Welcome back to the net worth podcast.
Speaker 2: This week we’re diving into how building good credit can fundamentally strengthen your net worth even if you’re starting from scratch.
Speaker 1: Check out the full edition on our website wearenoyack.com.
Speaker 2: So maybe you feel like you’ve got a decent handle on your finances, but you suspect there’s uh another level to credit, something you haven’t quite grasped yet.
Speaker 1: Or maybe you’re just looking for that strategic edge, you know, how to really leverage credit to grow your wealth.
Speaker 2: Well, this Deep Dive is definitely for you.
Speaker 1: We’re gonna unpack this really crucial connection between credit and your, well, your overall financial picture.
Speaker 2: Think of it as a clear path to better opportunities because your credit score, it’s not just some random number.
Speaker 1: It’s more like this dynamic financial ID that affects almost everything.
Speaker 2: That’s a really good way to put it.
Speaker 1: Dynamic.
Speaker 2: It shapes your access to so much from getting good loan terms to, yeah, even investment potential.
Speaker 1: And what’s interesting is that a credit score, like the FICO score, which, came about back in 1989.
Speaker 2: It’s basically just a three-digit number.
Speaker 1: Lenders use it as a quick check to figure out how likely you are to pay back what you borrow.
Speaker 2: Right, like a quick risk assessment.
Speaker 1: Exactly.
Speaker 2: But it’s not random.
Speaker 1: It’s calculated based on five key things, and they’re weighted differently.
Speaker 2: The biggest chunk, about 35%, that’s your payment history.
Speaker 1: Basically, do you pay your bills on time?
Speaker 2: That’s number one.
Speaker 1: OK, so paying on time is paramount.
Speaker 2: Absolutely.
Speaker 1: Then there’s credit utilization.
Speaker 2: That’s just how much credit you’re using compared to your total limits.
Speaker 1: Keeping it under 30 % is the usual advice, but honestly, aiming for under 10 % can give you an extra edge.
Speaker 2: Shows you’re not stretched thin.
Speaker 1: Under 10%, okay, good tip.
Speaker 2: What else?
Speaker 1: Then there’s the length of your credit history.
Speaker 2: Basically, the longer you’ve managed credit well, the better.
Speaker 1: Older accounts are good.
Speaker 2: So closing that old card you never use might actually hurt?
Speaker 1: It definitely can, yeah, because it lowers the average age of your accounts.
Speaker 2: Then you have new credit opening.
Speaker 1: Too many accounts too fast can look a bit desperate, you know?
Speaker 2: A red flag.
Speaker 1: Right.
Speaker 2: And finally, credit mix.
Speaker 1: Lenders like to see you can handle different types of credit, like credit cards and maybe an installment loan, like a car loan or mortgage.
Speaker 2: Shows you’re versatile.
Speaker 1: So it’s not just about having one type of credit, but managing different kinds responsibly.
Speaker 2: Precisely.
Speaker 1: It signals broader financial maturity.
Speaker 2: OK.
Speaker 1: That breakdown really clarifies what goes into the score.
Speaker 2: And you mentioned averages.
Speaker 1: Where does the typical American stand right now, say, for 2025?
Speaker 2: Yeah, so as of 2025, the average FICO score in the US is sitting around 715.
Speaker 1: 715 is IK?
Speaker 2: It’s generally good enough to get approved for most things, but, and this is the key part, it often falls short of that, let’s say, 760 plus range.
Speaker 1: And that’s where the best rates are, right?
Speaker 2: Exactly.
Speaker 1: That’s where you unlock the really prime rates.
Speaker 2: And it varies quite a bit by state, too.
Speaker 1: Minnesota’s up there, average around 742.
Speaker 2: Oh, OK.
Speaker 1: While Mississippi is lower, around 680.
Speaker 2: It shows how regional factors can play a role.
Speaker 1: Interesting.
Speaker 2: But what about people starting from zero?
Speaker 1: Like, no score at all?
Speaker 2: Ah, yeah, that’s a great question.
Speaker 1: And this edition of Noyack Wealth Weekly talks about this specifically.
Speaker 2: It frames it not as a bad thing, but as a clean slate, clear potential.
Speaker 1: A clean slate.
Speaker 2: I like that.
Speaker 1: Yeah, being credit invisible just means the bureaus don’t have enough data on you yet.
Speaker 2: Which is actually a pretty powerful place to start.
Speaker 1: How so?
Speaker 2: Because you don’t have any past mistakes dragging you down.
Speaker 1: No negative history to fix.
Speaker 2: It’s just pure untapped potential you can build the right way from the ground up.
Speaker 1: That clean slate idea really does shift the perspective.
Speaker 2: It’s empowering.
Speaker 1: It is.
Speaker 2: Because this isn’t just about getting a loan, is it?
Speaker 1: It ties directly back to building your net worth.
Speaker 2: Absolutely.
Speaker 1: Think about it.
Speaker 2: If you have no score or a bad one, you’re facing higher interest rates.
Speaker 1: Maybe you even get denied outright for a car or a house.
Speaker 2: Much costlier.
Speaker 1: Right.
Speaker 2: Those things become so much more expensive, and that eats directly into your money, your capital.
Speaker 1: Imagine saving just, say, two percentage points on a mortgage over 30 years.
Speaker 2: Yeah.
Speaker 1: That’s huge.
Speaker 2: Oh, easily tens of thousands of dollars.
Speaker 1: That could be college tuition, a big chunk of retirement.
Speaker 2: So connecting the dots, building good credit isn’t just about approval.
Speaker 1: It’s about efficient borrowing.
Speaker 2: For those big life things, homes, cars, maybe starting a business, education.
Speaker 1: Cheaper borrowing.
Speaker 2: Right.
Speaker 1: When you borrow efficiently at better rates, you keep more of your own money.
Speaker 2: It stays working for you, maybe in investments, or just not getting eaten up by interest.
Speaker 1: And that’s the net worth connection right there.
Speaker 2: That’s the core benefit, yes.
Speaker 1: Optimizing your financial tools.
Speaker 2: OK, so understanding the why is critical.
Speaker 1: Yeah.
Speaker 2: But the how, that’s often the tricky part.
Speaker 1: How do you actually build it?
Speaker 2: Our Noyack Wealth Weekly Guide really tackles this, breaking it down into uh Five pretty clear steps.
Speaker 1: A path from figuring out where you are now to mastering it long term.
Speaker 2: Yeah, let’s walk through those.
Speaker 1: Step one is know where you stand.
Speaker 2: And you might be surprised.
Speaker 1: A lot people actually do have some kind of credit history already.
Speaker 2: Maybe from student loans or a student card they had or maybe they were an authorized user on a parent’s card.
Speaker 1: Right, those things can count.
Speaker 2: They can.
Speaker 1: So first step is check.
Speaker 2: You can get free reports from wearenoyack.com that covers Equifax, Experian, TransUnion.
Speaker 1: Or use apps like Credit Karma, CreditWise, NerdWallet, lots of free options.
Speaker 2: And you’re not just looking for the score itself?
Speaker 1: No.
Speaker 2: Critically, you need to scan for errors.
Speaker 1: Mistakes happen.
Speaker 2: Old accounts you thought were closed, incorrect balances, especially maybe with old student loans, fixing those can give you a quick win.
Speaker 1: OK, step one, check your report.
Speaker 2: Look for errors.
Speaker 1: What’s step two?
Speaker 2: Step two, open your first credit line.
Speaker 1: This is key if you’re really starting fresh.
Speaker 2: What kind of This edition suggests things like retail store cards, student cards if you qualify, or a really great tool is a secured credit card.
Speaker 1: Secured card.
Speaker 2: How does that work?
Speaker 1: It’s pretty simple.
Speaker 2: You put down a small deposit, maybe $200, and that usually becomes your credit limit.
Speaker 1: It’s low risk for the lender, and it lets you start building history, kind of like financial training wheels.
Speaker 2: Gotcha.
Speaker 1: Like proving you can handle it.
Speaker 2: Exactly.
Speaker 1: And the pro tip from the playbook is crucial here.
Speaker 2: Use that card, but just for small regular purchases.
Speaker 1: Like coffee or gas.
Speaker 2: Yeah, exactly.
Speaker 1: Something you’d buy anyway.
Speaker 2: Then, and this is key, pay the balance off in full every single month.
Speaker 1: Don’t carry a balance.
Speaker 2: Right.
Speaker 1: This does two powerful things.
Speaker 2: Builds a positive payment history and keeps your credit utilization super low.
Speaker 1: That combo really helps build your score.
Speaker 2: Okay, makes sense.
Speaker 1: What if a regular card isn’t an option right away?
Speaker 2: Good question.
Speaker 1: That leads to step three.
Speaker 2: Use alternative credit builders.
Speaker 1: There are other ways.
Speaker 2: One is becoming an authorized user on someone else’s card, like a trusted friend or family member who manages their card well.
Speaker 1: Do you need to actually use their card?
Speaker 2: Nope.
Speaker 1: You don’t even need access to the physical card.
Speaker 2: But their good payment history can potentially reflect positively on your report.
Speaker 1: It’s like piggybacking on their good habits.
Speaker 2: Interesting.
Speaker 1: What else?
Speaker 2: There are also credit builder loans.
Speaker 1: These are small loans where your payments go into a locked savings account.
Speaker 2: You get the money at the end, but the key thing is your payment history gets reported.
Speaker 1: So you’re saving and building credit simultaneously.
Speaker 2: Pretty much.
Speaker 1: And nowadays, with newer scoring models like Vantage Score and FICO 10T, even things like rent and utility payments can count if you use specific reporting services.
Speaker 2: Like ExperianBoost.
Speaker 1: Yeah, things like that, or Rental Karma.
Speaker 2: The main point is these alternative methods still report your positive payment behavior to the bureaus, helping you build that profile over time.
Speaker 1: Okay, so there are definitely options, even if a standard card is tough to get initially.
Speaker 2: Now, step four sounds important.
Speaker 1: Use it, but don’t abuse it.
Speaker 2: Absolutely critical.
Speaker 1: This is all about responsible habits.
Speaker 2: What are the key ones?
Speaker 1: Number one, set up auto pay.
Speaker 2: Just eliminate the risk of forgetting a payment.
Speaker 1: Mispayments are really damaging.
Speaker 2: Yeah, that payment history factor again.
Speaker 1: Exactly.
Speaker 2: Second, keep those balances low.
Speaker 1: We talked about under 30%, ideally under 10%.
Speaker 2: High balances look risky.
Speaker 1: So even if you can pay it off, don’t run it up close to the limit.
Speaker 2: Third, don’t go applying for a bunch of cards all at once.
Speaker 1: Each application can cause a small temporary dip in your score, and too many looks like you’re desperate.
Speaker 2: OK.
Speaker 1: Be strategic.
Speaker 2: Very.
Speaker 1: Fourth, we touched on this.
Speaker 2: Try not to close your oldest credit card.
Speaker 1: That length of history really helps your score.
Speaker 2: Keep it open.
Speaker 1: Maybe use it occasionally for a small purchase to keep it active.
Speaker 2: Good reminder.
Speaker 1: And fifth.
Speaker 2: Monitor your score regularly.
Speaker 1: Use those free apps.
Speaker 2: Check it monthly.
Speaker 1: It’s like keeping an eye on your investments.
Speaker 2: You want to see how things are progressing.
Speaker 1: Stay informed.
Speaker 2: Okay, that leads to the final step.
Speaker 1: Step five, boost and maintain.
Speaker 2: This sounds like the long game.
Speaker 1: It is.
Speaker 2: This is about locking in those good habits for ongoing improvement.
Speaker 1: Pay every bill on time, rent, utilities, phone, everything.
Speaker 2: Consistency is king.
Speaker 1: Not just the credit cards.
Speaker 2: Not just credit cards.
Speaker 1: Keep utilization low across the board, limit those new credit applications, and just be patient.
Speaker 2: Patience.
Speaker 1: Not always easy.
Speaker 2: Ah, no.
Speaker 1: But credit building really rewards consistency and time over quick fixes.
Speaker 2: Think of it as a long-term investment in your financial health.
Speaker 1: Which brings us right back to the net worth impact, this whole process.
Speaker 2: It directly fuels your ability to build wealth, doesn’t it?
Speaker 1: Absolutely.
Speaker 2: As this edition points out, that solid track record gets you lower cost debt.
Speaker 1: That boosts your buying power immediately.
Speaker 2: Less money wasted on interest.
Speaker 1: Precisely.
Speaker 2: You minimize those interest expenses, which means more capital stays in your pocket for saving, investing, reaching goals.
Speaker 1: And having that strong score opens doors, right, for bigger strategic moves.
Speaker 2: Definitely.
Speaker 1: It lets you access tools to, say, invest in real estate, maybe scale up a side business, buy assets, all at better rates.
Speaker 2: That’s direct net worth growth right there.
Speaker 1: It’s using leverage smartly.
Speaker 2: And speaking of smart…
Speaker 1: Credit scoring itself is getting smarter, you mentioned, evolving in 2025.
Speaker 2: Yeah, it’s becoming more nuanced.
Speaker 1: We’re seeing more use of alternative data, rent, utilities, even some subscriptions potentially factoring in with newer models like VantageScore and FICO 10T.
Speaker 2: So paying your rent on time could actually help build your score now.
Speaker 1: Potentially, yes.
Speaker 2: If it’s reported through the right channels, it makes scoring more inclusive.
Speaker 1: We’re also seeing more AI in scoring trying to get a fairer assessment of risk.
Speaker 2: What about things like buy now, pay later?
Speaker 1: Good point.
Speaker 2: BNPL plans might start appearing more consistently on credit reports too.
Speaker 1: So the advice is the same.
Speaker 2: Use them responsibly, make payments on time, just like any other credit.
Speaker 1: These trends really reward consistent good behavior across the board.
Speaker 2: OK, so lots happening there.
Speaker 1: Given all this, what’s the one thing someone listening should do this week?
Speaker 2: What’s this week’s move?
Speaker 1: The move from this edition is straightforward but powerful.
Speaker 2: Download a free credit monitoring app, Credit Karma, Experian, whatever works for you.
Speaker 1: And just having the app isn’t enough, right?
Speaker 2: Right.
Speaker 1: Set up the alerts.
Speaker 2: Get notified about payment due dates, new inquiries on your report.
Speaker 1: It’s simple, it’s free, and it keeps you actively engaged.
Speaker 2: Future, you will definitely appreciate it.
Speaker 1: That constant awareness.
Speaker 2: OK, great actionable step.
Speaker 1: So wrapping this up, the bottom line from this edition, the final word, is really this.
Speaker 2: Building credit isn’t just about hitting some magic number.
Speaker 1: It’s about securing better, cheaper, more effective financial tools over your lifetime.
Speaker 2: Tools that preserve your value.
Speaker 1: Exactly.
Speaker 2: And a great score doesn’t just happen.
Speaker 1: It’s built brick by brick through those consistent habits, through patience, through time.
Speaker 2: Financial freedom really starts with having the credit to support your plans.
Speaker 1: It’s that silent partner backing you up.
Speaker 2: A powerful thought to end on.
Speaker 1: Remember to subscribe to Noyack Wealth Weekly on our website, wearenoyack.com to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
Speaker 2: And maybe this week, just take a moment to think about your own credit journey.
Speaker 1: Where are you now?
Speaker 2: Maybe pull that free report.
Speaker 1: Just take a look.
Speaker 2: Or perhaps take that first small step, like looking into a secured card.
Speaker 1: Those small actions really do add up.
Speaker 2: We’ll catch you next time.
