Liz Weston is a NerdWallet Columnist and Certified Financial Planner whose goal is to help you get smarter about money so you can get on with your life. She’s the author of five books, including the best-selling “Your Credit Score,” and has appeared on a bunch of TV shows, including CNBC’s Power Lunch, Mornings with Maria on Fox Business, NBC Nightly News, the Today Show—and Dr. Phil, where she advised a would-be ghost hunter to get real about his finances. She lives with her husband, daughter and co-dependent golden retriever in Los Angeles.
1. It’s been a few years since THE SCORE last touched base with you. Since then free credit scores have become nearly ubiquitous. Has that improved consumer’s understanding of credit and improved their credit behaviors?
Definitely! Just seeing a score seems to make people curious about what they are, how they work and what can be done by consumers to make them better by modifying their behavior. There are still some misconceptions, of course — plenty of people think they only have one score, for instance,
when we actually have many.
2. It’s back to school time. What are the mistakes you see most often as parents shop for the season?
The mistake I constantly made was buying too much. Those back-to-school sales can generate a lot of, um, enthusiasm. I’m still trying to use up all the glue sticks I bought when my daughter started kindergarten. She’s in high school now.
I’m not alone, though. We just did a survey which showed that 90 percent of all parents surveyed admitted to splurging, and that half of us buy more supplies than what’s on the list provided by our kids’ schools. We really could save some money by restraining ourselves. And when it comes to clothes, buy the bare minimum. Two-thirds of parents say they splurge on clothes, but it’s better to
wait for the sales later in the fall.
3. You wrote a recent column on alternative data and had a unique take in that the traditional scores like VantageScore and FICO still matter. What was your rationale?
People who understand credit scoring also understand how ubiquitous it is, and how it’s built into so many of our financial systems. Credit scores aren’t just used to set rates and terms for loans and credit cards. Scores are used by insurers to set premiums, by landlords to decide who gets apartments, by cell phone companies to determine who gets promotional rates, and by utilities to set deposit amounts. When loans are bundled up and sold to investors, the credit scores of that debt help determine the price, and that’s a huge market. So there’s a lot of infrastructure, and it doesn’t change or adapt overnight. The companies using credit scores have to be convinced that any change in the scores they’re using is worth the hassle and expense of updating. Just getting companies to update to the latest version of the score they’re already using can take a while.
On top of that, there are a bunch of laws and regulations governing credit and credit reporting. Credit
scores have to pass muster with those.
Not all of the people who write about credit scores understand this background. So they hear
about some new way that a start-up or researcher is experimenting with measuring credit risk, and they write about it as if it’s already happening or about to. In reality, most of those experiments will fizzle
out.
Credit scoring has evolved and continues to evolve, obviously. But it’s incremental.
4. Personal finance reporting has completely shifted and much of the content providers are from outlets like NerdWallet and its competitors. Has this shift impacted what you cover and your approach to providing advice to consumers?
Not really. NerdWallet has a strong consumer-first approach, much like that of the newspapers
where I started my career. I’m able to do essentially the same kind of journalism I was doing at the Los Angeles Times, offering sound personal finance reporting and advice. Well, I do have to write a
little bit shorter now, since the Associated Press, which carries my columns, wants them to be in the 750-word range. Back in the day, you were basically just clearing your throat for the first 750 words, so
I’ve gotten more concise.
5. If you had to look into your crystal ball, what sort of updates do you envision you will have to
make to your book, “Your Credit Score: How to Improve the 3-Digit Number That Shapes Your Financial Future”?
In five editions of that book, the only chapter that hasn’t changed is the one about credit scoring myths.
I would dearly love for some of those old myths to finally die, especially the ones about whether checking your credit hurt your scores (it doesn’t) or that closing accounts can help your scores (it can’t).
But I’m not sure that will happen. People definitely understand a lot more about credit scores than when I wrote the first edition, but those old myths die hard.
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