In short
NerdWallet Smart Money discusses Americans’ financial resilience amid a “shaky” economy, using Federal Reserve data and NerdWallet’s new Financial Resilience Index; later it answers a listener question about what an 850 “perfect” credit score actually does (and doesn’t) get you.
Guests/backgrounds
Ana Helhosky (NerdWallet money news colleague) summarizes new Federal Reserve analysis. Economist Elizabeth Renter (NerdWallet colleague) explains the data and the Financial Resilience Index. Amanda Barroso (NerdWallet personal finance writer; credit expert) joins to explain credit-score realities.
Key claims
Households’ well-being is below pre-pandemic levels, with rising prices as the top concern; sentiment is more pessimistic than macro data. Young adults, low-income families, and Black adults show larger declines. 74% feel “in control,” but 37% expect to rely on credit this month. Resilience index score: 60.4/100. Perfect 850 adds little once you’re already in top-tier lending; best rates typically start around 740–760.
Notable examples
A $400 emergency-cash gap (63% can cover it with cash). Credit tips: keep utilization under 30% and pay bills on time; example given: $500 on a $1,000 limit is 50%. Listener Leslie’s “no toaster” anticlimax; FICO spokesperson says 850 adds “very little” value.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOWeekly Money News Roundup
1:54 to 2:10
Explore the latest insights on Americans' financial well-being from the Fed.
“we're going to break down the latest in the world of finances to help you be smarter with your money.”
Understanding Economic Sentiment
2:10 to 3:36
Delve into the disconnect between macroeconomic data and personal feelings.
“Yeah, when it comes to how well Americans are handling these turbulent economic times that we find ourselves in, the picture's a little bit confusing.”
Challenges for Vulnerable Demographics
3:36 to 5:40
Examine how lower-income and younger Americans are affected in the economy.
“So the data indicates that the economy has weathered all of this pretty well, but that doesn't mean we're not all feeling a bit like we're going through the ringer.”
Education and Economic Stability
5:40 to 7:26
Discuss the evolving relationship between education and long-term financial health.
“So generally speaking, at a household level, higher education aids in economic stability.”
Labor Market Confidence and Fears
7:26 to 9:08
Analyze current labor market dynamics and workers' fears amidst stability.
“What does that gap reveal about how fragile financial stability really is in the modern economy?”
Financial Fragility and Emergency Preparedness
9:08 to 10:52
Look at the gap in Americans' financial readiness for emergencies.
“So the index is a composite score made up of data from five questions across these topics in a nationally representative survey conducted every month by the Harris Poll.”
Measuring Financial Resilience
10:52 to 12:42
Learn about NerdWallet's new index that assesses financial resilience.
“When it comes to financial security, how much of this resilience gap is about income versus age and accumulated wealth?”
Consumer Sentiment and Reality
12:42 to 14:06
Discover the complexities of consumer sentiment in financial surveys.
“For example, are Americans psychologically adapting to higher prices, even if their finances are remaining strained?”
Understanding Financial Perceptions
14:06 to 15:10
Explores the stability of people's financial perceptions over recent years.
“So if it's worse this year when you ask me, and it was worse last year when you asked me, and so on back four years, it could imply things are gradually just getting worse and worse for me.”
Personal Feelings vs. Economic Reality
15:11 to 16:04
Discusses the disconnect between personal feelings about finances and actual financial conditions.
“I think what I appreciate most about these datas and surveys is that they help me feel seen because like a lot of the data that you guys shared, I am feeling very conservative with my spending.”
Show all 19 chapters
Listener's Question: Perfect Credit Score
16:05 to 16:45
Introduces a listener's question regarding the implications of achieving a perfect credit score.
“And maybe they can't afford to fill up their tank and they're feeling the pinch the most.”
What Having a Perfect Credit Score Means
19:12 to 21:15
Discusses the reality of achieving a perfect credit score and its practical implications.
“What about having a perfect credit score?”
Understanding Credit Score Ranges
21:16 to 23:38
Explains the different credit score ranges and their significance for consumers.
“I reached out to FICO to kind of see if I could get Leslie a little more detailed help here.”
Healthy Perspectives on Credit Scores
23:39 to 26:00
Encourages a healthier relationship with credit scores, emphasizing their role as a tool.
“And I find that kind of frustrating because yes, these numbers do have a big impact on our financial lives and they can influence how much access we have to credit and how much we're paying for it.”
Tips for Improving Your Credit Score
26:01 to 28:01
Shares actionable tips for listeners to improve their credit scores effectively.
“A credit score is a signal to lenders, like, you know, the bat signal or whatever, but, you know, it's not permanent.”
Understanding Credit Score Essentials
28:01 to 30:32
Learn the key factors affecting your credit score and how to manage them effectively.
“So credit cards versus auto loans, right?”
The Reality of Credit Repair
30:33 to 31:29
Discover why credit repair companies may not be necessary and how you can manage your credit yourself.
“People on my timeline are often offering a service to fix people's credit for them.”
Personal Credit Score Experiences
31:30 to 34:01
Hear personal stories about credit scores and the emotional side of financial health.
“Like you're looking at six months to a year of consistent behaviors.”
Reflections on Credit Scores
34:02 to 38:24
Explore the speakers' reflections on their own credit scores and the fluctuating nature of credit.
“Listen, when I got that A50 score, I said, hey, I'm NerdWallet senior credit expert.”
Transcript
Automatic transcript. May contain errors.0:00Elizabeth Ayoola:Today's episode is sponsored by Spectrum Business.
0:04Sean Pyles:Picture this. You're running a business and the internet drops during business hours. Your to-do list instantly becomes, one, panic, two, stare at the router like you're negotiating with it, and three, start offering customers a brief moment of mindfulness while the checkout screen loads. For business owners, being connected isn't a perk. It's how you take payments, talk to clients, and keep things moving. Spectrum Business keeps businesses connected seamlessly with fast, reliable internet and advanced Wi-Fi, plus phone, TV, and mobile services if you need them.
0:34Elizabeth Ayoola:And Spectrum Business offers 100 % U.S.-based customer support 24-7 to help you stay up and running. And that means that you get actual help, not submit a ticket and hope for the best.
0:47Sean Pyles:Our colleague, Carrie, is a Spectrum customer. Shout out to our social media team. And she told us she chose Spectrum because people online kept recommending it as a reliable and affordable option for internet and phone service. She told us that she was actually a little hesitant to switch at first because she'd been using a different service for a while. But after a year of Spectrum, she's had a really good experience. Her phone gets strong, reliable service and it automatically connects to Spectrum Wi-Fi everywhere.
1:10Elizabeth Ayoola:Join the millions who rely on Spectrum Business. Visit spectrum.com slash business to learn more. One more time, that's spectrum.com slash business.
1:20Sean Pyles:Restrictions apply. Service is not available in all areas. fractured, unstable, volatile. Those are a few words to describe our wonky economy right now. But how are you doing financially? Today, we've got new insights into the state of Americans' finances. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles.
1:45Elizabeth Ayoola:And I'm Elizabeth Ayola. Later this episode, we'll be chatting about what to do once you have the perfect credit score. But first, our weekly money news roundup, we're going to break down the latest in the world of finances to help you be smarter with your money. Our news colleague, Ana Helhosky, is back again to dig into some new Federal Reserve data that paints a mixed picture of Americans' financial well-being. Hello, hello, Ana. Hey, Sean Elizabeth.
2:12Sean Pyles:Yeah, when it comes to how well Americans are handling these turbulent economic times that we find ourselves in, the picture's a little bit confusing. A new Federal Reserve analysis shows that households' financial well-being remains below pre-pandemic levels. And Americans continue to cite rising prices as their biggest financial concern. Now, since last year's report, people are more concerned about finding or keeping a job as well. But despite those anxieties, some things haven't changed. Americans' emergency savings, retirement confidence, and credit card habits largely held steady from the previous year.
2:44Sean Pyles:Now, here to talk about these findings, as well as a new analysis of Americans' financial resilience, is our colleague, economist Elizabeth Renter. Elizabeth, welcome back to Smart Money. Hey, everybody. Always a pleasure. Thanks for having me. Looking at the Fed data, it shows a complicated picture that we've been seeing for a while, where the economy looks fairly stable, but public sentiment still feels deeply pessimistic. Why is there still such a disconnect between macroeconomic data and how people actually feel? Well, that disconnect is often present, but it's been particularly pronounced in the wake of the pandemic.
3:16And really, there are many factors at play. Part of it is that we've lived and are still living in some pretty potentially volatile times. So the pandemic, a surge of inflation, global trade policy and tariffs, and now war and more inflation, all of these things do have economic risks and can really impact how we feel about the economy around us. So the data indicates that the economy has weathered all of this pretty well, but that doesn't mean we're not all feeling a bit like we're going through the ringer. Because those risks are present and therefore the potential for volatility is present, things like inflation and particularly the price growth we're seeing now, like gas prices, these have real tangible effects on household finances.
3:56And they do a lot to color what we think about the economy. That's regardless of what measures like GDP tell us.
4:03Sean Pyles:Right. It feels very different at the personal level. Now, despite the report's picture of a stable financial situation for adults as a whole, financial well-being declined year over year for young adults, low-income families, and Black adults. Can you speak to the unique challenges that these groups face in this economic climate? Yeah, absolutely. So certain demographics in our economy tend to feel the pain first when things are less than ideal. For example, when prices rise quickly, it's people who don't have a lot of room in their budget that are going to feel the pain the quickest and the most dramatically.
4:33And this is people with lower incomes or even younger people that are less established in their careers. So financial well-being for these groups is a more precarious concept. They tend to have less discretionary income, less or even zero emergency savings, and less access to credit should they need to borrow money.
4:50Sean Pyles:The gap in financial well-being between college graduates and Americans without a high school diploma has widened over the past decade, according to the report. At the same time, there's been growing backlash against college over concerns about costs and outcomes. Is education increasingly shaping long-term economic stability, or is the relationship a little bit more complex than that? It's definitely complicated, and especially now in the age of AI. So recently we found 69 % of Americans believe going to college isn't as important as it used to be to earn a good living. That was in a recent NerdWallet survey.
5:22But as you said, college-educated people report higher financial well-being. So I think some of the sentiment about the value of a degree is changing and largely driven by where people think AI is taking us. The problem is we really don't know where it's taking us. We don't know the end point. And we do know that college graduates out-earn those without a college degree and certainly those without a high school diploma. So generally speaking, at a household level, higher education aids in economic stability. To the extent that AI fully displaces jobs requiring a college education, that could change.
5:57But I don't foresee that being the case on a large scale, that full displacement anytime soon.
6:03Sean Pyles:Yeah, there's a lot of white collar panic happening right now that isn't necessarily manifesting. The report suggests the labor market is still technically stable, but workers are feeling less confident. Fewer people are voluntarily leaving their jobs and concern about finding or keeping work is rising. Are workers becoming more fearful even in a relatively strong labor market? Well, you're right that the labor market is stable. But from a worker's perspective, it's far from the strong market we had just a few years ago. Yes. You guys remember the great reshuffling, right? From about mid-2021 to 2023, workers could easily upgrade their jobs.
6:38They were getting decent raises at their current places of employment and could find a higher-paying job that maybe fit their lifestyle better. because employers were working to fill a lot of roles. It was a very dynamic labor market and very friendly to workers. With that fresh in our minds, because it's fairly recent history, today's labor market seems really dull. Employers aren't really hiring, and it's tough for workers to negotiate higher wages. So yes, people are less confident right now about the labor market, even though we haven't seen layoff spike in the federal data. I do think there is a fear that companies that are currently reluctant to hire could pretty easily become companies that need to downsize if the economy takes a turn.
7:18Sean Pyles:Now, let's get back to, I guess, the overall sentiment. The report finds that 73 % of Americans say they're doing OK financially, but only 63 % say that they could cover a$400 emergency expense with cash. What does that gap reveal about how fragile financial stability really is in the modern economy? Well, you raised a really interesting point, and it might have been unknowingly. So this survey from the Fed asks whether folks would cover a$400 emergency expense with cash, not whether they could. And that tiny difference, it's one letter, could really change how people respond and how they interpret the question.
7:55I still think the question has value, but many people may opt to save their cash for other expenses. So even if they could cover it with cash, they wouldn't. And it makes that number slightly less valuable in measuring true financial capacity. That said, having the cash available to cover emergency expenses is really a lifeline. When you have an emergency fund, even if it's a small one, it can really insulate your household from financial disaster. Interestingly, we asked a similar question in a recent survey here at NerdWallet with a slightly different wording and found that 63 % of Americans have enough cash on hand to cover an unexpected$1 ,000 expense should one arise this month.
8:33This was fielded in May. So, of course, the response to this question varies greatly by income. But if you can cover an emergency expense without taking on debt, you're positioned to weather some financial turbulence.
8:44Sean Pyles:Got it. Well, speaking of financial stability, you and your team have put together a new index to measure financial resilience. Can you talk a little bit more about the index itself and what it's capturing about the American consumer right now? Yeah, I'm super happy to. It's actually part of the survey that I just mentioned. We're launching a monthly index that measures consumer financial resilience across three topics. Those are financial security, financial strength, and economic outlook. So the index is a composite score made up of data from five questions across these topics in a nationally representative survey conducted every month by the Harris Poll.
9:18Sean Pyles:I was looking at this month's report, and it says that the resilience score is 60.4 out of 100. What does it actually tell us about the financial health of Americans? Well, the overall index score suggests that consumers have a lot of growth potential when it comes to household financial resilience. You know, many report being in control of their finances and feeling confident in their ability to pay all their bills this month. But some are going to have to rely on credit to manage some of their expenses. Perhaps obviously higher income Americans report greater financial resilience. But I think the real value in a measure like this is what we begin to see when we've gathered three or six or 12 months of it.
9:54And we're going to be able to see how these measures change from month to month.
9:57Sean Pyles:I was wondering why so many Americans report feeling in control financially while simultaneously relying on credit just to get through the month. Well, control is really a matter of how you feel, right? It's an aspect of financial security and it's open to interpretation. Whereas asking people if they have to rely on credit is a pretty black and white answer of financial strength or position. So 74 percent of Americans feel in control of their finances. Who knows why? This could vary from person to person. It could be because they know where their money is going, they follow a strict budget, or they feel insulated from a surprise expense.
10:32It's also true that 37 % of Americans say they'll have to rely on credit to manage at least some of their expenses this month. So this question speaks more to the actual books of the household's finances. And both of these things could be true, right? Just because you need to rely on credit doesn't necessarily mean you don't feel in control. Using credit to get by could be one way you control your finances. Whether or not that's healthy is probably another question entirely. Right.
10:56Sean Pyles:But it is strategic. When it comes to financial security, how much of this resilience gap is about income versus age and accumulated wealth? Right. Well, that's a great question. So most of the differences we're seeing across demographics are quite obvious when it comes to income and age. Higher income people and older people are more likely to be financially resilient. This is what I refer to as a no-duh aspect of the data. The more money you make and the longer you've been able to accumulate wealth, the better insulated your household is from financial turbulence and the better you're probably going to feel about things, too.
11:28Sean Pyles:Naturally. So why are recession expectations so high right now, especially among middle-income earners? Well, we found two-thirds or 66 percent of Americans believe the U.S. will enter a recession in the next 12 months. And this is one measure that we've actually been tracking for a while, since August of last year, when it was 61%. I think the reason for higher expectations now are pretty obvious. We're involved in a war, and there's currently a lot of fallout from that, including rising inflation. You pointed to an interesting nugget of the data there, that a group of middle-income Americans are most likely to say they expect a recession in the next year.
12:02So three-quarters, or 75 % of those with household incomes, from$50 ,000 to just under$75 ,000 believe that. And this income group is just below the median household income across the nation. So we would typically refer to them as a lower middle income group. Now, why is this group more likely to expect a recession? I'm honestly not sure. Could be that generally they're on more precarious financial footing. At that income level, things are going to be tight, especially if you have multiple people in your household. But you generally earn too much to qualify for public assistance. So I imagine there's this additional level of fear among some of those households.
12:40But honestly, that's a best guess.
12:41Sean Pyles:Now, what indicators would tell you that consumer resilience is genuinely improving versus people are simply getting used to economic instability? For example, are Americans psychologically adapting to higher prices, even if their finances are remaining strained? That's exactly why we included the two questions on financial strength. So that's the question about whether you'll have to rely on debt this month and whether you have enough cash on hand to cover an unexpected$1 ,000 expense. These aren't really open to much interpretation. They're not about the respondents' feelings. And so we'll be able to track these measures over time and see if actual resilience via financial strength is improving.
13:19I do think the financial security questions that measure more about how people feel about their finances are very important as well. But you're right that a lot can impact how we feel from month to month. And, you know, getting comfortable with economic turbulence or high inflation could certainly impact these questions that are of pure sentiment.
13:36Sean Pyles:All right, Elizabeth, if you combine the findings of the new Financial Resilience Index from NerdWallet with the Federal Reserve data, are there any key overlapping takeaways? Well, a big part of the work I do here at NerdWallet is in consumer sentiment data. And so I really nerd out, like really nerd out about surveys like this one from the Federal Reserve. And one thing that stood out to me and comes through pretty clearly in the Fed report is that many questions in these sentiment surveys are measuring our perspectives rather than reality. So, for instance, the share of people saying their financial situation is worse in the current year than the year prior has been pretty stable for the past four years and higher than those who say it's better in the current year.
14:18So if it's worse this year when you ask me, and it was worse last year when you asked me, and so on back four years, it could imply things are gradually just getting worse and worse for me. But the share of people in that same survey that say they're doing okay or living comfortably has hardly budged in the past four years. So to me, this really underscores that human memory is fickle. And both backwards and forward-looking questions have some room for error or bias. And, you know, that's one reason that I'm really personally excited about this monthly index that we're launching, because it'll give us more real-time information this month, right, every month, as both moods and actual financial conditions change.
14:59Sean Pyles:It seems like your attitudes and how you feel personally is very relative, even from year to year. But the figures will tell a little bit more of a clearer picture of how you're actually doing. Yeah, most definitely.
15:11Elizabeth Ayoola:Thanks, Elizabeth. Appreciate it. And thank you, Ana. I think what I appreciate most about these datas and surveys is that they help me feel seen because like a lot of the data that you guys shared, I am feeling very conservative with my spending. I'm feeling uncertain about the economy, but I'm also feeling somewhat optimistic about my personal finances. How have you been feeling, Sean?
15:32Sean Pyles:I've been feeling pretty okay. This conversation makes me think about the phrase people throw around in somewhat dismissive ways that feelings aren't facts. And in this case, we're actually seeing that feelings are facts, even if there is a separation between how people are actually doing. On my side, I just try to focus on the number in my savings account and in my retirement account and not get too hung up on how I'm feeling from day to day, because there are so many other factors that influence that from the price of gas to whether it's sunny or not outside. So I just try to focus on the long term and do what I can to build my resilience.
16:03Elizabeth Ayoola:I agree. But I always feel a lot of empathy for people, as Liz mentioned, maybe who are lower earning, who a gas price hike can really throw off their whole budget for the week, right? And maybe they can't afford to fill up their tank and they're feeling the pinch the most. So it is really difficult to be hearing that, hey, the economy is stable when you can't afford gas.
16:23Sean Pyles:Right. It still feels pretty rotten when you're like, hey, I'm having a really hard time here while everyone else is out buying avocado toast, something we always return to for some reason.
16:31Elizabeth Ayoola:Good tie-in, Sean, but yes. All right. Up next, we answer a listener's question about what happens when you achieve a perfect 850 credit score. And also what doesn't happen. Spoiler, you are not getting a toaster. And if you want to get that inside joke, you got to tune into the episode. All right. But before we get into that, a reminder to send us your money questions. And maybe you are trying to figure out how to afford avocado toast. I'm going to stop talking about avocado toast. or maybe you're trying to think about how to budget through this current economy. Whatever your money question is, please send it to us on the Nerd Hotline, which Sean is going to tell you what it is.
Read the full transcript
17:08Sean Pyles:You can leave us a voicemail or text us at 901-730-6373. That's 901-730-NERD. You can also email us your question at podcast at nerdwallet.com. Or if you're on Spotify or YouTube right now, you can drop us a comment and be sure to follow us wherever you're getting this podcast.
17:25Elizabeth Ayoola:In a moment, this episode's money question. Stay with us.
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19:08Sean Pyles:Quince dot com slash smart money. Having a good credit score can make your financial life a heck of a lot easier and less expensive. What about having a perfect credit score? What does that get you? This episode, we're taking on a listener's question about whether reaching an 850 credit score is really what it's cracked up to be. So here's the question, which comes from Leslie, who sent us an email. I achieved a perfect credit score and nobody sent me a toaster or anything. What am I supposed to do with this? It's very anticlimactic.
19:36Elizabeth Ayoola:Well, I didn't get a toaster either. But to help us answer Leslie's question on this episode of the podcast, we are joined by friend of the pod, NerdWallet personal finance writer, Amanda Barroso. Welcome back to Smart Money, Amanda. Thanks for having me, you too. It's always fun to join you and chat about these things.
19:54Sean Pyles:So yeah, I want to dig into this because Leslie has the sort of enviable problem of being let down by achieving a perfect credit score. So let's start by defining what a perfect credit score really is. Amanda, can you lay that out for us and how a perfect credit score kind of fits into the broader landscape of credit scores? So credit scores fall on the spectrum from 300 to 850, which makes an 850 credit score the perfect score. Leslie has reached the mountaintop, right? FICO and Vantage Score are the two major credit scoring companies in the U.S., and they both use this scale, but they kind of chop it up differently.
20:30For example, FICO has five credit score ranges going from very poor to exceptional, while Vantage Score has only four ranges. And the names are not very intuitive. For example, they call scores that fall between 661 to 780 prime. So sometimes it's hard to know if it's a prime, a good thing, a bad thing. Just know that they label those ranges differently.
20:50Sean Pyles:Yeah, there's a lot of jargon in the credit score space. It can make it confusing and hard to know whether you're actually in a good place or in a dangerous place and what that all gets you.
21:00Elizabeth Ayoola:Well, beyond bragging rights, because I guess it sounds cool to be like I have an 850 credit score and also disappointment when you don't get a toaster. What does a perfect credit score get you? As Leslie said, what are they supposed to do with it? It's funny because I've gotten a perfect score a few times before, two times. and I felt Leslie's disappointment a bit too truthfully I basically like squealed you know I was like oh my gosh and then I took a screenshot immediately because I feel like it was going to change at any minute and then I like my husband works from home too I like we work next to each other I was like oh my god look at this and then I kind of just like moved on with my day I don't know I yeah it feels really anticlimactic after putting in months even years of like this consistent work to get there.
21:44I reached out to FICO to kind of see if I could get Leslie a little more detailed help here. And a spokesperson there said, look, once you're good enough to access top tier lending, reaching a perfect score adds very little in criminal value. And again, that is a bummer. Leslie, I hate to be a downer, but I think your perfect score is more of a symbolic win because you've already been in the range where you can unlock all the best financial opportunities. And And that's really a good thing. You should celebrate that. I think the good news is that if you're in the market, you can leverage your excellent score to get better borrowing terms, maybe get lower interest rates, apply for credit cards with the best perks and rewards.
22:24So that's a way that you can really make that 850 score work for you.
22:27Sean Pyles:Yeah. And to be clear, beyond a credit score of around 740 to 760, you're going to be getting the best rates when you're at that range and above. of. So 850 isn't going to give you a better rate necessarily, although it can give you some cushion. Our credit scores fluctuate a lot based on things like how much credit we're using, or hopefully we don't have a mispayment, but that can really knock down your score too. But if you do have an extra buffer of being all the way at 850, that makes any other fluctuations a little bit easier to weather. That range that you just mentioned, Sean, that 760 is a really good baseline score to shoot from.
23:02I reached out to John Alzheimer and he's a credit expert. He's worked in the field for a long time. He said folks should strive for 760 as a baseline score. So he calls this the safe zone of credit because it's well above good scores on both those FICO and Vanner score ranges, which means that you're likely to get great interest rates on a car loan to qualify for the best credit cards. And 760, right, there's still 90 points between that perfect 850. But John says, hey, like, relax, you don't need a perfect score or anything close to perfect to get the best deals. So I would recommend shooting for around 760 as a target.
23:39Sean Pyles:Yeah. Well, I think what we're getting to as well is that people can get really hung up on their credit score and they view it as sort of a reflection of their personal value and their success or failures as an adult in the world. And I find that kind of frustrating because yes, these numbers do have a big impact on our financial lives and they can influence how much access we have to credit and how much we're paying for it. But your credit score is not who you are, how can people have a healthier relationship to their credit scores? I get it. Credit scores can feel really high stakes and weigh heavily on your mind.
24:13But remember that credit scores are just a tool and not a measure of your intelligence, your worth, your character. A credit score is literally just a snapshot of how you've interacted with a very specific system, right? And I should mention, not everyone has equal access to the system. We certainly don't get educated about credit scores in public schools. At least I didn't in my public school. Right. So I think remembering that is key, not let it sort of seep into how you think about yourself or change your self-worth.
24:47Elizabeth Ayoola:As you guys are talking, I'm remembering, you know, my journey to increasing my credit score and trying to get the perfect, quote unquote, credit score. and I studied the social sciences. So I remember graduating and thinking all these economies, you know, Western economies want us to do is get into debt and borrow more and more and more money. And I was like, what's a credit score for anyway? To be able to borrow more money and I don't want to live in debt and blah, blah, blah. So anyway, all that to say, I think after a while, I stopped trying to achieve the perfect credit score. And like you said, as long as my credit score was good enough to get the great credit cards with the points, you guys know I have quite a few travel credit cards, it was good enough.
25:23Elizabeth Ayoola:As long as it's good enough for me to get good rates when I borrow, I think the journey to the perfect score ended for me.
25:28Sean Pyles:Yeah. It's also helpful to remember that originally we were never intended to see our own credit scores. They're sort of a business to business tool so that lenders can see what kind of behaviors we're doing. Although I'm glad that we can see our credit scores. I think we should have access to all of this information. Our credit scores do have a little bit too much power and influence over our lives in some ways. But again, as long as you're doing the right things to get your credit score in a good place, I'd say don't sweat it too much.
25:56Elizabeth Ayoola:Well, Amanda, what might be a better way to think about our credit scores then? I would think of it this way. A credit score is a signal to lenders, like, you know, the bat signal or whatever, but, you know, it's not permanent. So it's something that you can influence and shape. There is potentially an empowering angle to this, right? Your score will probably be different next month as new data is reported to the credit bureau. So like expect fluctuations and just know that that's just part of it. It might not feel like it, but your credit score is like a relatively small part of your financial life.
26:29It doesn't consider your savings. It doesn't consider your income. It doesn't consider your retirement contributions, your giving habits, all of these other pieces of your financial picture. It is important because it is a tool that provides access, right, to credit, to loans, to things that frankly a lot of us need to live, renting an apartment, buying a home. It is important. I don't want to downplay that, but it's just part of the picture and a part of the picture that you can influence, potentially a little bit easier than you can your income or some of these other factors that feel really hard to change right now, right?
27:03Sean Pyles:Well, for those who don't have a perfect credit score like Leslie, but want to strive to get maybe in that range of 760 and above, what are some quick tips they can implement today? Two of the biggest places to start, pay your bills on time every month and keep your credit utilization under 30%. Those are the two most important credit scoring factors that both FICO and VantageScore use when calculating your score. So to get back to this last part, credit utilization, that is really just a fancy way of saying how much of your available credit you're using at a given time. Here's an example. If you have a credit limit of$1 ,000 on a credit card and you've spent$500, you're above that 30 % threshold.
27:44You're at 50%. So it would be smart to get that balance to$300 or less. And your score will probably thank you. My source at FICO also said that consumers with the highest FICO scores consistently demonstrate strong long-term credit behavior. So credit is a long game. It takes patience and consistency. so what that really means is a longer credit history some of this just comes with age right the older that we get the more time that we've had to get an auto loan to get a credit card to maybe buy a house some of these things that show up on our credit reports the spokesperson at fico also said that the highest scores also have a really healthy credit mix so this is really showing lenders that you can responsibly manage different kinds of credit.
28:32So credit cards versus auto loans, right? And revolving versus installment credit, right? Having a good balance of that, there is a difference there that they want to see.
28:41Sean Pyles:What you just outlined also to me really underscores how it is a bit of a game and you need to know the rules. You mentioned the term credit behaviors, which is such like how people who are in this space kind of think about it, where you have to do the right things. You have to keep your utilization low. You have to have a right mix of credit and a history of credit. And these are things that I think everyday people aren't really too concerned about, but then they see their credit score and they think, oh, this really isn't where I want it to be. And I want to get a better rate on my auto loan, but I just can't because I am not playing the game properly.
29:15Sean Pyles:I think for a lot of people, it's helpful to know some of the general elements of this game that they've been thrust into against their will, but maybe not sweat about gaming the system too much as long as you're just making your payments on time and not racking up too much on your credit card. I think that that's so true. And I think the two most important credit scoring factors are also the easiest to automate. I can automatically pay that balance off every month or I can automatically set it to pay the minimum payment that I can go in and manually add what I want on top of that. I can make smaller payments on my credit card throughout the month as opposed to one big payment toward the end to help keep that utilization low.
29:56If I feel like my spending's a little high, okay, I'm gonna go throw 250 bucks on my credit card and just keep it a little bit lower. There are these strategies that you can do for the two most important factors that I think are actually like super achievable. For most people, you probably, okay, I missed a payment. You might not think that it could have such a huge impact on your score. Meanwhile, it's the most important factor. Once people learn what these scoring companies like FICO and VantageScore are looking for, the credit behaviors, Really, it's just good financial habits, right? Paying your bills on time and keeping your debt low.
30:25Those are just good habits to have. And once you can build a system for that, automate what you can to kind of relieve some of that mental space, then you might find it's actually a little bit easier to maintain a strong score.
30:37Elizabeth Ayoola:People on my timeline are often offering a service to fix people's credit for them. And hey, not here to tell anyone what to do with their money, what to spend it on. But it really is something you can do yourself. You know, it doesn't have to be so complicated. So like Sean and Amanda have said, just understand the basics of what your credit score is composed of. And then it's the consistent financial habits that will improve your credit score over time.
31:01Sean Pyles:Yeah, I tend to believe that credit repair companies are scammers. And any individual saying they're going to help you is just trying to get some money from you. So please don't put your money there, people. Yes. And at NerdWallet, we do not recommend you use those credit repair companies. Again, you can do all of this yourself for free. And here's the thing that I just need folks to hear. With credit, unless there's an error on your credit report or something like that could be fixed quickly, I need you to readjust your expectations for how long something takes to build. Like you're looking at six months to a year of consistent behaviors.
31:38This part of our timeline that we're all living in is all about like getting things quickly, instant gratification. Unfortunately, the credit space has not caught up to that. We are not door dashing a better credit score. It takes consistency, patience, and you will get there. But adjusting expectations is key here.
31:57Sean Pyles:Yes. Although I will say that paying off your credit card on a weekly basis is one of the best ways to keep your credit score higher. And if it does get dinged a little because your utilization has run up, if you just pay off your balance, you'll see that reflected in a week or two, most likely. Hey, that's about as instant as it's going to get with credit, right? Yeah, pretty much. Now it's come to the time of the show where I want each of us to get a little vulnerable. And I'd like us to share what our credit scores are and how we feel about them. So Amanda, as our guest here, you're up. OK, so I checked.
32:31This was about a week ago. My FICO score was at 807 and my Vantage score was at 786. And I'm a little bummed because my FICO score dropped about 30 points. Remember, mine was perfect not too long ago. I have the screenshot on my phone. I was actually going back and trying to find that. But my husband and I had to replace two HVAC units in our house and we had to get like this home project line of credit to make the repair. And it was$17 ,000. So that's a lot of money. It's a lot of money. So it affected my score. But here's the thing. It was a home repair that had to be done. Did it hurt my my score?
33:04Yes. But my excellent credit got us approved within less than an hour for a line of credit with 0 % interest for five years. And so that will be paid off. So I know my credit will rebound with time because I'm keeping those key habits consistent. So that's the thing about it, right? Like we might take hits sometimes for necessary things, but we know that again, if we just keep our habits stable and keep paying that off, my excellent credit was a great benefit because it got us great terms, right? So kind of a bummer, but a necessary evil, I guess.
33:38Sean Pyles:Two interesting things from that. One, And what you're saying reminds me that our credit scores are really just tools to be deployed when we need them to. Most of the year, and for big chunks of our lives, we might go weeks or months without even really considering when we need to use it if we're not applying for a line of credit or a credit card or whatever it may be. But when you do want to use it, you're going to be happy that it's in good shape. But secondly, even though, Amanda, we just talked about how our credit scores aren't a reflection of our self-worth and you write about this stuff all the time, it's really hard to separate this in practice from how you feel about your credit score, especially if it goes down, because so much of our idea of self-worth in the society is around where you are financially, and that gets caught up with your credit score too.
34:22Listen, when I got that A50 score, I said, hey, I'm NerdWallet senior credit expert. Maybe this will get me a raise. And when that didn't happen, I kind of had to let it, I was like, hey, isn't this the best credential that you'd want your credit writer to have? I don't know. So yeah, I think about this stuff all the time. Am I bummed a little bit when I see it drop? Yes. But I know it's not a reflection of, at least I try to know it's not a reflection of who I am or that I'm somehow bad with my money, especially when something, an unexpected repair, like what am I going to do? Home ownership, man.
34:55It's expensive.
34:57Sean Pyles:It's expensive. Here's the catch with having an 850 credit score. There's nowhere to go but down and that's going to happen.
35:03Elizabeth Ayoola:Yeah, it really is. Absolutely. Okay. What about you guys? Okay. 797 with FICO. I'll be honest with you guys. I didn't even check my Vantage score because can we have a safe space? You know, I don't care. I don't care what it is. So I have a 797 with FICO. There was a time in my life where I would check my credit score every single month. I don't anymore. Like you guys have outlined, I'm doing all the things. I'm paying my bills on time. I'm keeping be my utilization low. So, you know, as long as I'm doing those things, I know it's going to fluctuate. I think that's the other thing that I learned from checking it every month or every week.
35:36Elizabeth Ayoola:It's different every single month or week. So why am I preoccupying myself with my credit score when I can focus on things like saving for retirement? That's probably an account that I check more than my credit score now. It's$7.97. Okay, it's not$8.50. But like you guys said, what am I going to get with the$8.50 credit score? Nothing. And also to my credit, I started building my credit score because you guys know I lived in the UK. I moved back to the States, It's like six years ago. It'll be six years ago this year. And I only started building my credit score about six or seven years ago because I had no credit here.
36:06Elizabeth Ayoola:Because when I lived here previously, I was in high school, didn't have any credit cards or anything. So I think that's a decent score for having built it over the past six or seven years. And like you said, Amanda, time, right? So I know once I'm maybe 10 years in, 15, 20, my score will go up. But again, it means nothing at this point. Well, and that's also because you're at a stable place in your life. Let's say in six months you need to buy a new car. True. Then you'll start checking in. Right. Because it's like, I want to, hey, I want to get pre-approved. I want to have really great terms for that.
36:33So like Sean, you were saying for most of the time, our credit is just this thing floating in the background until we need to deploy it. Right. Most of us are not constantly applying for credit cards, loans, apartments, you know, all these types of things. But when it's there and we need it. Okay. About three months before we think we might need something, we start checking in. see what we can do to boost it. Sometimes, like in my case, when you have just a surprise home repair, you're glad that maybe you were checking in a little more frequently, right? Because surprises do happen. But yeah, for the most part, it's kind of floating there in the background.
37:12Yeah.
37:13Sean Pyles:Okay. Well, I guess I'll share mine. Oh, gosh. I mean, just fine. Go ahead. I logged into the NerdWallet ad right before this recording to check my Vantage score, and it is 828 as of this recording. So not quite perfect. Still not getting a toaster like Wesley. I'm not disappointed in it. Obviously it's in a pretty solid place. I'm glad I have a buffer in case something happens. I'm hoping to pay off my student loans maybe this year and that's my oldest line of credit or my oldest, yeah, oldest loan on my profile. And if I pay that off, I know my credit score is going to go down. Yeah. And so I'm sort of almost excited about that just to test my sense of independence and agency as a person in this world where I'm like, look, my credit score doesn't define me that much.
38:01Sean Pyles:So let me make it drop on purpose and see how I feel. I say that coming from a place of already having a good score. Right. So it's not like this is going to harm my financial life. I pay off this loan. But I feel most of the time fairly ambivalent about my score because I know I've done the right things and I've gotten it into a healthy place. Look at you. I'm proud of you, Sean. Thank you. I mean, I used to check my credit score every single week. And I think that focus on it helped me get to where I am now, where I can just sit back and relax. Also, last year, didn't we read your credit report?
38:33And wasn't utilization like 2 %? And I said you won a mission for your honeymoon to like get it to 5 % or something.
38:40Sean Pyles:I charged a lot on my credit card during my honeymoon. But I like to pay off my credit cards a couple times a month because I know I have a habit of overspending if I'm not monitoring things. So that's part of why my credit score stays higher is I have regularly low utilization. Well, Amanda, thank you so much for coming on and chatting with us about all of this. Thank you, guys. It's always fun to chat. And Leslie, I'm sorry you didn't get your toaster, girl, but keep on keeping on. Yeah. And that's all we've got for this episode. Remember, listener, that we're here to answer your money questions.
39:11Sean Pyles:So send them our way. You can leave us a voicemail or text us on the nerd hotline at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdballot.com or leave us a comment on Spotify or YouTube.
39:25Elizabeth Ayoola:Follow Smart Money on your favorite podcast app. We really don't mind which one is your favorite, but whether that's Spotify, Apple Podcasts, iHeartRadio, we want you to automatically download new episodes on there.
39:37Sean Pyles:Here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
39:47Elizabeth Ayoola:This episode was produced by Tess Vigland, Hillary Georgie helped with editing, Eve Krogman edits our audio and our video. And we want to say thank you to NerdWallet's editors for all of their help.
39:56Sean Pyles:And with that said, until next time, turn to the nerds.
From the publisher
Learn what new Fed data says about Americans' finances and whether a perfect 850 credit score is worth chasing.
What does the latest Federal Reserve data actually reveal about how Americans are holding up financially — and why do feelings and facts so often diverge? Sean Pyles, CFP®, and Elizabeth Ayoola are joined by senior news writer Anna Helhoski and NerdWallet economist Elizabeth Renter to dig into a new Fed analysis of U.S. household financial wellbeing. They discuss why wellbeing has declined for young adults, low-income families, and Black adults even as headline economic data stays relatively stable, what a shifting labor market means for workers' confidence, and what NerdWallet's new Financial Resilience Index could reveal about the gap between feeling in control of your money and actually being prepared for a financial shock.
What does a perfect 850 credit score actually get you — and is it even worth chasing? Sean and Elizabeth are joined by NerdWallet personal finance writer Amanda Barroso to answer a question about reaching the credit score mountaintop. They discuss where the real "good enough" threshold sits, how to build a healthier relationship with your score, and what habits could help you reach — and maintain — a score that actually works in your favor.
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