Fair Isaac Corporation (FICO) Earnings Call Transcript & Summary

All right. Welcome to today's webinar: Think Spring Refresh for your credit. Today' session is being recorded [Operator Instructions] Finally, if you experience any technical difficulties during today's event, please chat your issue to the host using the chat panel. And you can find that chat bubble icon at the bottom of your Zoom screen. At this time, let's begin today's webinar. It is my pleasure to introduce your host for today, Bola Sokunbi, Founder and CEO of Clever Girl Finance. Bola, you have the floor.

Thank you so much, Jessica. Hello, everyone, and welcome to the Think Spring Refresh for your credit. My name is Bola Sokunbi. I'm the Founder and CEO of Clever Girl Finance. We are a free financial education media platform focused on helping women achieve financial wellness. And I am incredibly excited to welcome you to today's Score a Better Future event in celebration of National Credit Education Month. I appreciate you for taking the time to join us. And I would also like to say a huge thank you to all the partners involved in putting this event together. So the Score a Better Future initiative is a free ongoing credit program created by FICO to empower individuals with valuable information as it pertains to understanding credit and using it responsibly and, in turn, also helps individuals build financial confidence and improve their overall financial well-being. And Clever Girl Finance has proudly partnered with FICO on the Score a Better Future initiative since 2018 to deliver the message of credit empowerment and improved financial literacy. This event is also in partnership with Operation HOPE, a nonprofit organization focused on accelerating financial wellness and financial opportunity for all. As you are all aware, we are currently navigating some challenging economic times. From the recent global pandemic, to global economic challenges, to the increased cost of living everywhere, so many have found themselves having to make difficult financial decisions for themselves and for their families. And I have spoken to so many people who have expressed concerns about the future, job security and more. And we are certainly reminded that if there ever was a time to focus on our financial well-being, it is right now. But the good news, however, is that despite the current challenging season, it is possible to thrive and achieve your financial goals with patience, good planning and by taking action and leveraging resources that can help and support you. And credit is an essential part of your overall financial picture, and it ties into so many aspects of life and financial goals. For example, buying a home, to financing a car, obtaining a credit card and other types of loans, credit ties into our day-to-day lives. And so the key is to use credit wisely and to your advantage. So regardless of where you are with your finances and your credit journey, do not be discouraged about the current financial climate. Economies are cyclical, and there will be a recovery. But right now, it's important that you focus on doing what's best for you based on what is within your control. And so that is why today's webinar is so essential to helping you understand your FICO Score and the key factors and actions that can impact your score. I would also like to highlight that as part of today's event, you will all be able to gain access to a free copy of your individual credit reports and FICO Score through Operation HOPE as well as access to free one-on-one credit coaching from their independent financial well-being coaches. FICO's goal in providing these incredible resources is to help you as you work on establishing your financial strategy so that you can make sound financial decisions for yourself. That said, today, I am joined by FICO's Tom Quinn and Yolanda Butler of Operation HOPE to discuss key insights you should be aware of regarding your FICO Score, the credit score used by 90% of the top U.S. lenders. Tom and Yolanda, I'm so excited to dive into today's discussion with you, but I'm first going to have you introduce yourselves, starting with you, Yolanda.

Yes. Thank you so much. My name is Yolanda Butler, and I'm a financial well-being coach with Operation HOPE. And I like to call myself the hope ambassador.

I love that. And you, Tom, please introduce yourself.

I'm happy to be here today. I currently work with partners to help them integrate and distribute FICO Score features within their consumer credit empowerment and education initiatives. I've been at FICO for over 25 years and have an established history of working with regulators, legislators, lenders and hundreds of thousands of consumers like you on this line to better understand the power of credit scoring technology and its benefits to financial industry and consumers.

Well, thank you for the introductions. And I'm going to dive right in with the first question for you, Tom. Since it's credit education month, can you provide us with a little background on FICO Scores? What they are and why they were developed?

Sure. So I think it's important to just start off with a simple definition, that the FICO Score is a 3-digit number ranging from 300 to 850, where higher is better, that lenders use to help them make more informed credit decisions. FICO Scores were first introduced to the market about 35 years ago in 1989, and they were the first broad-based credit risk scores that were based solely on the information contained in the consumers' credit report that lenders would bring into their lending strategies. There's -- it's interesting as we look back in time, it's the history of this, there are many, many items that contributed to the development and successful industry adoption of FICO Scores. I can spend a whole hour just talking about that, but I'll focus on 3 items that I think are kind of interesting. In the 1980s, there was a lot of banking deregulation going on. And basically, this enabled -- one of the changes in the banking deregulations allowed lenders to solicit and acquire customers from other geographic areas outside of their geographic limitations. So for example, a bank in New York, based in New York or headquartered in New York, could seek and acquire customers in the state of Colorado. And one of the main ways they took advantage of this is the use of direct mail solicitation, soliciting preapproved credit offers. So for those of us old enough to remember, in the 1990s, when you come home from work and check your mail, there would be sometimes 4 or 5 preapproved credit offers from banks from across the country. And this FICO Score was a key component used and is still used today for this purpose to target and identify those people who are low risk that would be eligible for a preapproved mailing. Another example is there were quite a bit of advances in the automation of credit bureau data reporting. So the public record information from courts as well as lender information on your performance on your credit accounts was automated in this time period in terms of how it was reported to the credit bureau, structured in their day basis. And this really allowed for a more robust, complete and accurate file on consumers, which the FICO Score is based on. So better data in, better organization and structure of data, the better the score can be. And then the third example is the implementation of new and updated regulations, such as the Equal Credit Opportunity Act and the Fair Credit Reporting Act. They were designed and had provisions incorporated in them to help with protection of consumers. And so the FICO Scores are built with those provisions in mind in helping lenders to make sure that they're in compliance with the various regulations that take place.

Thanks -- go ahead, Tom.

I'll -- a bit more. Even though 35 years sounds like a long time, there have been use of credit scoring before -- long before FICO Scores were introduced to the marketplace. And it's interesting to look at the history of how those were built versus the [ previously take ] those FICO Scores. So part of the late '80s, most of the credit scoring systems being used were based on application data. So how long have you lived in your residence? Do you own or rent? Do you -- how many dependents do you have? Is your job white collar or blue collar? How long have you been in employment -- from your employer? So a lot of demographic and application-oriented characteristics dominated in the scorecards. With FICO Scores, we differed in several different ways. So first of all, the FICO Scores are based on credit bureau data only. No application or demographic data are included in the score. They're built on nationally representative development samples. So we're not overfitted to the consumers who live in cities or people with thick, robust credit reports or people with negative information on their reports. We have like a very large random sample of national consumers. And the scores can be used across the life cycle of a credit, so for targeting underwriting and account review. So for the last 35 years, FICO Scores have been used by creditors to successfully assess an individual's credit risk and are used by 90% of the top lenders today. And we're really proud and happy to be a key driver of enabling consumers to meet their objectives with access to credit at a more affordable rate.

Well, thank you for that detailed explanation and also history on the FICO Scores. I think it's really important for us all to have that background given that, as you mentioned, 90% of lenders are using this score. And one of the key things that you said was higher is better when it comes to the FICO Score. And that leads me into my next question, again for you, Tom. So year after year, a lot of people are making new year's resolutions to improve their FICO Scores, and that was the same for 2023. But here we are at the end of March, and a lot of those resolutions are on thin ice, much like many lakes right now in the Northern part of the country as we approach spring. Can you provide the viewers with some tips to stay on the right path to meet those goals, those resolutions that they made at the beginning of the year?

Sure. So I think a couple of things come to mind. First off, you want to make sure that you monitor and track your credit report and your credit scores so you know where you currently stand. It's important to review and evaluate the top reasons or score factors on why your score is not higher. These are generally provided along with the score and can help you focus on those areas of -- that are impacting the score the greatest and give you the most opportunity for point increase over time. I'd say the second important item, I'd say, is don't become discouraged. Changing how you use and manage your credit is hard work, and it requires discipline and commitment. While the FICO Scores are dynamic and they change as the information in your credit report changes, it will probably take some time for you to meet your target score. So an analogy I'd like to use is to be like losing weight. If you are looking to lose 25 pounds in the next week, that's going to be a tall order versus looking to lose 25 pounds over a longer time period where you plan out and take steps to get gains along the way to meet your final target goal. And then I'd say, if you're trying to self-regulate how you're managing your score and you're not having success, to contact institutions out there that are designed to help you in this objective of getting your score in better shape and sticking to it. Seek out legitimate credit counselors, and they'll help you understand how to better manage your finances, which could help you in the long run, increase your score over time.

Thank you for those tips, Tom. And it's definitely really important to be patient when it comes to your finances, improving your credit, especially given right now. And I also love that you mentioned seeking support, seeking out help, credit counseling if you feel like you need that. So speaking of credit counseling. Yolanda, you are a financial well-being coach with Operation HOPE. Can you provide us with some of your thoughts on how viewers can refresh their credit this spring?

Yes, let's get your report. So when we think about spring cleaning, we have to start somewhere, right? We've been in our houses, and now there's a new season. So the first thing is you want to be able to get your report. And I want to kind of piggyback on something that Tom was talking about when he talked about the range of the FICO Scores. And he talked about that it went from 350 -- 300 to 850. I just wanted to kind of talk about what your score is made of, and I'll just bring in the first component, and that's your payment history. That's like 35% of your score. And they're looking, at that particular time, collections. They're looking at bills that you paid on time. They're looking at public records. And that helps to make up that part of your score. The other piece would be 30% under how you utilize your credit in relation to a credit limit and how much you're actually utilizing of that. If we put those 2 together, that's about 552 points of an 850 score. And so it's really important that, right now, we get our credit report, we take advantage of the opportunities that are out there with companies like Operation HOPE and yourself, to be able to look at that.

Thank you, Yolanda. This is all great information. And the categories that make up the FICO Score are -- that's a question that I get asked and the team at Clever Girl Finance gets asked a lot. Like what is -- what makes up my FICO Scores? I just wanted to recap what you said because, for anyone who's watching this, if you're working on improving your credit, you're working on improving your finances, these are the areas that you want to pay attention when it comes to your FICO Score. So Yolanda had mentioned payment history, 35% of your score. And then the next-biggest category is the amounts owed, which is 30% of your score. So those 2 alone make up 65% of your FICO score. So if you're looking at areas to work on improving, you want to start with, okay, am I paying my bills on time? How much do I owe and how can I work on starting to pay those down to improve your score? And of course, there are the other factors like the length of your credit history, which takes up 15%; and then your credit mix, the different types of credit that you have, 10%; and then new credit, 10%. So thank you so much, Yolanda, for providing that specific detail on what makes up the score. But I wanted to ask you, what else can viewers expect when they come to Operation HOPE to take advantage of credit counseling with Operational HOPE?

Wonderful. So Operation HOPE, I want to say they can expect capable and competent people that will be working with them. Operational HOPE has been in business -- we're actually going into our 31st year this year. They can expect to be able to get a no-cost consultation. In terms of coming with Operation HOPE, all of our advice services are no-cost. They can expect to get a copy of their credit report each time they do consultations with us. They don't impact in terms of a hard inquiry because we are a nonprofit. And when you meet with us and the coaches that are part of our staff, we're very caring. We want to work with you around a strategy that's going to work for you. We don't assume that everyone coming to Operation HOPE doesn't understand credit. We don't assume that everyone that comes to Operation HOPE may have a bad credit score. You mentioned at the beginning about being wise and having a strategy. So I think when we're cleaning up our homes and things like that, we want to be able to take the time to find some better ways to do something. So that's -- I would say that would probably be the biggest thing. And then I want to say this. You may be on this webinar. We have coaches that speak English, Spanish and other languages. You're able to meet with us in person, virtually and by phone.

Thank you, Yolanda. I am a huge fan of what you do at Operation HOPE. And so I just wanted to say thank you to you and the Operation HOPE team for offering these service to communities across the country. And for those of you who are tuned in, please take advantage of this opportunity and sign up to meet with one of the coaches today. They are the same coaches that are answering the questions right now in the Q&A. So if you have a question, put it in the Q&A section of this webinar so that you can get your question answered as well. So we're going to keep moving on here with some more questions. And Tom, my next question is for you. And I wanted to ask you, what are some suggestions you can share with our audience to keep them on track with their financial journey and maintaining good credit?

Sure. So I think there's a couple of items that come to mind. If you're kind of new to credit or have a relatively short credit history, one of the things you want to avoid is not opening up a lot of new accounts too rapidly. The reason for that is that one of the predictive categories we look at is length of credit history. And so when you open up a new account or a lot of new accounts in a short period of time, that's going to impact what's called your average time in file. And so what the data shows us is that consumers that have a short average time in file are riskier than a consumer that has a more acceptable time in -- average time in the file. So avoid going to the mall and opening up a bunch of charge cards to get the 10% discount at the retailers because, at the end of the day, that could backfire on your score. If you are in the area or time frame of knowing that you need a new car loan, for example, or shopping for mortgage, et cetera, do it strategically. So with inquiries, we have dedupe logic that will group like inquiries together and basically consolidate them over a period of time to account for a single search for credit. So if you're going to be doing any kind of loan shopping, let's say, for a new car, don't spread that out over like a 2-month process and going to dealer A in this week and dealer B next week and dealer C 2 or 3 weeks from now because they're going to pull an inquiry on you, and you want them to do that in a short period of time so you get the benefit of the scores logic that basically will consolidate those into more one single search for credit. We also get a lot of questions about credit cards and what's the best strategy and way to manage them responsibly. So in general, having credit cards is not a bad thing, especially in our economy. We are definitely a credit card-driven society in terms of how we make payments. But the thing is you want to make sure that you use them responsibly and make your payments on time. So trying to reduce your credit card debt, to get that utilization bigger -- lower is important to help you increase your score over time. And you want to make sure that, if you have any credit card accounts that you're not using, let's say they're in your bureau drawer and your dresser and you don't use them, but you have them, there's no benefit in closing them down. So don't pull them out and call that the issuer and have them close down because that could actually hurt your score more than help it. So those are some facts and tips to think through as you're planning out your process for improving your financial health.

Thank you very much, Tom. And those are actually really, really fantastic tips. And I want to recap because these are questions -- the tips you mentioned are tied to questions that I hear all the time. So I love that you mentioned just not going to the mall, not opening all different types of lines of credit that you really don't need because they ultimately have an impact on your FICO Score. And the other thing that you mentioned was, when you're shopping for a loan, right, not going around and opening different -- getting different inquiries put on your credit profile at different lenders, for example, when you go to buy a car, when you go to the different car dealerships. That's something really important to know. And then the -- I think one of the most common questions that I hear about is I'm not using a credit card, should I close it? And I love that you explained that to us, that just because it's not in use does not mean that you should go and close all your credit cards because it can have an impact on your overall score. And then the other thing that you mentioned that I just wanted to highlight was that you said having a credit card is not a bad thing. I think sometimes, there's this idea that credit is evil when credit in actuality is simply a tool that we leverage for our financial wellness and to achieve certain goals or make payments, manage our day-to-day finances. So having a credit card, credit is not a bad thing. It's all about the responsible use of credit, as Tom and Yolanda have mentioned. So thank you so much for answering my questions and for sharing your tips, Tom and Yolanda. And so I would love to hand over to Jessica so we can get into Q&A with the audience because I see a lot of questions in the chat. And by the way, if you have questions for myself or Tom or Yolanda as it relates to credit, financial wellness, credit counseling, please leave your question in the Q&A box on your screens.

Great. Thank you so much, Bola. So we do have quite a few questions that have come in. So let's start off with our first one here. Let's see. I have good credit habits now. I always pay my card off on time and I pay all my bills on time. But I have a history of late payments and delinquent cards from my college years and early post grad years, around 2014 to 2016-ish. How can I get my credit score up with all of these on my record? Is it possible to outweigh them? Or is the best thing I can do just wait it out?

So Tom, I'm going to...

I can answer that. I'm wanted to answer that. Yes.

Go ahead, yes. Yolanda, yes. Go ahead.

The first thing that I heard was the years. So one of the things when we're looking at credit reports, we want to look at how long has the debt been on the credit report? So there's something called statutes of limitations. And so if something is beyond 7 years, and I believe I heard 2014 or 2016, if it's beyond 7 years, then guess what? We can go and we can challenge that on the credit report through the bureaus. That's the Fair Credit Reporting Act that we're able to do. So most definitely, you would be able to be able to take that off, and we'd love to have the opportunity to work with you to do that.

And just following on what Yolanda was mentioning there. I think if you have credit blemishes on your credit report and they are legitimate, and that happens, and we all go through patches, et cetera. The important thing would be to let them age. And as they age, they will gradually have less impact on the FICO Score. But where you look at your more opportunity for points is to focus on the other 4 categories of the FICO Score. So your debt, your revolving debt. If you have revolving debt, really work to try to reduce that debt, and you'll be able to get points for that type of information being evaluated while the delinquency information ages off the credit report.

And I'll just add one thing as well because they did mention that they have good credit habits now. So well done on that. And I just encourage you to continue to maintain those good credit habits. And also, overall -- your overall financial wellness, focus on working on -- make sure you have your emergency savings in place, making sure you're paying bills on time, making sure you have your investing plans for your future self, retirement and also for your short-term goals. And once you continue to maintain those good financial wellness habits, those good credit habits, as time goes by, as Tom and Yolanda said, this will all be like distant history.

Wonderful. Thank you all so much for those responses. We've got another -- deep questions coming in here. So our next question is, for those individuals who do not currently have any debt or low debt, how do I continue to build good credit without maintaining a balance on my credit card statement?

Sure. I'll take that one.

I'll come after you.

Okay. Right. So if you -- to build a good credit score and a higher credit score, you want to demonstrate that you can have access to credit and can manage it well. So the recommendation is, if you have credit and you're not using it, to every once in a while, go out and charge something. Let's say it's a cup of coffee at Starbucks or flowers at Target, et cetera. And then, of course, pay that amount off in full when it's due on your due date on your credit card statement. So again, the model is designed to try to rank-order or predict your future risk, and it needs some activity to be able to do that. So if you're not wanting to use credit, but you have credit and you can use that in a little bit of a way, that will go towards helping the score because it shows that you -- it's interpreting that you have that credit and you're able to use it in a well, responsible manner.

I wanted to piggyback for that question. And of the 5 areas that make up the 3-digit credit score, 2 of them could be impacted, and that's the account diversity when we talk about a credit mix. So in building a score, you want to make sure that you have revolving credit and that you have installment credit. And there are some opportunities out there to be able to build that without getting hard inquiries on your credit report. Again, if you'd love to be able to move in that direction, we love to have the opportunity to share information on how you can do that. The other area that would be impacted also would be new credit, if you wanted to move beyond that.

Great. Well, thank you so much for those responses. Super helpful. Let's see. Our next question is, what percentage is the ideal utilization ratio to stay under or to stay over?

I'll take that one and then others can join in. So one of the biggest misunderstandings that I see out on the web world around credit, FICO Scores, et cetera, is the concept that the ideal utilization to have 30%. And I think what happens is people get that confused with the percent contribution amounts owed has on the score. So when you look at the pie chart of the 5 predictive categories, the second is amount owed, and that represents about 30% of the score. That does not mean that 30% revolving utilization is the ideal utilization for max points for that characteristic. So the way the model works is that the lower the utilization, the more favorable the point would be awarded for that behavior. So if you think about having 1% or 2% or 3% revolving utilization, it's going to be probably optimal on the point assignment. And then one other kind of interesting aspect of the scores, and again, that's the data that tells us this. But having no credit card balances or utilization being recorded is actually a little bit riskier than having a small level of utilization. So if you pay your cards off in full and they get reported to the bureau in a 0 balance and you have no utilization, that's actually potentially a little bit riskier and you have less points assigned than if you have, let's say, 1%, 2% or 3% revolving utilization recorded.

I'd like to chime in also on that. So I'd just like to give an example. Let's just use something simple. On a $100 credit card, if we were looking and we wanted to maximize the possible points for our credit score, we would only want to carry a balance of $3. And if you wanted to really take advantage of getting those points, that's 3% of the $100. And just depending on what's going on, on your credit report, the range could actually be from 1% to 30%. It's sort of kind of up to you. But as Tom said, the lower it is, the better that it is. But sometimes, that's really hard. What if, on that $100 card, I've already spent $99? Maybe I don't have minus $3 on the $98 to pay that down. So another way that you can hit those target markets are by coming down on percentages. So maybe I can't get to the 3%. So maybe I move to 50% of the $100, that's $50. Then I move down. Because also, your credit score can be impacted in percentages as you move down, just so that it's not such a, "I have to do all of this at once." As has been stated, it's a strategy, it takes time and it takes having a plan that will work with you and your budget.

Yes. I would just add to what Yolanda was saying. And I think that when it comes to utilization, especially in the example Yolanda gave, where you may have a $100 credit card and you've used $99 of it, right? And you're working on improving your score, you want to get your utilization down to the range to keep your score up or to grow your score. Put a debt repayment plan into place. Whether you focus on paying off our debt that has the highest interest or the smallest balance, just stay consistent with making payments to your top priority debts and then paying more than the minimum where possible so you can save money on the cost of interest while you're bringing down your high balances to that appropriate utilization rate that you are comfortable with having your card at.

I just wanted to jump in and address one thing to surface there, and that's carrying a balance. And I think there's a confusion on there. I know that we get a lot of calls on this, and it can be complex. So the way the credit card company works is they have a statement date. So let's say that on the 20th of every month, they basically have a statement cut. And that's when they would stop and say, "These following charges that remain from the 20th of the month -- prior to the 20th this month is what you're going to own." And they'll send you that statement in the mail. And then it has a due date on there, and due date may be 20 days after the statement date. And so we don't want anyone to carry balances on the credit card, with the lender, because that will result in interest rate charges and fees, et cetera. So the statement date will reflect the reporting to the bureau of what the balance was at the time the statement date was calculated. And therefore, if you wanted to have that look like a 0 or low balance on the information, you could pay the lender online what was on the statement -- 2 or 3 days before the statement date to make sure that, that balance is reflective of the value you want it to be. But do not carry balances on the credit card because you'll be charged interest rates on that, which is not something you want to do in building your financial management capabilities.

Great. Thank you so much. A lot of questions coming in here. Next question is, what is the grace period to shop around for an auto or mortgage loan? 30, 45, 60 days?

So the inquiry logic works, and it varies depending on the model, but the newer model versions like [ bike lane ], et cetera, they look at any inquiry on mortgage, auto loan inquiry that's taken place in the last 30 days would be totally bypassed by the score, would not be calculated. And then it looks further back, starting at that 30-day to 45-day dedupe window, where it will gather and collect, count all single searches for credit and -- multiple searches for credit at that time as a single inquiry for the auto loan, for example.

All right. Great. Let's see. Next question is, is there ever a time when closing an unused credit card is helpful to one's credit score or in any other way?

Closing down...

I'd like to take time on that question.

Sure.

Again, we want to keep in mind strategy. So optimally, we don't want to close credit cards because we're impacting our credit age. However, if -- sometimes to get in the game in terms of credit, you don't always get favorable credit cards when you don't have a great score. And so those credit cards come with monthly fees, annual fees, high interest rates. So to answer the question, it would be best to just close one card a year. I know this is controversy. But sometimes, as your score goes up and you're able to get more favorable terms, you don't want to be burning money just to keep a credit card open because some of these credit cards, if you have a 0 balance, they're going to charge you a fee. And if you think that you pay the card off and you're not paying attention to that, you're going to incur a late fee. So the strategy would be to go through and look at all of your credit cards, look at what types they are, with the APRs, and look to see the fees that are being incurred and then have a plan of perhaps how you might be able to get out. But of course, we don't want to close cards. So yes, am I talking out on both sides of my mouth? I am. But I think what brings it together in strategy. There has to be a strategy because you can't stay and just keep paying somebody money around something that you're not getting anything out of.

Yes. I just wanted to add something to what you said. I 100% agree on the strategy. And I think a lot of times, when I hear this question about is it useful to -- when is it useful to close your credit card? And sometimes, it's coming from the angle of self-discipline. I've paid off my credit card, so I have a credit card that doesn't have a balance, and I don't want to tempt myself into spending it and then getting back into debt and having to pay back high interest. So I would say, what Yolanda said about strategy, not going and closing all your cards is spot on, just because you want to maintain that good FICO score. And one thing that is -- that can be helpful for you if you're asking this from a self-discipline perspective is to leverage the tools that the credit card companies offer you. So one thing I've noticed on my credit cards is that there is the option to lock my account. I can lock my credit card where I cannot use it in the store unless I log back into the app or log back on the website and unlock it. And this does not affect your credit score. This does not create any inquiries. It doesn't create any reporting. It's just a feature if you want to help yourself, help yourself not max out the credit card. So that's one thing you can do as opposed to going and closing all your cards.

And I want to add this one, too. This is not a more typical thing to look at, and it doesn't often get discussed. But sometimes, when we're looking at revolving accounts, and I'm talking about credit cards now, looking at the interest rates, looking at what you're paying. And sometimes depending upon your credit score, an option might be a balance transfer. Balance transfers are not bad things because I was just reading an article today where they have some ballast transfers, and of course, these are introductory, but there's 0 interest in terms of getting a balance that might be on a high-interest credit card transferred over to another credit card, which would allow you to pay that debt down interest-free within a certain period of time. You do have to read the fine print because a lot of times, they offer incentives to do this. But if you're able -- again, I'm going to keep going back to have a strategy, and with the strategy, have a coach, somebody that can keep you accountable and you look at it. It is a win. It is a win. I've done it. I've done it with some of my clients, and it's been very, very, very successful. The article I read today, they were talking about, from 12 months all the way to 2025. But again, strategy is the key, not just jumping in there, doing something.

Great. Thank you so much. Let's see. We have another question here. We are seeing quite an uptick in self-reporting. Does this help anyone with their score as there's not a start/open date in the reporting?

So I'll take that one. Yes, that's true. There are a lot of companies out there now trying to help consumers build their credit by facilitating the reporting of kind of nontraditional credit trade lines. So for example, if you're a renter getting your rental -- the benefit of your making rental payments on time included in those -- the credit report, as well as utilities and telecom obligations, et cetera. So with -- I know that Experian, one of the credit bureaus, has a solution called Boost, which enables consumers to get this information reported to the credit bureau and put it in the Experian credit file. And then when the scores are calculated, they would now take into consideration that information. So I would encourage you to look at the various entities that are doing that. And it makes sense, that could be a way for you to potentially get benefits from some of your nontraditional credit payment behaviors to impact your credit report and credit score.

I would like to piggyback on that because in our portfolio of clients that we work with within Operation HOPE, not everybody has a social security number. And so if you don't have that social security number, how are you going to get positive credit put onto your credit report? And so some of the alternatives that are out there for self-reporting are actually great ways to begin to build positive credit. But again, the key is it's self-reporting. So if it's self-reporting, we have to make sure that we're managing it properly so that we can take advantage of having the positive self-reporting on our credit reports and not sabotage ourselves by missing a payment or being late with a payment.

Great. Thank you so much, Tom and Yolanda. So another question just came in. What is the difference between FICO Scores and other credit scores?

Well, I would say that, generally speaking, credit scores -- different brands of credit scores, they're similar in fact that they're designed to rank order risk or predict the likelihood of missing a payment in the future. The difference is just the way that, that manifests itself through the development of the models. And so with FICO Scores, we're, again, looking at the credit bureau data to understand and predict the most predictive pattern on why a consumer would potentially be a high risk for extending new credit. And the score range, and what we call the -- what that means, they odds-to-score relationship or what the bad rates would be at a given [ head ] differ. And so you need to be careful when you're looking at your credit score to make sure that you understand what the brand is, and that there can be differences in the points awarded for your FICO Score versus another score. So I was just on a call last week with a consumer who was frustrated because they went and got their credit score from a website. And they were confident, based on the score they received, that they would be able to get the auto loan that they're looking for. But when they went into the dealership to actually go with the financing, the scores that they pulled was 75 points different than the score they had received from one of the credit education websites. And so we need to make sure that, if you're looking at your credit score, you understand what the brand is and use that information to your advantage when trying to assess your credit risk as seen by lenders.

I'd like to piggyback on with Tom for that question. And really, a majority of the lenders are using the FICO scoring system. So there used to be [ weighted out ], a Vantage and other scoring systems. But right now, majority of the lenders are using FICO, and they do them in numbers. I don't want to get into too much technicality here. But from 8 to 10 currently, they're looking at FICO scores, ranging in FICO 8, FICO 9 and FICO 10. The mortgage lenders are looking at 10 along with the banking industry. So you really want to be able to see your FICO Score. Now this -- FICO didn't put me up to this, but I do want to put it out there that why I do like the FICO scoring system is because, when you do go get a FICO Score, you're able to get your credit score based upon industry. Because even though it's a 3-digit number, the mortgage industry has their calculations for the mortgage industry. The car industry has theirs. The revolving credit has all theirs. And when you do get a FICO score and you go on that website, you will be able to see your FICO score based on the different industries, and that's always important when you getting ready to make financial decisions.

Thank you so much. All right. Our next question is, any advice for someone? Who doesn't have much credit history. What is a good way to boost my credit? A secured credit card? How would I go about moving into an apartment if my credit score isn't high?

Well, I'll chime in. There -- I think I mentioned this answer before in the credit mix, of making sure that you have revolving and installment. And there are some products out there that you can put yourself into. They're called credit builders, Self is one of them, where you can begin to actually save money, but it can get reported to the credit bureaus as an on-time installment loan, and that's putting positive credit onto your credit report under installment. And then in terms of revolving, as mentioned, you could get a secured card. Maybe you have a relationship with your bank where you're getting your -- where you're getting something deposited. That might be a place to start with the relationship there, where you could get a secured card and put money up for that. If not, there are other places where you could get a secured card where you could begin to build credit. But I think 2 to 3 pieces would be great to build it. And again, there are products out there that you can get them without getting those hard inquiries on your credit report. And we'd love to have that opportunity to be able to work with you on that at Operation HOPE.

And I just wanted to add in addition to what Yolanda said because I have spoken to people who don't have much credit history or are rebuilding their credit, and they actually need to move right now. They need to move into a new place, a new apartment for whatever circumstances. And one option that's out there is discussing with the landlord about potentially maybe giving them a higher security deposit that is noted within your contract to give them sort of a guarantee and confidence, and they will return that security deposit to you as you show timely payments of your rent. So that's a discussion that you can have with your landlord. You want to make sure that you have it built into your contractual agreements. If you are given the option of being able to give a higher security deposit to move into the apartment or accommodation, you want to have that in your legal contractual document. But that's an option, and that's a conversation you can have if you're at the point where you don't have the credit history, you need to move right now, like today, today, and you need an option.

Very good.

Thank you so much. All right. Let's see. Next question. How significant is the impact of soft inquiries compared to hard inquiries?

Well, that one is an easy one. The soft inquiries don't count at all in the score. So if you order a copy of your credit report and score today on experian.com or myFICO.com or any of these sites, it's coded as a soft inquiry, and that will not be considered in the calculation of the score. The hard inquiry is typically associated when you're actually applying for credit. So that will be considered in the calculation of the score. But with soft inquiries, when you're looking at your own credit report, that has no impact on your score.

Great. Thank you so much. All right. Let's see. I think you already touched on this, but I'm going to go ahead and ask it. Is it better for your credit score to often use your credit card but pay it off in full every month, or to keep a very small balance on your card each month? I've recently heard both answers. Thank you in advance.

So again, we don't recommend carrying a balance because it would result in interest rate charges from the card issuer for you, which no one wants to pay those. So again, I would say that if you want your balance information to be reflected as the lowest as possible, is to make that payment on your credit card a couple of days before the statement date of when the statement is cut, and that would be reported to the bureau. And if that's a low amount, that would be favorable in terms of calculating the utilization at that time.

I would just like to piggyback on Tom's answer. I'm going to go back to the word strategy. I really feel like you need to sit down with someone that can work with you through the strategy because, again, those sweet spots are 3%. And I do see, when people have those balances that are being carried that are in the low percentages, there's a quicker impact on the credit score in terms of going up. But again, its strategy. It's strategy. So just like a good team would have a game plan, you need to sit down with a coach and have a good game plan around how you want to achieve it and what it's going to cost you.

Thank you, Yolanda. All right. We are getting close to the end of the hour, but I think we have time for one more question. Are there actually people out there who have an 850 credit score?

Well...

Absolutely. There's a whole club. There's a 750 club out there. There's a 850 club out there. They're out there. And yes, you can get there. But I'm going to keep going back to the same key word: Strategy, wisdom, coach, opportunity, plan, looking at your budget, reviewing things to make sure that what you are trying to do you can achieve. And you don't need a lot of credit to have a great credit score. That's a myth out there. It really is about managing. It's about managing well what you have and utilizing the credit because that's the other thing. People have credit on their credit report that they're not utilizing. So you're not leveraging the opportunity to get points. The other piece is that there are things on your credit report that could help you leverage your score. If you have student loans and you pay student loans, it's a great way for you to leverage and bring it together with revolving. I just worked with the client a week ago, and she was so shocked that her score was 710. But when we looked at the credit report, she had made a choice to pay her student loans. And so when she put that with the revolving, she's in the 700s already. So sometimes, some things are already on your report that you could be leveraging and getting a bigger bang for your buck, even without going out there to do new things.

Yes. I just recently saw someone from the 850 club highlighting their 850 Score. And then people were in the comments feeling so bad about themselves. And I just want to say, like Yolanda said, it is strategy. It is not 850 or nothing. 850, there are different levels to a good credit score and it's all about looking at your credit and determining what can you do to improve your score, paying your bills on time, what balances do you need to bring down? What Tom alluded to about how to manage having what's reported to the creditors about the utilization rate. So again, like and Yolanda said, it's all about strategy. So don't feel defeated or intimidated by the 850 club, okay?

All right. I think we actually have time to one last question. We still have a couple of minutes. I'm just going to sneak this one in real quick. I am new to credit and I only have one credit card that I pay on time each month. Are there other ways to build my credit? Or is there a good way to start to build up my credit?

Yes. You have one credit card. So you -- that's a great strategy. That's revolving. So you want to add to that an installment. And if you have revolving and installment, you can begin to build a good score. Now what's the installment you might choose from? There are different things that categorize under installment debt, which could be a personal line of credit. It could be student loans. It could actually be installment, yes, a personal loan, student loans, a car, furniture, it just depends. But installment with revolving, you could build a great credit score. So you're halfway there.

Well, thank you so much for sharing those awesome questions with us, Jessica. Thank you so much, Tom and Yolanda, and thank you to everyone for joining us today. I hope you enjoyed learning about credit and what it takes build and manage your FICO score. A key reminder. As part of today's event, you will all be able to get access to a free copy of your individual credit reports and your FICO Score as well as access to free one-on-one credit coaching from the independent financial well-being coaches at Operation HOPE. So please take advantage of this. To learn more, to register for your score and your report and for the one-on-one credit coaching, please visit fico.com/sabf for more information. Have a great rest of your day, everyone. Thank you so much.