Prakash Chandran (Host): Growing up in school, we learned a lot about math, science, history, and physical education. However, most of us were never taught about how to manage our finances or to build credit, leaving us without a clear path to accomplishing our financial goals.

Host: Here with us to discuss financial literacy and building credit is Ben Wolter. He's a branch manager at Heritage Federal Credit Union. This is Talking Cents with Heritage, a podcast by Heritage Federal Credit Union. My name is Prakash Chandran. Ben, thank you so much for joining us today. We truly appreciate your time. Now, I know that there is a lot to financial literacy and a big part of that is credit. I'd love to get started by asking what are some ways in which someone can actually start building credit.

Ben Wolter: Yeah, of course. I'm glad that you all invited me on here. I feel like it's important to go into what exactly credit is. It seems like one of those topics that people don't like to discuss or they're intimidated by because they feel like it's a can't-get-it-if-you-don't-have-it, can't-have-it-if-you-don't-get-it kind of deal. But essentially, your credit is a combination of information that's pulled from your credit report that banks and other lenders can utilize to determine your eligibility, to see if you're able to get a loan or any kind of line of credit. Most people are familiar with the term credit score, and this is a number that can range from 300 to 850 in most cases.

And there's a couple ways that you can start building credit. The easiest probably being to seek help from either a family member or even a close friend that can act as a co-borrower, a co-signer on a credit card, car loan, anything of that nature, or even allow you to be an authorized user on one of their credit cards so that you can get something established and at least started on your credit report.

But with that being said, not everybody has somebody who is willing or able to assist in that manner. And of course, there are still options. So, I'm going to mention one of the products that Heritage offers is a secured loan. So, this is a loan that uses funds that are already in your account as collateral or secure a loan where we lend back the same amount being secured. As you make the monthly payments on this, the funds being secured or held are steadily released back to you, so you don't end up paying much at all in exchange for a start in your credit history. It doesn't require credit pool, but it does reflect positively on your credit report, so long as you're making the on time payments. And after that's done, we can look at doing like a low-interest or reward-earning credit card, car loan, or whatever else it may be that suits your situation the best.

Host: That is so cool. So, there's basically a way for to build credit just using the funds that they already have, kind of sidestepping the problem of getting a credit card in the first place. They can just do it the credit union.

Ben Wolter: Exactly, yes.

Host: Very cool. So, we've talked about managing credit responsibly and we've heard about this before. Could you talk at a high level about what that

Ben Wolter: Yeah, it's really important once you get credit established and get something like that started, that you're able to maintain it and continue to grow it in a positive way. So, your credit is generated based on five different things. The first one is going to be the payment history. This makes up about 35% of what your credit score is, and this is just your on-time payments, how many payments you've made. It even accounts for late payments or even charged off unpaid accounts. The next one would be credit utilization. And this is how much of your credit that you're using. This accounts for about 30% of what your credit score is made up of. And it's how often you use your lines of credit, how many loans you have, and what your payment balance looks like between your limit and then what is owed on that card.

The third is going to be the credit history, in other words, how long you've had credit established. This only accounts for about 15% of it, and this is just earned over time as you mature your credit age and as you get more accounts and things like that set up. The last two are going to be having a mixture of credit. So, there's credit cards and then there's also loans, and you want to have a good balance between the two to show that you can pay back and manage those responsibly. And then, the last one is going to be the number of credit inquiries you have or how many times that your credit has been pulled to look into getting a loan or a line of credit. And those last two account for 10% each. And so, a simple way to manage credit responsibly would be to make payments on time and use your credit cards without maxing them out consistently.

I'll give an example. So, one way that I tell people to manage their credit cards, especially if it's their first one, is to find one or two of them that you would use just like a debit card and pay it off every week, every two weeks, every month, whichever one works best. Like for example, I have one credit card that's got pretty good rewards on it here with Heritage. And I use that for almost all of my purchases. And every time I get paid, I just go online, pay the balance to zero, and this prevents me from running up debt and it also builds a history of on-time payments. And because I'm paying it off before the end of the statement cycle, I don't accrue any interest on it. So, I'm not spending any more than I actually would if I'd used a debit card.

The main thing is you don't want to be running up balances on 10 or 12 different credit cards because not only does it get hard to track, but it also raises the chances that you're going to spread out your balances and be unaware of how much you owe total. And before you know it, you could be drowning in debt. And a big part of managing it responsibly is really just being in tune with your financial situation. You want to avoid spending more money than you're earning if possible. And even better yet, get a budget-based plan based on how you get paid.

Host: You mentioned something around being in tune with your financial situation and maybe taking a budget-based approach. A big part of that is obviously saving money. So, it's not just about, you know, establishing that credit and and paying it off. But, you know, some people might want to save for a goal. What tools are available that helps someone establish a savings goal and work towards it?

Ben Wolter: Yeah, exactly. So especially now in the new technology and digital age that everywhere is going, there are so many apps or websites that someone can use to help plan out their financial situations in advance and stay on top of those goals. So on the Heritage Mobile and our website, there's actually a whole financial planning section, and this allows you to track all of your spending and purchases. It even sorts out reoccurring charges, and it even separates purchases that you made over time based on categories such as groceries, utilities, and that sort of thing. By using this, you can see where your money is going and you can adjust your spending habits as needed. My biggest suggestion would be really to analyze something like this and use it as a savings goal for yourself per month. You can start small and as you get more familiar with your spending habits and your financial situation, you can work your way up and really get the hang of managing your own finances. And on top of that even, it's great to let your money work for you. And that's why at Heritage, we offer two very distinct checking accounts that can help you save some money.

So on our website, you actually find a calculator that can allow you to find the best option for an account. And one of these is going to be a checking account that earns 3.4% APY back on your average balance over the month. And the other one is even a 2.5% cash back on debit card purchases up to $7.50 a month. So really, you're getting paid to bank with us and both of these accounts are completely free. And among other things, Heritage even offers a program called Spare Change, and what this is we can round up the purchases that you're making, whether at the grocery or going to pick up fast food. It rounds it up to the nearest dollar and it deposits that change straighten into your savings account, so that way you can save money without even having to think about it.

Host: That is so cool. So I mean, first step is really just establishing where you are, right? Just understanding a baseline and you have tools like the app that will help you do this and actually separate out where your spend is going. And then also, the instruments or vehicles that you have, you know, those checking accounts that you mentioned, the Spare Change program, all of things will obviously help contribute to that savings goal.

Ben Wolter: Yes.

Host: So, you know, there's going to be people that are listening to this with either kids, or maybe, you know, people are listening to this themselves and they're wondering like, "Look, I'm maybe in college, I don't where to go or where to even begin with managing my finances. What might you recommend to them.

Ben Wolter: Yeah. So, my first suggestion would definitely be if you don't have a checking and savings account established somewhere, start there. So, you can check out our website at heritagefederal.org and see the accounts and products that we offer, all of which are free to open and maintain. And honestly, credit unions by nature will be a better option here because they'll have less fees and maintenances required. And I really encourage people to check out Heritage as an option. So once you have that, or if you already have your accounts opened, it's definitely a good idea to touch base with a banker at that institution.

So at Heritage, all of our bankers and even managers are more than happy to sit and discuss financial wellness with anyone who's seeking advice. We truly are in the people business and serving people is the only way for us to grow and help them grow too. So, you can go to your local branch, you can reach out on our website or app and get put straight into contact with a banker. And from there, we can answer any questions you have, give advice when needed, and even help save some money along the way.

Having a relationship with a banker, it's a really great thing because it allows you to familiarize yourself. And be comfortable with someone who can assist you through many milestones throughout your life. Whether it's buying a car, buying a house, setting up for retirement, getting money for a wedding, any of these things, a banker at Heritage would be more than happy to guide you along the way. And if we can't help you get it done at that time, we can help you get to a point where it can be done in the future. We're not only here to help you grow your financial livelihood, but also to help maintain it. Your banker can be a direct point of contact for just about any financial situation that comes up.

Host: Yeah, I really love that. And I think, like you said, establishing that checking or savings account and just beginning that relationship will be a good place because with the staff personnel that you have there, you can build that relationship over time and get some guidance around how you can make good financial decisions. Just the last question before we close. There are going to be people listening to this that are wondering, well, I know that there are the big banks, maybe Wells Fargo or Bank of America, what separates out a larger institution like those from a credit union like Heritage?

Ben Wolter: Yeah. And that's a question that I love discussing because I've worked for a larger commercial bank before Heritage. And whenever I came over here to a credit union with Heritage, it was such a world of a difference. So essentially, banks are owned by shareholders and private investors who might not even have accounts at the banks that they own.

Oftentimes, they can make decisions that benefit the shareholders without really having those customers in mind. Examples of this can be higher rates and more fees as their services are really profit-driven. Credit unions, on the other hand, are member owned, literally meaning that our members are the owners of our credit union. Decisions that we make are not made based on shareholders or private investors' opinions, and even our board of directors are a group of completely made up of unpaid volunteers who are also members of Heritage. Credit Unions are nonprofit organizations. And because we don't have to pay out shareholders and make decisions that are solely profit-based. This allows us to reinvest more funds to allow our members to have better rates on both loans and deposits, while also having lower fees and penalties. A common misconceptions with credit unions is that you have to fit into this category of people to be eligible for a membership. But honestly, this couldn't be farther from the truth. There's such a large range of applicable qualifications that can allow someone to open up a membership at Heritage and even many other credit unions. But really the best way to find out if you are eligible is just to reach out to us.

Credit unions also naturally have a greater impact on the community level. We love getting out and meeting people in the communities, attending and even sponsoring events, volunteering, donating, and really doing what we can to help our communities and the people in it grow. Heritage was founded for and with the people in our communities in mind. And although we are rapidly growing and expanding, that ideology will never change for us.

Host: Ben, I love that. And I think that is the perfect place to end. Thank you so much for talking to us about credit and financial literacy and also everything that Heritage has to offer. We truly appreciate your time.

Ben Wolter: Of course. Thank you for having me.

Host: That was Ben Wolter, a branch manager at Heritage Federal Credit Union. Thank you for listening to Talking Cents with Heritage. For more information, you can visit heritage heritagefederal.org/talkingcents. If you found this podcast to be helpful, please share it on your social channels and be sure to check out the entire podcast library for topics of interest to you. I'm Prakash Chandran. Thanks again for listening. Be well.

Loans may be subject to credit review and approval and property insurance may be required. Membership restrictions may apply. The views and opinions expressed in this podcast are those of the speakers and do not necessarily reflect the views or positions of Heritage Federal Credit Union.