Obviously, most young people are going to want to start credit. They're going to want to build credit.

And the ultimate goal for all of us is to then become a homeowner. So anything in particular, and I'm not trying to put you on the spot that, you know, from a real estate perspective that you could share with our listeners. 

Jessica: Sure. So one thing I really think of, um, right off the bat is inquiries on a credit report, you know, oftentimes.

Uh, as a committee, we go back and we take a look of what's. The inquiries have been, and an inquiry on a credit report can actually [00:15:00] hurt your credit report and your credit score by bringing it down. So we oftentimes look at that, uh, just as Krane said, we look at the credit card balances all in what affects that a score as well.

Oftentimes, we take a look to see how many times alone has been refinanced over time. How many times cash out has been taken over time? Um, oftentimes we'll do that as well. 

Matt: So on the inquiry side, you know, when we talked about everyone, you know, not every most, all vendors that you're going to deal with are going to take a peek at your credit.

So whether it's a cell phone company or a, uh, dish TV provider insurance company, they'll look at your credit score, but that's what we call a soft poll, meaning it really doesn't show as an initial. Right. But if you're going to a retail store and opening a card, if you're going to a car dealer and [00:16:00] asking about a car, calling Jessica and talking about a mortgage, ultimately there's going to be a full pull or a hard pull and that's the inquiry piece that you're talking. And that history shows at the bottom of a credit report. Right? 

So a two year window for a two-year window. So. I guess I will throw this out there because I'm not sure I know the answer to this any more, but, um, used to be, you could basically have up to three polls, hard polls or full polls in a quarter without it really causing any damage.

Is that true or not? 

Krane: I'd say there's probably a lot of truth in that. Uh, I haven't actually heard like a specific number in a certain period. It's not uncommon for us to have an indirect loan or any member for that matter. Come in. That's auto shopping. And we might see a couple of snapshots where like there were six poles in one day.

Well, that's not uncommon either because that indirect channel we have, well, that dealership not sending that just a quest to review, they're going to send it to maybe eight other lenders. So they kind of do that shotgun approach. Well, fortunately, [00:17:00] For the members benefit there or the applicant, I should say, that's really going to count as one inquiry.

It was all in one day. Well, now if we do it again tomorrow and we do it the day after that, and now we're kind of getting that snowball effect and then that will drag your score down very fast. 

Matt: So does quest offer, um, at a time limit that we're willing to honor a credit report so that we're not the cause of the effect of lowering your score by over pulling?

Is there a time limit that will honor their credit report? 

Krane: 90 days.

Matt: 90 days. Okay. So back to that kind of quarter method of, you know, beyond that, we would probably get in trouble with our regulators and stuff if we weren't checking credit often enough, but we don't want to be the cause of a declining credit score because we're checking your credit over and over and over again. Okay. 

Brian: So I had a question, um, there are a lot of commercials on TV that offer boost services or quickly [00:18:00] checking your credit through an app or some other online service. Uh, do those tend to have a negative effect or are they actually good tools for prospective members or borrowers to take advantage of because they are in many cases free, uh, you know, but does that have a detrimental effect if they follow the commercial?

Krane: So that's going to fall right back into the whole softball discussion. Um, I highly recommend members do that because it's going to give them an idea of how things look, but it's very misleading. Um, I've actually had members do you know, they submit to credit karma and there'll be off 100 points with what that score shows versus what I pull.

However, the informative piece, it's going to give them on their reports. That's going to be accurate so that they're going to see, you know, if there's any positives or negatives, that's going to be true to what I'll see if I do a hard one. But I've had members. Well, my gosh, my score said X, well, I pulled it [00:19:00] at Y we're not even close, but I've also had the opposite.

You know, they've seen it, their score has been lower. I pulled it and it's been higher. So that's what I'm saying. It can be very, very misleading. I don't like the numerical values that those freebies give you. Um, our IDP service ID protect that we have tends to be a lot closer. Um, granted right now on the consumer side, we only pull through Experian.

And then of course you have Equifax and TransUnion. And so it's easy to see because each of those bureaus have different scoring ranges, so they all follow a similar bit of the same model. So there's just lots more questions that can give them clear cut answers. I guess if that answers your question. 

Brian: It does, thank you.

Jessica: I've actually, 

Matt: oh, go ahead Jess. Sorry. 

Jessica: I've actually had a member come in and this just happened recently that came in and got along with me seven months ago. And in between the seven months ago, till now, there were several hard inquiries on his, um, credit report for pulls and his score went down 75 points [00:20:00] within that timeframe. 

Matt: Right? So the, the messages, you know, adhere to that fitness program, we talked about. Don't always be looking at your credit. Like, you know, maybe no news is good news type of thing. You've got some credit established or you're getting your credit established and then just roll with it. Let be patient, let it build.

Don't check it all the time. Um, you know, it's the, the watched pot never boils concept. So, uh, all great information. What did I, what did I not ask that maybe members need to know. 

Krane: I don't think anything not asked, I guess, one of the easiest ways to summarize it slow and steady, he's going to win this race. I mean, when it comes to building your credit and unfortunately the exact opposite comes to wrecking your credit.

I mean, it's going to take months and years to establish something. That's why maintaining and preserving that is so important. And you can wreck it with a couple foolish moves. So, you know, always be careful if you go co-signing. I mean, we've seen people that have done that that's burnt their credit.

Cause you know, somebody didn't make a [00:21:00] payment and they were trying to do somebody. You know, I mean, just always do what you can to protect yourself, especially when it comes to your finances. 

Matt: Good, 

Jessica: I'll share this just from a personal experience. I have a teenager. And so based off of what Krane just said, um, when he was 16 years old, I co-signed for him on alone.

And I said, we're going to do a shared secured loan. I want to help you build your credit. You miss a payment. I'm going to strangle you because I've coasted. And then after that loan was paid for, he made a decision to buy a square body pickup truck that he is restoring, and he went and did the loan on his own.

But from the time we did the shared secured loan, till the time he got a square box, Loan his credit went from no credit at all, and finally established a credit score over that year time. So that's huge and saved a lot on interest and he's on his own and mom's not co-signed anymore. 

Matt: Very good. Very [00:22:00] good.

We'll uh, I guess I would say to that, that that's a great common tool. A great example. Uh, you know, and we'll talk about this. And then the next episode will in, in great detail, but another point for young folks or people starting their credit is if you are questioning something that you got this odd hospital bill, or you, you know, you're going to be late on.

You know what, just call what it's us or whoever you're dealing with. Just call and talk to them. Don't ignore it because like Krane said, you get credit started and it takes months and years to establish that solid fit history, but it can all come tumbling down and 30, 60 days by a foolish mistake or ignoring something that you need to pay attention to open your mail.

Look at it. If it's another credit card. Shred it, if it's, you know, a bill or something, please do not ignore those. The collectors and creditors out there, quest included. We [00:23:00] just want to work it out with you where we intend you no harm at all. And I think that's pretty common for everyone. We just want to figure out how to get paid back and for you to be fit with your credit.

So that's just one more tip. Anything else we didn't cover? You guys don't believe so. Okay. One last question that I'm going to ask, and then I think Brian has one of those. You two are obviously, you know, many years in this field, know this stuff inside now, but do all of the loan officers in all of our locations have this same set of skills and knowledge and opportunity to coach people that, you know, Yes, absolutely.

Very good. So whether you're in Upper, Ada, Bellefontaine, Degraff, Ridgeway, whatever you can walk into or call any of our locations, asked to speak to the loan officer and we love doing this stuff. This is like the, the pleasure side of it. Like we get to help people get started and, or fix their credit, which is what we'll talk about next.

Jess, Krane. Thank you so much. Um, appreciate you taking the time out of your day to come and do [00:24:00] this. I know this is a great subject for, for people to listen to for young folks, for parents, grandparents, guardians of, of young people, uh, and hopefully gives them some perspective again, do not hesitate to call us, shoot an email.

Um, you know, we're more than happy to help coach answer questions and I'll, um, wrap this up by saying, we're going to follow this podcast episode up with another one that will be on credit restaurant. I don't know that we're going to be able to fit all of that into one segment, because this is a deep, deep conversation.

And it's one where we've had a tremendous amount of success, which is really fun to do. You know, it's really great when we have someone come in and they sat down and they're genuine and we genuinely try to help. And then to see them over to. Go from not such great credit to really great credit where they can get lower interest and maybe buy that home or get a reliable vehicle.

It's just one of the fun credit union things that we get to do. 

Jessica: It's my favorite [00:25:00] part. 

Matt: Yeah, it is. 

Jessica: So as you get to see the excitement and you get to be a part of that, they really become family. 

Matt: That's right.

Jessica: When you sit down and take an application. Watch them go through the steps. 

Matt: Right. Right. And we've, I can conservatively say hundreds of people over the years that we've helped with this. And you know, um, I'll again, I'm going to wrap this one up and we'll start over again with another episode. But a credit score is not a measure of a person. It's just a measure of it, a history of payment. And we don't look at that as the measurement of you, our member. Um, it's just something that we have to look at.

We're required to look at, uh, per regulations and because of that, we're more than happy to help you correct it. So, Brian, anything else from you? Thanks. Thanks Brian. Thank you, Jess. Thank you Krane. As usual, it's a pleasure. Uh, welcome you back to the next episode here shortly. And thank you for taking the time to listen to us today.[00:26:00]