The BA Q&A: Will My Credit Score Drop?

career and finance questions. Y'all know I can. I can get at issues from both sides. I love any kind of questions you guys have for me. Just throw me the craziest questions, awkward relationship questions, awkward boss questions, whatever it is. I love it. Remember we can keep y'all anonymous. All you have to do is just let us know. I'll create a fun little pseudonym for you. You can be a super spy if you want to. That's fine, But hit us up with your questions, all right. I

can wait to hear from you. In the meantime, let's jump on into this mail bag and see what y'all have for us this week. Got some personal finance questions for today since we spent a lot of time on career last week, so let's dive on in. Our first question comes from listener Denisha, who says, hey, Mandy, we all miss Tiffany, you're doing a great job. Thank you for pushing through for us. Oh, thank you, Denisha. All right, Denisha says, I will pay off my car and a

personal loan in the next few months. I have three credit cards and a student loan remaining. My credit score is over eight hundred across the three credit bureaus. So my question is will I take a huge hit to my score when those accounts are paid off? Should I open new credit card accounts to preserve my history? Denisha? Okay, interesting,

So this is a good problem to have. You're paying off your debt and you're worried that your credit score is going to be taking a hit because when you've got closed accounts, they kind of fall off your report. They can reduce your total amount of credit ode, which can have, you know, an impact on your credit score. But let's look at the big picture here. More than anything, paying off debt is good for your credit. Okay, it's good for your credit. However, in your particular case, since

the loans that you're paying off are fixed loans. So one is you have a car note, so that's a fixed auto loan that you have, and a personal loan, which is another fixed type of loan. Because you're paying off those two types of accounts, and because they're very different than a credit card account, you may see a

little ding to your credit score. Now, I don't want you to just keep these debts open because you're afraid of the ding, because obviously they come with an interest rate, right, So it's going to be more expensive for you to keep these this car note and personal loan open for longer, you know, just to get a more a better credit mix for your credit score. So think about your cost savings first and foremost. That's what I think is most important here. So pay off that car note, pay off

that personal loan. So yes, most likely you'll see a little bit of a hit to your credit score because, like I said, your credit mix, so that's the types of different credit accounts you have, does factor into your credit score. It is not the most important factor. The most important factor is on time payments, followed by how much credit you're using versus how much credit you have access to, which is all about your utilization rate. So

in this case your mix does matter, but not that much. Okay, it's another reminder of why it's good to have a couple different kinds of credit on your credit file to have the best possible score. But listen, if this is the price you must pay for being semi debt free, take it, girlfriend, take it, and then focus on those three credit cards. And by the way, you say that you have a student loan remaining well, a student loan is a kind of non revolving credit, just like your

auto loan and your personal loan. So it's not like once you pay off those two loans, your car note and your personal loan, like you won't have any non revolving debt on your credit file. You still have your student loan, right, So that student loan is a part

of your mix. So those credit cards, as we all know, when credit bureaus see a bunch of credit cards on a credit file, even if you're paying them off on time, still they like to favor and give a little bit of a credit score boost to people who have a good mix of credit who have beyond just credit cards, people who have a student loan, a mortgage, an auto loan, a personal loan. So at least you've got a student loan,

you know there right now. But first and foremost, just focus on making those payments in full each month and getting those credit cards paid down. And I promise you your credit score will continue to be in the eight hundreds, if not now, then definitely in the near future. So just keep it focused on the big picture. Now you say, should I open new credit card accounts to preserve my history? No, big no, no no no no no no, no, no no no. So here's why. One, you're not really helping

yourself here. The fact that you are opening new credit card accounts isn't really going to help you here because the types of loans that you're about to pay off loan, your car loan, and your personal loan, those are non revolving or like what they call installment debts. Okay, so you're not replacing the installment debt with a new kind of installment debt. You're actually just adding more credit cards.

And like I said, credit bureaus and credit scoring models don't tend to favor lots and lots of lots of credit debt, so I wouldn't necessarily recommend you go out and open some new credit cards. And you also say to preserve your history. So here's one of the little

known negative sides of opening new credit. When you open a new credit card, that's your youngest credit account, right, And immediately, what you're doing is you're lowering the average age of your credit So we talked about credit mix being one of the factors of your credit score. Credit age is also a factor of your credit score, and it's the average age of all of your accounts put together.

So when you open a new account, it's like it's like having a new baby credit card, okay, And so the average age of all of your accounts gets younger, which can actually decrease your score in the grand scheme of things. It's not the most important factor. I on't think it's even the top three most important factors, but it is a factor in your credit score. So before you open new credit, just consider that I'm actually going

to lower the age of my credit. Plus it's going to be a hit to my credit score because it's a new inquiry, right. So there are some downsides to it, so I don't necessarily think that opening credit is the smartest way to rebalance things. After you have this personal loan and your car loan falling off your credit report, I would just let things live and let live if you're really worried about those credit cards and how that may hinder or hurt your credit score, you could see

how things go. You know, I don't know how long it will take for your car note or your personal loan to stop contributing to your credit score. Probably a little bit after you make those final payments and the loans the accounts are closed, but just wait for it, see how things go. What you could then do is take out another personal loan and consolidate the remaining credit

card debt that you have. And with that consolidation loan, with that new personal loan, you'll get that nice credit mix again where it's not just credit cards, but you've also got an installment loan. And you may also save on interest rates because if you're able to take out a personal loan that's a much lower interest rate than your credit cards, then you get double win. You make your debt less expensive to pay down, and you get the benefit of adding to the mix of your credit

and installment loan versus another credit card. Okay, Denisha, thank you so much for the question. Thanks for making me go back into my like the caverns of my brain and remember all these credit scoring models and rules. Yeah, it's not meant to be easy. This is why these credit scoring models are so complicated, because they don't want us to know all this stuff. So hopefully I broke it down for you in a way that was easy and simple to understand. Denisha, I really appreciate your question.

Let me catch my breath, take a little sip of water, and I'll be right back with another of your personal finance questions. This is Brown Ambition all right, Va, fam, it's Mandy. I am back with another of your questions again. You can hit us up at Brown Ambition Podcast at gmail dot com or head over to our ig to submit your question. We are at Brown Ambition Podcast on the gram. All right, this question comes from a listener who would like to remain anonymous. So what's your fun

spy super hero name going to be? For your pseudonym, let's call you wonder Woman? Why not? Wonder Woman says I am currently paying on debt, but I want to buy a house in the next three to five years. I live in North Carolina and the housing market is just as crazy as the rest of the country with it being a seller's market. I know your thoughts on DR. Do you all know who DR is? Listen, we do not speak his name. He is the voldemort of personal

finance in our world. But anyway, just imagine, just think about it. Who could DR be? So back to our question. I know your thoughts on DR. However, he was my intro into finance and debt repayment. It's hard for me to save for a down payment without thinking that all of my excess funds should go toward my debt. Essentially, I'm feeling bad or guilty that I'm not following those DR steps to a t. I am now trying to listen to more folks in the finance space to expand

my views. I have a little credit card debt. However, I have about seventy thousand dollars in student loan debt, which is down from ninety seven k a few years ago. My question is should I continue throwing all my excess money to my student loans and wait until I'm debt free to start saving for a down payment or is there a way for me to do both and still see progress? Do I have too many financial goals? Please help?

I know I can't buy a house tomorrow, but I do want to start taking steps to eventual home ownership. Oh okay, wonder woman. Listen, you are not the first DR follower who has found their way to to brown ambition. Okay, welcome, it's nice here. We welcome you. We want you to thrive young, We want you to thrive, live your best

financial life. Yes, achieve all of your goals, yes, but we don't want to do things to such an extreme extent that you are feeling guilty and feeling like making the right decisions on a personal basis for yourself are somehow bad or they are somehow wrong. And I think that's one of the issues that we have with DR and his advice is just that it can be so it's either this or you're the scum of the earth. You know, it's either this way or you're a hot

pile of steaming garbage. And that is just not our style, you know, it's some people's style, and they seem to dig it. He is a very wealthy man. Okay, but we are open to a world where it's not either or when it comes to saving or pain down debt. But it's a both and kind of situation. And honestly, like, if you want to buy a house in North Carolina and if you're anywhere near Charlotte, that housing market is insane. So if you wait to start saving for a down payment,

when are you ever going to have the money? Like It's it's like time as a ticking and the market is only getting more expensive. Right, So here's why I want to kind of break down my answer into So, you've got some debt, right, You got about seventy K of student loan debt, well, at least until May. We don't know about any longer, but at least until May, you haven't had to make payments on that debt for

a couple of years now because of the pandemic. So with those extra funds you've been earning, I feel like there's nothing wrong with giving those extra funds a couple of different jobs. One of those jobs can be working on that credit card debt that you've been working to pay down, and the other job can be putting it in savings for your future down payment, and then that's okay. It's okay to have multiple, multiple goals at one time.

That's just what it's like to be an adult. I feel like in the working world today, there's never just here's your one mission for today, and here's what you can focus on. All of us like, we all feel like our attention and our dollars are being pulled in multiple deaths. So for me, it would make sense to say, Okay, I've got some extra money this month, so how much am I going to put toward my credit card debt? And then how much am I going to put aside

for my future savings? And if that makes you feel more excited about making progress toward your goal of saving for a house, it makes you proud to have that money sitting there in the bank, then yeah, I'm going

to say go for it. Now there's the mathematical argument here, right, It's okay, Well, you've got credit card debt, and let's just go ahead and assume that the interest rate is double digits because it tends to be right, and you've got a savings account for your down payment, and your savings account rate is crappy because they all are because fed's been slashing rates since the pandemic started, and yes they're just starting to increase rates again, but it's barely anything.

And I don't even think it's hit savings rates quite yet the impact of that. But you're not earning barely anything at all with your money in a savings account right Somatically, the logic says, put all your money towards your credit card debt, because that's what's most expensive, right And the sooner you paid off, the less money you'll spend in the long run on that credit card debt.

But that's the mathematical side of things. And while I do think it it's great to follow the math and do things that make logical sense, a lot of the time money is emotional, and I know how emotionally rewarding it can be to see yourself putting dollars toward a

goal of home ownership. Okay, So I want to acknowledge and validate those feelings and give you permission that I want you to give yourself as well, which is that it's okay to take the heart earn money that I have and know that I'm setting it aside for my future home down payment and start putting it aside, as long as you're not also taking your eye completely off that credit card debt. Now, it would be a different story if your credit card debt was a huge amount.

You say, a little credit card debt, So I'm going to say, like less than a thousand dollars. I don't know, but something that you can reasonably be tackling on the side while also saving towards your down payment. I think one of the other things that can be really overwhelming about saving up for a house is knowing how much should I save, especially when you're in a very expensive

real estate market. So what I would like to recommend you also do is start, like already kind of putting yourself in the position of, Okay, if I were shopping for a house, what's the average price of a house? And then what kind of loan would I want to take out? Do you qualify for any zero interest mortgage financing? If you're a veteran, if you live in a rural area, you may qualify for loans that have very low low

interest rates. But let's say you don't. Okay, Well, there's actually loans like the FHA loan, which is like the most most popular loan for first time home buyers. That's a very low down payment. It's like three point five percent, so it may be a little bit less than what you may think you have to save. If you've been thinking, Okay, I need like twenty percent down, that's just what everyone does. No, no, no,

no no, there are affordable financing options. So just start with like, Okay, realistically, if I want to own a house, what is a percentage that would be realistic for me to put down three point five five percent whatever it may be, and then make that the target, you know, for your savings account, and then just start working towards that goal. Your second goal, of course, is going to be the credit card debt okay, which you're going to

pay down as you're bringing an extra income. So additional information in your question that didn't really get around to sharing is that you're working overtime at your full time job to bring in extra money, and you're working part time at a grocery store and you're side hustling with a dolt with a job at DoorDash. Okay, So with that extra money that you're bringing in, how much of that will you put to work on your credit card debt? And then how much of that do you want to

put toward your home down payment. That's up to you. It may be like, I'm going to put fifty dollars toward my home down payment fund, but that's going to make me feel so freaking excited to take one step close toward whole my goal of home ownership, then do it, even if some personal finance gurus philosophy is to put every last dollar incent you have toward the debt. First we have to know ourselves right, and we have to know what motivates us, and we have to know we

have to understand the emotional side to saving money. Neither of these is a wrong decision, Like saving for a house is not a wrong decision on any day of the week. Neither is paying down credit card debt. These are both right decisions. It's just up to you. You know how much you want to put in nature of those buckets, And either way I think it's like the

right decision. Is it the mathematical best decision? Maybe not, But math is not the only thing that happens when it comes not the only thing that matters when it comes to personal finance. It's called a freaking personal finance for a reason, and that's why here a Brand Ambition, we get that. That's why we talk to y'all. We level with y'all, and we want y'all to understand that we see you, we feel you. I know what it's like to make those two choices, you know. So that's

what I'll say on that topic. Thank you, wonder Woman. I'm so glad I chose that name for you because you are well wonder woman working to full time with one full time job plus two side hustles like you will achieve your dreams if you keep working that hard. Okay, So I thank you for sharing your story. Thank you for sharing your question, y'all. If you want to submit a question to have read on the show, hit us

up at Brandnambisson podcast dot com. You can also go to ig we are at Brandabission podcast or email us directly at Brannamission podcast at gmail dot com. Until next week. I am Mandy Woodrif Santos. Thank you so much for listening to Brand Ambition.