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~You know, ~[00:00:00] one thing I never understood being in the lending business ~for 22 years~ was how consumers never really had immediate [00:00:05] access to their credit reports. More importantly, how they really didn't understand how they worked, the good, [00:00:10] the bad, and how they got to where they were. That's what I wanna talk about in today's episode.
I hope you guys enjoy.
[00:00:15] [00:00:20] Welcome back to the What More podcast. I'm your host, Quinton Harris. I get asked all the time [00:00:25] about credit questions on it, how to improve it. More importantly, like what does it mean, how [00:00:30] did we get to these models and, and what, what derives my credit score? So ~we're gonna take a couple of episodes and in this one in particular,~ I kind of [00:00:35] wanna talk about credit, what it means, the definition of it, defining all the models, and then [00:00:40] the impacts of your credit score.
And then later I'm gonna talk about some hacks to help you improve that. So let's go ahead and [00:00:45] start with a couple things on credit. When we talk about credit, we're referring to the three major [00:00:50] repositories. You probably have heard of 'em, Experian, Equifax, TransUnion. And I think it's really important [00:00:55] that we kind of understand that all three of those repositories are what are traditionally used in today's credit [00:01:00] environment.
~Now, I know I did an episode a while back talking about different versions of those coming out in the vantage scoring model. And while that is out there, it's not as widely adopted as these three traditional models. ~ These reports report. All the consumer's ability to essentially pay [00:01:05] back debt on a mutually agreed upon timeframe between the creditor.
They also report [00:01:10] many different things from your birthdate, your time on the job, what type of job you've had, your residential housing [00:01:15] history, your rent, housing history. There's a lot of things that go into this credit report, but there's different versions of these [00:01:20] credit reports that are out there.
And so I wanna talk about those versions of the credit reports. And then I wanna talk [00:01:25] about some terminologies that we're going to use. And when I talk about credit, there's really three types of things that [00:01:30] show up on the credit report that most people are gonna look at. The first one is going to be a mortgage, and then your [00:01:35] installment loans, which are like your auto loans or student debt.
And then revolving. And revolving is anything credit, [00:01:40] excuse me, credit card that doesn't have a term. Uh, it's an open-ended line of credit. Versus a closed [00:01:45] ended line of credit. So that also could be your home equity lines as well. So I'm gonna talk a little bit about [00:01:50] those. And then I wanna define some terms that that kind of are what we call negative terms.
On a credit [00:01:55] report, you'll hear me say things like late payment. And when I say late payment, that means you are 30 days late [00:02:00] on something. So your credit card might have been due on the 15th and you end up paying it on the [00:02:05] 16th of the following month. That would be a late payment. 60 days would be 61 days [00:02:10] beyond the pay date, 90, 91 days beyond the pay date.
You kind of get the point. And sometimes [00:02:15] you have things that are rolling lates as well. We'll talk about that collections, talk about all types of [00:02:20] collections and why those are negatively impacting your credit judgments as well. Repossessions [00:02:25] settlements, where you've settled a bill down, you're paying less than what you owe.
That could also be called a short sell if you're [00:02:30] talking about a mortgage. And then foreclosures, right? These are all the bad words when it comes to credit that can [00:02:35] negatively impact your credit. ~And so as I get into some of this conversation, you're gonna hear me use some of those terms and I just kinda wanted to define them for you and put 'em out there.~
~So. If you're listening to this,~ you might say, Hey Quinton, I know exactly what my credit score [00:02:40] is. I use Credit Karma, I use my fico, I use, ~you know,~ annual credit [00:02:45] report.com. Uh, I go to experian.com. I go to one of those places you said, or even transunion.com, and they do [00:02:50] have consumer facing credit reports on there.
that's probably one of the major differences when we talk to [00:02:55] consumers and their score variations. ~You know, we get asked that all the time,~ you know, why, why does my Credit Karma say I have a [00:03:00] seven 20, but then when my mortgage lender pulls credit, or the auto lender pulls credit, it's a 7 0 [00:03:05] 2, and that's because those scores are not.
Equal to one another, for [00:03:10] example, that Credit Karma is taking and is taking a snapshot of what your credit is based on your [00:03:15] active trade lines, but not the historical history of your credit report. And I think that [00:03:20] also, that may not be catching it the same day in which your lender pulled it. And I think something that's really important here, when we take a [00:03:25] look at this, if you take a look at, you know, like Credit Karma for example, I [00:03:30] think that.
The way they pull that scoring model is they're using that Vantage 4.0 that I did a whole [00:03:35] podcast on versus the Fair Isaac versus the, the Beacon scores and [00:03:40] also the, the, the Experian repository that we're talking about. Those are all going to show up at different times and [00:03:45] they're gonna be different models.
So unfortunately, different models are not always going to be equal in scoring. And [00:03:50] I, I think that that's really important because I think sometimes we get hung up on exactly what exactly our [00:03:55] score is based on that. And I know if you're using like a Chase credit card, discover American Express, [00:04:00] they also check your credit and they give you a snapshot of what your credit is.
They call it like a credit journey, something of that [00:04:05] nature. Those are gonna be more in the lines of like a Credit Karma or a, uh, a, my FICO type [00:04:10] deal, credit score versus what a mortgage lender is going to pull. Now, another thing to take a look about on [00:04:15] credit here that I wanted to share is that when you're.
Applying for any [00:04:20] type of loan. There's multiple types of credit pools. Uh, you know, we've talked about this on previous [00:04:25] podcasts, but like an M1 credit report that is gonna be a mortgage related pool versus an an [00:04:30] i, you know, an I one or an I nine credit report, because that's gonna be actually the installment being pulled on [00:04:35] there, the installment portion of a credit alert versus a mortgage credit alert.
And then you have an R [00:04:40] one credit report, which is for revolving. And so there's different types of reports that [00:04:45] lenders can pull. For example, if a mortgage lender is doing a tri merge, that means they're pulling [00:04:50] all three credit reports. Sometimes if you're doing an auto loan, they'll only pull a single merge.
And [00:04:55] then sometimes if you're doing, you know, maybe it's insurance, maybe it's auto insurance, there might be a buy [00:05:00] merge there where they're pulling two, two different bureaus and not just all three or one, and they'll take the [00:05:05] middle of the three scores. And that is actually how your loan and your actual product and your interest rate is [00:05:10] all gonna be determined around that particular score.
Again, on the auto side of things, it's probably [00:05:15] gonna be a one single. You know, pull the one that their underwriter prefers. And sometimes on the insurance side, [00:05:20] it's more than one just to kind of make sure they can offset the other score. Maybe there's things that don't show [00:05:25] up on one bureau that may show up on another 'cause that does happen from time to time.
And so [00:05:30] when you're taking a look at these things, I think one of the questions we get asked a lot by [00:05:35] consumers is, Hey, listen, you know. How do I improve my score? Or why is my [00:05:40] score, you know, lower than what I saw? Or why are you showing maybe [00:05:45] a medical collection and I don't see that? Or why on earth is this, you [00:05:50] know, this balance higher over here on this credit card than what I'm showing on my, you know, credit [00:05:55] karma.com.
Again, I wanna go back to when a lender pulls your credit, they are [00:06:00] getting a real time live snapshot in depth of what's going on with your [00:06:05] financial profile. Credit Karma is not necessarily going to do [00:06:10] that on a weekly or monthly basis. You know, they're going to take a look at it [00:06:15] as their system does a push pull and updates.
And as we've talked about numerous [00:06:20] podcasts, not every lender is gonna report to all three repositories at the same time, [00:06:25] which could actually positively impact your score or negatively impact your score depending on what your credit [00:06:30] utilization is. So that is sometimes why we get different scores in those models.
~So. Let's take it, kind of try to make it more sense here. So let's say you have a, um, let's say you have a MacBook and the MacBook that you're using is from 2015. And then let's say you have a MacBook 2020 model error, you know, an air, a MacBook error or Mac error, whatever it's called. The MacBook and the Mac Air are two different models.~
~While they perform the same functionalities, they don't look the same and one is lighter than the other and one has higher performance than the other, but it's also maybe more expensive, and therefore it's not as widely adapted yet. It's going to get there. So fast forward to 2023. Now the Mac Air is everywhere.~
~A lot of people prefer it and they use, it's one of the, I think it's one of their bestselling laptops, and the MacBook Pro is now more of like a higher end laptop that they've had to readapt and make better so that they could, you know, get more people to use it. But it took time for that air to become widely adapted.~
~Um, that might not be the best scenario, but that's the one that I got. 'cause I'm looking at a map book right now. That's the one I came up with. So.~ there are five [00:06:35] what I consider to be critical components that create your score of how it's [00:06:40] determined. This is kind of pulling the curtain back from the industry right now, and this is from our friends [00:06:45] over at Partners Credit and Partners Credit is like many vendors who [00:06:50] essentially.
They provide the credit report to people and they're the~ la, excuse me, the~ liaison between [00:06:55] Experian, TransUnion, and Equifax. You know, as a consumer, you and I, we just can't walk up to [00:07:00] Experian, TransUnion and Equifax make a phone call and go, Hey, what's my credit score? We actually have to go to someone that's [00:07:05] authorized to pull that credit and then tell us what that is.
And you know, for many years people couldn't even tell you [00:07:10] what your score was when they pull your score. That was one of the most annoying things, like, Hey, we just pulled your credit. Oh [00:07:15] cool. What's my score? I can't tell you that. Like that literally is how things used to go down. And then [00:07:20] obviously there were laws that transitioned in ~2010 that now required, excuse me,~ 2008, that required lenders to now divulge your credit [00:07:25] score to you and tell you what it is at the beginning of the process, not necessarily at the very end.
If you were denied, they could [00:07:30] tell you upfront, and that was a great move that was changed in the lending industry.~ But no one still knows to this day, like, how is my score comprised? Like, what makes my score?~ So your score is simple [00:07:35] as this, and this is straight from partners. I think this is wonderful is that your score is determined by five factors of [00:07:40] differing importance, right?
So 35% of your credit score is based on your payment [00:07:45] history. That's, that's basically, are you making your payments on time and are you paying your [00:07:50] loan in the mutually agreed upon timeframe? Pretty simple. Late payments that's gonna hurt your score, [00:07:55] right? 30 day lates. 60 day lates. Now again, defining lates.
If [00:08:00] your mortgage payment is due on the first of every month and you [00:08:05] make it on the second, the third, the fourth, the fifth, you get the point. That's not late. Matter of fact, you should have a [00:08:10] grace period from the first all the way to the 15th. That's a traditional grace period. If you make your payment on the [00:08:15] 16th, it's still not late.
It's not late. On the 17th, you get the point. It's late. [00:08:20] On the first of the next following month, it's late. That's when it's late. So that's a 30 [00:08:25] day late. So if you're making a late payment beyond your 30 day cycle, then that's going to hurt your [00:08:30] score negatively. Next one is 30% of it's how much you owe.
Now [00:08:35] you can't really control what you owe on the mortgage. 'cause once you sign the note, that is the note. Now you're just paying it down. [00:08:40] Right? Same thing with auto loans. Now you could go out and overspend on a mortgage and you could go out and [00:08:45] overspend on a car, but most people stay within their budgetary means unless there's a life altering [00:08:50] effect that happens.
So when we talk about. How much you owe. It's [00:08:55] not necessarily on the mortgage and it's not necessarily on the auto loans, it's on the [00:09:00] revolving credit card. And this credit utilization, this is a term that we use a lot. [00:09:05] Credit utilization is vital. So if you have a $10,000 credit card limit, I [00:09:10] use $10,000.
'cause it's a round number. If you have a $10,000 credit card limit, traditionally [00:09:15] speaking, you wanna stay below 30% debt utilization on that. [00:09:20] So when the billing cycle comes out. You really don't want to have higher than a [00:09:25] $3,000 balance on that credit card when the cycle comes out. Uh, if you could [00:09:30] keep it below $3,000, but also above zero, you know, that's the tricky part.
But if you [00:09:35] get it below $3,000, you're going to see what they call a credit utilization pop in your credit [00:09:40] score, like you are going to be rewarded in your credit score for having the right utilization [00:09:45] of the debt load. On that credit card, and that goes for all credit cards. Let's say you have like two or [00:09:50] three of them.
It doesn't matter that it's an overall 30%. Each card needs to be at [00:09:55] 30% or less in order to maximize your credit score. 15% of this is also gonna be [00:10:00] determined on the length of your history. So if you're a newcomer to the credit community, you know, let's say [00:10:05] you're 18 years old, you're probably not gonna have what we call credit depth.
Now there's a way to get around that, but that credit [00:10:10] depth is really important. And the more depth you have in your credit, the more you're going to [00:10:15] receive additional rewards in your score. Like it's very abnormal for an [00:10:20] 18-year-old to roll up to the market and have like a seven 60 score. It can happen, but it's extremely rare.
[00:10:25] You know, you typically don't start achieving those scores until you at least have some sort of depth. And depth is usually defined as [00:10:30] like. 10 years or more. Now again, there are ways to do it, but most people traditionally speaking, wait [00:10:35] until they're beyond that 28-year-old range and start seeing the benefits of those higher, you know, seven [00:10:40] hundreds, 800 scores.
And the next one is gonna be 10% is new credit. So how much new credit are you [00:10:45] taking on? So we've got 35% is payment history, 30% is the amount you owe, 15% is the length [00:10:50] of history and 10% is the new credit that you're taking on. So are you like trying to take on a [00:10:55] ton of new credit? You know, I've talked about this over and over on episodes before, where you're just like, Hey, I gotta [00:11:00] apply for this new card because, you know, maybe it's got points that do this and it's better than my [00:11:05] old card.
Or maybe I'm getting more rewards and I'm getting more, you know, points per dollar [00:11:10] for this. Or maybe I'm just getting, you know, a certain amount of money back, cash back per month. Like we [00:11:15] know all cards differ, right? So people will apply based on what they see on tv or maybe their [00:11:20] friends are like, Hey dude, why aren't you using this card?
I'm getting this back. So, you know, there's all kinds of reasons why [00:11:25] we open up new credit cards. You just might need one, right? You might need, you might have one that's quote unquote. Tapped out, [00:11:30] or maybe you're doing the balance transfer game ~we talked about in the last episode or so about how to kind of move your debt around so you can pay it off.~
~But there's other reasons.~ And then obviously autos and mortgages, they're gonna [00:11:35] look at that as well. Like how many mortgages, how many autos, and then how many credit cards. That's all new credit [00:11:40] debt. But if you go in the, and if you go in this order, new debt being established in order of [00:11:45] like, what's going to impact your score more negatively is if you keep opening up credit cards, [00:11:50] you're probably gonna get the credit bureau.
Not, not be too friendly on your credit score with that [00:11:55] automobiles are a distant second, right? And then mortgages are way distant third. [00:12:00] So that's just something to to keep in mind in that order. And then 10%, the last 10% [00:12:05] is the type of credit used. And that kind of goes into what I was just talking about there, revolving [00:12:10] auto mortgages, like that type of credit that's being used on there.
All of that is [00:12:15] crucial. So you have 35% payment history. 30% on what you owe, on your basically [00:12:20] revolving, but also your auto and your mortgage, 15% on your time in the credit report, and then 10% of [00:12:25] the new credit and then 10% of how you use that credit. So I think that's important. Alright, so now you have your [00:12:30] credit score and you're in the credit system, but you're asking yourself like, Hey, this is not where I [00:12:35] wanna be.
Or, Hey, I've got this amazing score and I wanna protect it. Like how do I maintain it? How do I stop it from [00:12:40] fluctuating? You know, I get this great score and it comes down, but I want it to stay in a certain area~ if those are the questions you have. This is the episode for you. This is one of my favorite episodes 'cause we're gonna talk about how to hack your credit bureau.~
~Now, I know that's a popular term between house hacking and and credit hacking, but~ the reality is [00:12:45] there's a lot of things that you as the consumer can do to your credit that really. [00:12:50] Up to you. ~And a lot of people don't share that with you. And that's what I wanna do today.~ I want to kind of take you behind the scenes of how to maintain your credit report at [00:12:55] the level in which you want it to stay at, as well as improving it if you need to improve it.
So there's five [00:13:00] factors, 35% payment history, 30%, the amount you owe, 15% the length in the credit [00:13:05] reports, 10% new credit, and 10% how you use that new credit. So I just wanna run that back out there. So let's [00:13:10] talk about that. So when we talk about payment history, you know I've always been told that [00:13:15] there's this magic credit matrix.
You ready for it? It's pretty simple. It's called the 1, 2, 3 [00:13:20] model. How hard is that? 1, 2, 3. And what that is, is that the number one most important thing in your [00:13:25] credit report is your mortgage. Number two is your automobile slash installment loans. [00:13:30] That can also be your student debt. Number three is revolving credit cards.
[00:13:35] Now that's the order of the history. Now here's kind of the formula you want to have one mortgage. [00:13:40] Two automobiles, three credit cards. That seems to be the magic credit history [00:13:45] matrix that's not really divulged out there. So think about that. Uh, if you're [00:13:50] a renter and you don't have a mortgage, you're already at a disadvantage with your credit score.
'cause you're not [00:13:55] getting the maximum amount of credit score you could get because you don't have a mortgage yet, then. Yeah, that's a thing. Now, [00:14:00] here's pro tip number one. Here's how you could help with that. If you're renting and you're renting from [00:14:05] an apartment complex, or if you're renting from an institutional landlord, and that's not, like, that wouldn't be [00:14:10] me, right?
If you were renting from me, I'm a single owner. I'm not an institution, but if you're renting from an institution [00:14:15] or an apartment. Get a payment history documented and turn that into the credit reports. You [00:14:20] can work with any mortgage lender that you're looking to get pre-approved on a home with, they can help you with that as well [00:14:25] as there are opportunities to do that through TransUnion and Equifax via their website.
So [00:14:30] there's, there's pro tip number one. Number two, installment loans, right? If you have an [00:14:35] automobile, that's real important that you have it documented, but at what age did you get your automobile right? [00:14:40] Because that's gonna go back to that depth of credit history, right? Remember, 15% of your ~credit report,~ credit report is based on your depth of [00:14:45] history.
So ~one of the things I always say is that ~when you buy a car at the age of 18, ~you can get that, you know,~ you can credit qualify for [00:14:50] that car, and there's really not a lot of car lenders that will not give you a loan. They want you to buy a car, especially at [00:14:55] 18 if you've got a co-signer with mom and dad.
The real question is, can you find the [00:15:00] automobile? You know, lender or the automobile maker that'll let you be on there at the age of 16. [00:15:05] Like there are ones out there, you can start your credit history two years earlier. So that's something to consider. [00:15:10] The third thing is in revolving. Now this is the easiest way to get into the credit [00:15:15] history, starting at the age as early as 13.
You heard that right? As early as [00:15:20] 13 years old. There are certain credit card companies, Amex being one of them, that will [00:15:25] allow you to put someone in your family as an authorized user on that credit account. [00:15:30] Follow me here. If 15% of your credit [00:15:35] history determines your credit score. So if 15% of your credit score is determined based on your [00:15:40] depth of credit history, and you start at the age of 13, by the time you're 18 years old, you already have five years of credit [00:15:45] history that accounts for 15% of your score.
Now, if you recall, what makes up the bulk of [00:15:50] your score payment history. So if you have five years of credit depth and [00:15:55] payment history, you already have a leg up when you're 18 years old at a credit score. [00:16:00] That's vitally important. Now, some credit card companies make you wait until you're 16 years old to add an [00:16:05] authorized user, but there are some that start as early as 13.
~But even if you start at 16, you still got a two year payment history and two years of depth ahead of the competition. Uh, or, you know, not really competition, but ahead of the credit reports.~ It's a great way to get started in the [00:16:10] credit system and establishing a credit score out the gate. It's also one of the fastest ways to [00:16:15] improve your credit score.
You know, for some reason you need to improve your credit score and you're beyond the age of 18, and [00:16:20] maybe you had some bumps in the road or some things have happened. You can get established as an authorized user on any [00:16:25] family member's credit card. And typically you see this with kids. You don't really see this.
Like, you're not going to your aunt and uncle and going, Hey, can [00:16:30] I be an authorized user on your account? You, you typically see it, you know what, what we would call as [00:16:35] non-MS link Mom and dad usually. Right? And so mom and dad usually would put the~ child on the credit report or the, OR, or, or their, you know.~
~I guess is child leave. If you're 19, 20 years old, you'd put your ~kid on there, right? [00:16:40] And you would help them establish credit, whether the credit card allows for it at 13, 15, 14, [00:16:45] 16, whatever, and they put 'em on there. If it's later on in life, you can still do the same thing and you can still help [00:16:50] that person rehabilitate that credit score by putting 'em on there as an authorized user.
So that's, that's, that's two of [00:16:55] the main quick ways to get credit early on and kind of beating the system, if you may, and getting in there [00:17:00] before the age of 18. The other thing is ~understanding your credit. Like it's, it's pivotal because ~the largest balances carry [00:17:05] the most weight. That's why mortgage is number one in that matrix, right?
It's usually your largest balance. [00:17:10] And then automobiles and student loan debts, number two. 'cause those are usually your second largest balance. And [00:17:15] sometimes those may be your largest balance, especially if you're, you know, if you're new to the credit world and you've got your first [00:17:20] car. 'cause think about what's, what's someone's first purchase they make when they graduate college.
Typically, statistics [00:17:25] say when someone graduates college or high school, their first purchase is a new automobile. It's [00:17:30] not a mortgage, it's an automobile. So that's going to be your first~ payment, excuse me, that's gonna be your ~highest balance. You know, your first thing on the [00:17:35] credit report that pops up 'cause it's your highest balance.
But later on it could be your student loan debt and hopefully [00:17:40] it's your mortgage. And those things will bring more value to your credit report than credit cards [00:17:45] at any given time. But the earliest way to get in there is going to be put on as an authorized user [00:17:50] on one of your family members' credit cards.
So. But the largest balance is carry the most weight in their scoring [00:17:55] models. So that's why a homeowner, going back to what I said earlier, is typically going to have a [00:18:00] higher credit score than someone that's not a homeowner yet. You know, you don't achieve those [00:18:05] high sevens and mid eights until you become a homeowner.
You don't see that get up there [00:18:10] because the biggest weight is given on that mortgage when it comes to establishing higher credit scores. [00:18:15] So the other thing is this, when we talk about fastest ways to establish the credit, like I said, [00:18:20] getting on there as an authorized user is extremely important. It's the quickest way to do it.
Also, you can [00:18:25] do it by establishing a traditional card. So for example, if you're beyond the age of 18 and you [00:18:30] don't have a family member or the luxury of having a family member, that'll put you on as authorized user. You can apply for a credit card now at the [00:18:35] age of 18. It's not gonna be guaranteed that you get that credit card, [00:18:40] but if you don't have anything on your, on your history, that's detouring the, uh, the consumer [00:18:45] lending division of the credit card company have proven you, you're probably gonna get one.
You're probably gonna get one with like a 500 to a thousand [00:18:50] dollars balance right out the gate. The question becomes how do you utilize that? And go [00:18:55] back to what I said earlier in the previous episode, is that maintaining a 30% [00:19:00] balance is critical. Now, I wanna clarify, if you have a thousand dollars credit [00:19:05] card to start, right?
If you're brand new to getting credit and you were given the opportunity to get a thousand dollars credit [00:19:10] card, that means put $300 on the card, let it cycle through. [00:19:15] And pay it off. So as it cycles through, you're not charged interest on it. We've [00:19:20] done a whole podcast on that. So you put $300 or [00:19:25] $250, 300 max on that a thousand dollars limit.
Let the billing cycle cycle through. [00:19:30] Once it comes back through, pay it off. If you do that,~ you're gonna see a sig ~and you do that consistently, by the [00:19:35] way, you're going to see a significant increase in your credit score and your credit history is going to [00:19:40] start with the proper utilization and also with the proper depth.
And that's really [00:19:45] important. Going back to those five factors that I talked about. So I'm gonna bring a slide up here on my computer, 'cause [00:19:50] I kind of wanna show you how trade lines work. Now, you're not gonna be able to see this right now. My producer's gonna probably [00:19:55] put it in the background as I'm talking here.
But I wanna show you guys, this is from a fake [00:20:00] credit report. I want to make sure you know that this is fake. Our friends over at Partners Credit, were kind enough [00:20:05] to kind of come up with a fake credit report and share this with us. So let's call this John Doe. Okay, [00:20:10] for the name on here, but what I wanna show you is what a revolving account looks like.
Now what you're about to [00:20:15] see here is a trade line from a fake chase bank account, right? Fake number, fake everything. [00:20:20] But inside here, what I wanna show you is what lenders look at and what repositories. Look at what we [00:20:25] talk about ratios. So on this trade line, first thing you're gonna see is it says Chase Bank, USA.
That [00:20:30] tells me that as a lender or someone that's looking at your credit, that this is with Chase Bank, that's your credit card [00:20:35] company. I'm also going to see. That it is a revolving account, and I'm gonna have [00:20:40] the indicator on here that shows me that it's a credit card. At the very bottom here, under the [00:20:45] Bureau remarks, you're gonna see ~E, or you're gonna see~ XPN, which stands for Experian.
You're gonna see TU for TransUnion [00:20:50] and EQF for Equifax. That means I am looking at a tri merge that's reporting all three [00:20:55] bureaus here, and at the very bottom that says credit card, right? So that tells me it's a credit card. It also [00:21:00] tells me in the middle of this trade line, it's a revolving credit card.
So that revolving is [00:21:05] important. 'cause remember we talked about that on the matrix of the 1, 2, 3. This is the revolving section of that. It's gonna tell [00:21:10] me the date in which this reported was back in October of 2016, and that it was [00:21:15] opened in May of 16. Now, obviously this is an older trade line because we're using this as a made up [00:21:20] date here, but that shows me four months of that being reviewed.
So the depth on this trade [00:21:25] line is four months. So when we talk about length in the credit report, this trade line would only have a four month debt [00:21:30] history. The balance on this, and you kinda see the red line with the arrow pointing to that is [00:21:35] $2,375. Now the credit limit, which is where the opposite of that [00:21:40] arrow is pointing, is 3,200.
That means we have a 74% credit [00:21:45] utilization here. This person is actually going to get a. [00:21:50] Worst score on their credit report for having a 74% credit utilization. [00:21:55] What we would like to see that be at is below 30. So if the limit is [00:22:00] $3,000, keeping that below, let's just say a thousand dollars on a balance, [00:22:05] would really improve this person's score.
So if I, as a creditor we're working [00:22:10] with you, I would say, Hey, Mr. And Mrs. Consumer, what I'd like to see you do here is [00:22:15] pay that balance down from 2375. Just pay it down, [00:22:20] $1,375. And let's get a letter from Chase that says, your [00:22:25] new balance is 1000. And I would take that letter and I would go back to the repositories and have [00:22:30] 'EM update this, and that would increase your score.
That's something that you can do, right? But [00:22:35] that's also something you can do as a consumer, that you can take control of this and say, listen, I know where I am. I've got my Credit [00:22:40] Karma. I've got my FICO, there's showing me what my balances are. Okay? I need to start paying these down and get [00:22:45] below 30% and I'm gonna see a real increase in my score.
This is what we talk about when we [00:22:50] say credit utilization. Let's go back to the very beginning of this here. We talked about five things, [00:22:55] make up the credit score payment history. So as long as you're making the payments on time check, [00:23:00] that's 35% of your credit score model. Another 30% is the amount you [00:23:05] owe.
That's what I'm referencing right now in this credit utilization, the amount you owe, that is the [00:23:10] other number two thing that makes up your score. So 65% of your credit score is [00:23:15] comprised of payment history and the amount of money you owe. I just showed you how to improve that [00:23:20] by making that payment down in this scenario.
And if that applies to you, you will see a [00:23:25] dramatic jump because that accounts for 30% of what you owe. And then the length of history. In this particular case, it's only four [00:23:30] months, so probably not going to get as much, you know, impact to the score because it's a rather new [00:23:35] trade line. And then also remember 10% new credit and then the other 10% is the type of [00:23:40] credit in which you're establishing.
So I kinda wanted to go through that with you so you can see this and my producer Charlie will [00:23:45] put that in there. But here's what I wanted to show you in this particular scenario. I'm gonna show [00:23:50] you another screen here where we're showing a borrower that has a Capital One credit card. [00:23:55] They have a ~high balance of 5,000, excuse me, a ~high credit limit of $5,000.
~They're utilizing a hundred.~ Basically, ~they're, they're not, ~they're utilizing this card [00:24:00] and they're maxing it out. What we're doing is we're showing 'em that they can pay that card down and get that utilization [00:24:05] down. What this does to their score, and there's a program that lenders can use that a lot of people use called Credit [00:24:10] Expert.
It's a wonderful, wonderful simulator that says, if I do this, this [00:24:15] will happen. So if this, then that type deal thing. In this particular case, it shows that they were to pay this down, [00:24:20] how their credit score would jump 30 points. 30 points and you could do it in [00:24:25] less than a month. So in some of these examples that I'm putting on here, I'm just wanting to show you what type of [00:24:30] impact credit utilization will make as far as how you use your credit cards to your advantage.
[00:24:35] Because sometimes credit cards, I know they get a negative connotation in the industry because [00:24:40] they're not taught how to be used. And I go back to this,~ you know, last podcast we did a week ago, we talked about~ why is this not taught in school like this could, this could [00:24:45] easily be a high school curriculum class on how to use credit card.
It's simple math, the [00:24:50] formulas work, and then you could improve your credit. Because remember there's a tremendous difference [00:24:55] in credit scores every 20 points. And you know when you talk about getting the best interest rate on your mortgage and you talk [00:25:00] about getting the best interest rates on your credit card or the best introductory rates, all of that is surrounded~ by credit card, or excuse me, surrounded~ by your credit score.[00:25:05]
They don't look at anything else other than that. They aren't looking at really anything. 'cause when you're [00:25:10] offered this, they don't really know your income, they don't know your employment status. All they know is your credit score. [00:25:15] And that's like the first key to opening the gates of getting the best deals.
So I [00:25:20] can't stress that enough. So that's how, that's how you can improve it and that's how you can jump ahead [00:25:25] of the line by getting an authorized user utilizing your balances [00:25:30] correctly and having a great payment history. I mean, that right there is 80% of your [00:25:35] credit score, those three things. So the next thing I wanna talk about is ~obviously the,~ the collections, because that's [00:25:40] important and collections come in all different.
You know, walks of life. You've got, you've got [00:25:45] medical collections, which are probably the most popular. You've got collections for debt that hasn't been paid [00:25:50] that you agreed to, and then you've got bad collections, which I would say really bad, like a [00:25:55] repossession or a short sale, you know, or foreclosure.
Those are really bad collections. That's when [00:26:00] stuff's gotten off the grid, not good, and, and, you know, you're, you're, you're possibly looking at something like a [00:26:05] bankruptcy or whatever, but let's go to those first two. Let's talk about medical collection, or let's talk about debt that hadn't been paid.
[00:26:10] That's in a form of a collection, and these can happen for different reasons. Personally, I think the medical [00:26:15] collection is the biggest. Scam of all times. Because you know, you go to the doctor, [00:26:20] they take your insurance, they tell you there's no copay, and then 30, [00:26:25] 60, 90, hell, maybe even a year later, you get a bill.
You are lucky if you even get it. It might not even show up at [00:26:30] your doorstep, but let's say you get it and it's for like $108, right? And it's like, oh, [00:26:35] for testing that was ran, blah, blah, blah. Your insurance company disagreed to it. So here's this bill. You're [00:26:40] questioning like, I don't even remember last week, much less a year ago.
What the heck is this for? You call the company, [00:26:45] they don't know, whatever. So you have a choice, you use it, pay it, or you don't pay it. So let's say 50% of the people say, [00:26:50] screw it, I'm gonna pay it because I don't want it show up as a collection because they know how that works. And the other 50% [00:26:55] say, I'm not paying this, I don't owe this.
Right? So. If for some reason you have a medical [00:27:00] collection, just show up on your credit report outta the blue. Again, I would venture to say probably [00:27:05] 50% of the credit reports in America have a medical collection on it. There's a couple things you can do to improve that. [00:27:10] So think about this. There's no difference besides financially [00:27:15] on a credit report scoring model.
There's no difference between a $10 collection and a $10,000 [00:27:20] collection. And I know people will argue with me on that, but that is not the case. A collection is a collection [00:27:25] is a collection, and that's how it works. Now the good news is this, if you pay the collection off. [00:27:30] You need to get a payment letter from the collection company that [00:27:35] says, Hey, listen, this has been paid in full.
And then also that collection company has [00:27:40] agreed to remove that from the credit report. It is now settled. It is removed Now, sometimes they [00:27:45] don't agree. There is recent, I don't wanna say legislation, but there is recent rules that [00:27:50] have come out as of August 22 that state that if you pay off a collection, it can no longer be [00:27:55] held over your head.
It should be removed from the credit report. Sometimes that's not always the [00:28:00] case, but 99% of the time it is. If it's done correctly, it is. If that collection is [00:28:05] removed, you're gonna see a significant increase in your credit scores. Sometimes it's 30, 40 points. [00:28:10] Again, I'm gonna pull up another example here.
Our producer's gonna put in the show notes and you can see all these show notes [00:28:15] that on our YouTube channel. What's your one more with the number one and what's your, one more with the number one. Again, [00:28:20] love the comments and feedbacks you guys are putting on there, but I'm gonna put a negative trade line.
So we just [00:28:25] showed what a trade line was. This is gonna be a negative one. This is actually going to be again from John Doe and [00:28:30] this is a fake credit report, but this is a, this is what a collection looks like when we get it on a credit [00:28:35] report, right? So this collection is showing up. Now what's interesting to me is it's only reporting to one [00:28:40] of the three repositories.
So in this particular case, whatever we do is only gonna make the Experian credit [00:28:45] score go up. Because in the very top you'll see this as a highlighted in gray, highlighted in dark [00:28:50] charcoal gray trade line. Now some, some lenders highlight 'em in yellow. I mean it's whatever, but it's [00:28:55] differentiating from that, that normal line that you saw before.
And this is alerting people that, hey, listen, there's a collection on here [00:29:00] and in this particular case. It's a, uh, it's on Experian. I reported back in May [00:29:05] of 2014 in this particular case, and the balance is 456 bucks. So four [00:29:10] $56 and it is literally a medical collection and it's with an [00:29:15] attorney's office right now.
And you could settle for this and you may not even have to pay the full 4 56. Maybe you pay [00:29:20] 200, maybe you pay the full 4 56 in this case, whatever it is. But what's interesting about this [00:29:25] is that we see these all the time. And in this particular case, I stand correct. This is not a medical [00:29:30] collection in this particular case.
This is Pacific Bell. This is actually like a phone bill collection. We do see these two from time [00:29:35] to time, but these are normally. These are normally medical collections, but [00:29:40] we, we do another credit expert. And you can see how this increases 40 plus points [00:29:45] just by paying off a medical collection. And you get it deleted from the credit report.
And so [00:29:50] again, if you're working with a lender, they can help you with this. If you're looking at your Credit Karma [00:29:55] or you're looking at, you know, you're my FICO and you've been alerted you have a new collection, pay that [00:30:00] thing off as fast as possible, just pay it off and get it deleted as fast as possible through the collection agency, whether it's a [00:30:05] medical collection agency or not.
Alright, last thing I wanna touch on here. 'cause I think that [00:30:10] this is, I think this is just as important. So let's say you have an amazing credit score and you want to make sure you [00:30:15] maintain that credit score. So what we've done for the first half of this podcast is we've talked about how to improve your [00:30:20] score.
But let's say you're like Q, I'm good man, I've got like the seven 20, I'm cruising. Yeah, I wanna get to a [00:30:25] seven 40, but I know that comes in time. Or I got a 7 40, 7 80, I hear it all the time. And you wanna maintain that. [00:30:30] First thing you wanna do that credit utilization, like, you know how you got to that credit [00:30:35] score, continue to make your payments on time.
Don't go over the 30% balance. You're going to [00:30:40] see that play a significant role in that score. Another thing, if you've got other [00:30:45] credit cards that you're not using, all right, this is pro tip number two. Do not [00:30:50] close them out. Like do not close out your credit cards that you're not using. Like I've got a [00:30:55] credit card that I've had since I was 18 years old.
I don't use it. It sits in a safe at home. It [00:31:00] drives the living hell out of me because I'm like, oh God, what if something happens with that card? What if [00:31:05] I, I'm checking it, making sure there's like no fraud on it, but I know if I close that card out, I lose [00:31:10] 20 plus years of credit depth because I close that out even though I'm not using it.
I'm gonna lose [00:31:15] 20 years of credit depth that's gonna damage my credit score. So, and that's exactly what happens. And isn't that [00:31:20] crazy? We get like this false notion like, Hey listen, pay off all your debt. Close out your credit cards. That [00:31:25] makes sense to me too. 'cause shit, man, I don wanna be financially free.
I don't wanna have that stuff lingering over my head, so pay it off, close it out. [00:31:30] Well, no one tells you. Closing that out could cost you a hundred points. Like don't close that [00:31:35] credit card out. Put that joker in a safe, check it online once a month. Make sure there's no fees being [00:31:40] charged. Make sure there's no activity on it, right?
Especially if you're not using it. But that brings up another point. [00:31:45] That card may have an annual fee attached to it. Okay? If it has an annual fee attached to it, [00:31:50] here's something you're gonna wanna make a decision on. Do I close it out and I'm gonna suffer the points? [00:31:55] Excuse me, I'm gonna suffer the points on my credit report.
I could lose it. Or do I put a reminder in my, [00:32:00] you know, outlook or my calendar on my phone and I say, Hey, listen, annual fee, do it this time. 'cause what happens [00:32:05] is with a lot of people is they forget to pay the annual fee at 69 days down the road. [00:32:10] That thing is now late and you got a 60 or a nine day late on your credit report because you forgot to pay the annual fee 'cause that thing's been sitting in your [00:32:15] safe.
That's a reality that happens all the time. So you just gotta make a choice. Either use the card [00:32:20] or. Don't use the, and remain active on it, and then you know exactly what's happening or don't use it [00:32:25] because it's not beneficial to you anymore. Close it out, lose some points, or put it in a safe and put some [00:32:30] reminders on the annual fee dates so you know exactly when that's due, so you don't get stung on that.
So keep that in [00:32:35] mind. Another thing to do is if you are, you know, you're, you're using the credit cards, you're [00:32:40] not using the credit cards, you just talked about that, but you have the score you want. I would highly recommend a really [00:32:45] sophisticated credit monitoring system. You know, a lot of people will use LifeLock.
They're probably number one [00:32:50] Id shield is number two. If you're using a Chase card, if you're using Amex, discover, any [00:32:55] of those major ones, they're going to have a credit journey or a credit identity or a credit [00:33:00] tracker built in. And if you're not using that, that's free to charge. You automatically get that as part of your credit [00:33:05] card, so you should be able to find that tab.
You know, I'm, I'm looking at one right now from Chase call Credit Journey. You [00:33:10] just click on that and it will walk you through. It's done pretty well. But again, it's on the [00:33:15] premise of that Credit Karma system I was talking about that Vantage 4.0, so it's not really getting the same [00:33:20] look as what lenders look at.
So it's gonna be a different scoring system, but you get an idea of what's showing up in [00:33:25] your credit report. The idea behind having something on your credit, excuse me, monitoring your credit, is exactly [00:33:30] that. It's not necessarily to get the score, it's to monitor your credit. You want to know if a medical collection shows [00:33:35] up.
You wanna know if something's being charged on your credit card that you're unaware of, whether it's this card that's [00:33:40] monitoring it, or it's other cards that you have. You wanna know if your credit's been pulled. They'll tell you that [00:33:45] too. That's important. The question we get all the time, Hey, listen, my credit score was pulled [00:33:50] on.
June 1st, and then it was pulled again on June 15th and my score fell 30 points. [00:33:55] It's probably not why your score fell 30 points. I mean, if you noticed in, you know, the things that make up [00:34:00] your credit score, 35% payment history, 30%, the amount owed [00:34:05] 15%, the length of history, 10% new credit. 10% how you use that new [00:34:10] credit.
I didn't see any percentage in there on how many times your credit was pulled. That's 'cause that's not the case. [00:34:15] The irony is in that scenario is that your credit's pulled on the first and then it's pulled again on the 15th. It [00:34:20] goes back to those rolling billing cycles we talked about. There's probably a creditor that popped in there and that 15 [00:34:25] day window and reported a new balance.
And that new balance is probably what drug that score down. I could [00:34:30] almost guarantee if you took both bureaus and put 'em side by side, one of those trade lines has a higher balance over [00:34:35] 30%, which is what dropped your credit score or medical collection popped up or you missed a payment. [00:34:40] Any of those things could happen.
It's not because someone pulled your credit. And I know people argue with me. [00:34:45] All day long on that, but that's not what's causing that credit score to fall. And that is not part of the credit [00:34:50] scoring model on here either. Alright, last but not least, maintaining that great credit score is [00:34:55] be a conscious credit user.
Again, I think that's one of the biggest thing that gets missed here is that people aren't [00:35:00] always monitoring and looking at their own credit. I mean, treat that thing like you do your monthly paycheck or your [00:35:05] weekly, or your biweekly paycheck. You know, treat that thing like you do your mortgage statement, like look at your [00:35:10] credit on those sites that I'm referring to, and take an opportunity to make sure everything on there is [00:35:15] accurate and correct.
And then also. Start building up for your kids, you know, at the early age of [00:35:20] 13. You can start adding them on there. And then if you're beyond 18, work with your parents to get put on. You know, if they haven't [00:35:25] done it yet, work with your current parents to get put on as an authorized user. Extremely important.
Great way to build depth, great way to [00:35:30] build a payment history on there. So if you guys like what you're hearing, please five star review this podcast. ~We're on any platform in which you check out your podcast. If you would leave some comments specifically on Apple, we'd really like you to go to Apple five Star, review this and leave some comments on Apple for us,~ and then check us out at [00:35:35] our YouTube channel.
All the screenshots, all the notes, everything we talked about will be on there,
till the next time, we'll catch you on the next [00:35:40] episode of Watch Your One More. I got one more shot. I'm gonna make it one more [00:35:45] chance. I'm gonna take it time for me to do [00:35:50] it. I got [00:35:55] [00:36:00] one.
