Ask The Expert: Making Smart Decisions About Credit

[AARPLynne]

Join us now through Monday, March 23rd!

Managing credit effectively can be empowering and beneficial, especially as you navigate life’s transitions. A strong credit score can provide access to capital when purchasing a home or an automobile, or making large purchases for a business.

AARP Expert Martin Booker will answer questions to help you learn about the credit scoring system and best ways to maximize your credit. If you are interested in repairing your credit, maintaining your credit or learning how to use credit to your advantage, join this conversation. Martin will also discuss the best ways to talk to your family and friends about managing credit.

[MartinBooker]

What is the best advice that you gave or have been given about managing your credit or debt? 

[ys8710]

I would like to participate I need information on the format.  Is it an e-seminar? It appears that the date is March 23. If so, what time?  

[MartinBooker]

Good day @ys8710. This is an online community where you can ask questions or provide comments in this discussion. I am happy to answer any questions you have about credit. I will be online until the 23rd to answer any questions. Thanks!

[FrancesO708191]

I paid off 4 credit cards in the last three months. My credit score dropped. Will it get higher. 

[MartinBooker]

Hello Frances (@FrancesO708191),

First, congratulations on paying off those credit cards. As you know, credit card debt is some of the highest interest rate loans that a person can possess. Paying off those credit cards will allow you to save more towards your future, instead of paying for your past. Your score may have dropped because you have no debt utilization from the credit cards at the moment. Once you paid the loan off you have no utilization which can cause a slight drop in your score before it begins to rise again. It is a good idea to keep the cards paid off and if you have other loans, the activity from those loans being paid on time will assist in pulling your score back up. If you do not have any other loans that are being paid and reported to the credit bureau, you can use the following strategy to keep loan activity without going further in debt or paying interest:

1. Link one bill or pay for a necessity (food or transportation) with your credit card each month
2. When you receive the credit card bill, pay the full balance each month to avoid paying interest.
3. Be careful not to overspend because you’re using a credit card. Use only what you have enough cash to pay off in full. Usually by paying a bill that you’re already schedule to pay, you can keep from overspending.
4. If carrying your credit cards will lead to more spending, do not carry your credit card with you. Use it then put it in a safe place away from yourself.

You do this because 35% of your score is factored by paying your bill on time and another 30% is factored by keeping your debt amount low. SO, using this method will allow you to get the activity you need while not carrying a balance on your loans which will cause you to pay interest.

[MartinBooker]

As we think about credit, read this article from AARP on interest rates. See an excerpt below and the full article in the link:

"The Fed's move has a cascading effect on the economy. Cutting the Fed funds rate will reduce how much interest companies pay on variable-rate loans, which will put money directly to a company's bottom line by reducing loan payments. The prime interest rate, currently 4.25 percent, also closely follows the Fed funds rate.

Many variable-rate credit cards base their interest rate on that prime rate, which means the rate on some credit cards could fall, although banks tend to be much slower to reduce interest rates than they are to increase them. WalletHub, which tracks rates on credit cards, says rates on new offers on credit cards would fall a modest 0.16 percent.

The Fed's $700 billion bond purchasing program should push the long-term rates for mortgages down further. The current 30-year mortgage rate is 3.36 percent, close to an all-time record low."

https://www.aarp.org/money/investing/info-2020/fed-cuts-interest-rates.html?intcmp=AE-RET-BB

Lets talk more about what this could mean for you. 

[AARPLynne]

About the Expert: Martin Booker is a member of AARP’s financial resilience team, leading financial education initiatives focused on social security, budgeting and investing. Before joining AARP, Martin worked in the non-profit sector where he developed a passion for helping people improve their money habits. He has a master’s degree in social work from the University of Connecticut and earned a Certificate in Financial Planning at Georgetown University.

[MartinBooker]

Thank you for having me this week. As we know, credit provides access to capital. But we have also seen that credit has become an indicator used for employment, attaining housing, transporation and more. This week, let's discuss the impacts of credit, how to increase your credit, ways to leverage your credit and any other questions or comments that are helpful. 

To start, here are two questions to answer:

1. What ways are you using credit now?

2. How has it been beneficial for you over your lifetime?