Ep. 3 – What Do You Need To Know About Credit 

If there’s one thing in adulting that nobody wants to talk or think about, it is credit. It is a scary thing and the most significant part of adulting. Know exactly what is meant by a credit score, where this score comes from, what opening different lines of credit entails, whether you should or shouldn’t get a credit card, and more as David shares the nitty gritty in starting to build credit and a couple of tricks on how to increase the limit.

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What Do You Need To Know About Credit

I’m doing this one pretty quick. I’m doing this show because part of my mission is to help you out there, all the first-time home buyers who have been getting screwed. You’re not getting the right information and you’re not having people come and talk to you early enough before you start the home process. It’s my mission to change that one buyer at a time. Part of that mission is I talked to someone about credit. If you’re reading this, that means you’re a glutton for punishment. I can’t believe you’re already reading this. Credit scores are a scary thing. It’s the biggest part of adulting. Nobody likes to talk or think about credit scores, but it’s incredibly important.
I want to do my best to give you a ton of information. Why am I doing this one so quick? I just spent an hour on the phone with a credit specialist. I’ve been doing this for many years. I’ve been helping people all over with their credit. I learned a whole bunch of new stuff. I’m so excited about it and this is the thing. This is new information to me, but this is the information that you need to know. This is getting deep down into it. This is learning all of those dirty little secrets. That’s the stuff that you need to know about. That’s the important thing that’s going to help you. This is for everybody. I don’t care if you’re five years from buying a house or five days from buying a house.
I’ve got tips for those of you who are starting out trying to build your credit. I’ve also got tips for those of you who have been building your credit for a little while and looking for a couple of the tricks to get over the hump. There’s way too much information right here. I got many years of information and about twenty pages of notes that I took from my hour-long conversation. First of all, what’s your credit score? It comes from a FICO score. Fair Isaac is the FI in FICO. It ranges from 350 to 850. Here’s the way the scores work. If you’re 760 or higher, that’s excellent credit. You’re going to hear different things from different people, but that’s pretty much the basics. One of the other interesting things is very good credit is 725 to 759, but as of the first quarter of 2019, 720 is the cutoff with some of the mortgages.
I would say that 720 and above is actually very good. 660 to 724, you’re pretty good, below 660, it’s not so good. Your score is below average. Where does this score come from? These percentages vary depending on who you talk to, but about 35% of it comes from your revolving credit and how you pay on that. It’s based directly on it. If you’ve got late payments, you have negative things on your credit report and making sure that you’ve been responsible with your revolving credit. It leads us to the interesting thing that about 15% of what your score is based on your history. That’s how long you’ve had credit. I’ll give you some tricks.
I promise you there are lots and lots of information coming up. I can help you with your history even if you’re 22 years old and you’re starting out. The 30% of your score comes on your mix. That’s something we’re going to talk about too, trying to open different cards. There’s a very specific way to do that. Opening different lines of credit and then that will depend on how much is on each card, your available credit that comes into it. The other 10% comes into inquiries. We’ll talk about that because you don’t want to have too many inquiries and also how new your credit is. That’s the final percentage that makes up your credit score.

Apply For The Same Type Of Credit

Here’s a little trick. Trick number one, do you know that you can apply for the same type of credit multiple times and only get one hit on your credit history? If you’re going out shopping for a car and you go to a car dealership, you can go to five different dealerships and have them run your credit five different times. As long as it shows that you’re looking for a car and you’re only going to get one hit. They did that to help you, to help the consumer so that you could do some shopping. Here’s the thing about credit scores and this is what I found out. I know that they have different scores for different types of things. Did you know that you have 28 different FICO scores?
[bctt tweet=”Robots are controlling your future.” via=”no”]
I’m going to keep giving you more information. You guys deserve this stuff. Twenty-eight different FICO scores and you can go online and everybody tells me, “David, I’m buying a house because I know exactly what my FICO score is.” No, you don’t. You really don’t know because there are 28 different scores out there. Experian has ten different scores. TransUnion has nine and Equifax has nine. Now you’re going, “David, who are those people?” If you’re a newbie and you’re trying to figure it out, there are three different credit bureaus. There’s Experian, TransUnion and Equifax and they’ve got 28 different scores between them.

Errors On Credit Reports

If you go on Credit Karma and think that you’ve figured out what you got or FreeCreditReport.com, those numbers might not be correct. You’ve got to make sure that you talk to a professional when you’re ready to go. Here’s the next thing that blew me away. I thought this number of errors on credit reports was about 30%. I talked to a credit specialist. Do you know that the Fair Trade Commission came out with a report that said that 77% of all credit reports contain errors? 77% and that’s from the Fair Trade Commission. They went and they talked to TransUnion. They thought they had them.
They got them under the press and they were like, “TransUnion, did you hear about this? 77%, what do you have to say about that?” The TransUnion said, “Yes, that sounds about right.” It’s crazy. Most of the errors are easily changeable and we will talk about this. I’m going to give you the tips on how to get these things off. The easiest ones to get off are medical issues and telecommunication delinquents. That’s your phone, your cable bill and satellite stuff. They’re the easiest to challenge. Student loans are a hot topic. Everyone’s freaking out about their student loans. Why are student loans such a bummer on your credit report? You usually don’t get your student loan in one chunk.
If you’ve got $100,000 or $200,000 loan, you didn’t get it all at once. You’ve got it in stipends. The way the credit bureaus look at your student loans are individual events, so you can have up to twenty individual events for your student loan on your credit report. Why does that matter? If you miss one late payment over 30 days and this is tip number one, two days late is not late, it won’t get reported to the credit bureau. Thirty days is late. If you’re past 30 days, that’s when you get reported. If you’ve got one of those student loans and you’re looking at twenty different marks each time that that stipend came in, twenty different events on your credit report. If you’re late on one payment, you have twenty bad marks and bad hits on your credit report. Stay on top of your student loans.
Here are the tips. I’m going to start with the basics and then I’m going to finish with some stuff that’s going to blow you away. The first thing is maintaining your balance on your credit cards. Keep a low balance, that’s what you want to do. I’ve got some real deep dive stuff on that. Another quick little tip is set up automatic bill payments. It makes things easier. Don’t blame the mailman. Don’t blame the fact that you haven’t gone to your mailbox in a week. Set up automatic payments. We’re all online. It’s super easy. If you are going to go out and you’re going to look for credit cards, there are a couple of great sites out there. Make sure that wherever you’re looking at, you check it against the Better Business Bureau, the BBB. If you don’t know what that is, it is not a boy band from the ‘90s.
The BBB is the Better Business Bureau. They’re going to give you a letter grade A to F. Check them out. There are some great sites out there that can help you. If you are out there shopping, make sure that when you’re shopping for a credit card online that you’re shopping for within the 30-day period. I like to say within 21 because you never know. The other thing too is you’re going to get a lot of stuff in the mail. Don’t get all stoked and all excited when someone sends you something in the mail. Just because someone sent you something and said you should get a credit card, it doesn’t mean that’s the best rate. We’re going to get back into this adulting stuff.

Create A Budget

I know you don’t want it. I don’t care if you are five years away. Share it to your friends who are out there being irresponsible with their credit. Share this show, but you’ve got to create a budget. Create a budget for yourself, reduce all the non-essential spending and then track your spending. There are ways to track your spending, you can look at an app. Also, you want to review your credit score every once in a while, AnnualCreditReport.com is one place you can do that. That’s a government site that actually allows you to check your credit three times a year, but I’ve got something even better. Make sure that you’re staying on top of things and you don’t let your accounts get past due.

Don’t Close Your Accounts

If you see incorrect information on your credit score, we’re going to figure out how to dispute that. Pay down your debts as best as you can. Here’s a big tip. Don’t close your accounts. I don’t care if you’ve got that card in college and it is 27% interest. Do not close that account. Credit history is a huge part of what you’re doing. You’re going to keep the account. Here are the tricks that you’re going to do. You’re going to keep that account. You’re going to use it every once in a while for something that you were going to buy out of your checking account or out of your debit card. Use it and then pay it right off. After you do that for six months, eight months, twelve months, you call them and say, “I’ve been a good responsible credit card person. Do you think that I could reduce my interest rate or can I raise my available credit?”
A great trick for you to do is make sure that you pay off your high debt instead of moving it around. You can talk to a credit specialist, someone who can help you and show you exactly which card to pay off when. Dave Ramsey likes to say start with the one has the highest interest rate. Pay that one off, double up on that one until you finish with that one rather than paying the minimums on everything. Don’t move the debt from one card to the other. Pay them off individually. If you’ve been managing your credit for just a little bit of time, don’t end up trying to get a whole bunch of new cards. Keep the cards you’ve got, work the balances there and keep them low. We’re going to get into the nitty-gritty stuff I was talking about.
There’s something called an authorized user. I put this up on my Facebook page. I’ve got a Facebook page out there called How to Buy a Home. Look for How to Buy a Home with David Sidoni and ask to be in the group. I’ll put you in there. We’ve got tons of buyers out there that are talking to each other all day long and giving them tips. This is something that I put up. An authorized user means mom, dad, uncle and friend, somebody that you know. Do not do this with a stranger. I’ve actually heard there are companies that are letting you find an authorized user, which means I have a credit card and then I’m going to let Joe Smith come on my credit card. Do not do that with a stranger.
You want to make sure that the person has a good credit line and no lates on that card. If mom and dad or a friend has a $15,000 or a $20,000 credit card, you put your name on there and then you look like you have that credit history. Here’s the cool thing. Ask mom and dad if they’ve got a Sears card. I know Sears, it’s old. You might not even know what that is, but that’s the point. They might have a card from 1972. Sears card, if you could on there. Suddenly you have a credit history that goes to years before you were born. Also, you never want to do that with American Express. American Express doesn’t validate an authorized user. They take it from the date that you go on, not the date that the original person was.
You want to do it with Sears cards, gas cards, Visa and Mastercard but the older the card, the better. Here’s another trick for you. If you’re out there using your debit card all the time, instead of using your debit card for gas, for groceries, for the regular things that you’re going to buy, use your credit card and then pay it off. Here’s the real insider trick, this is something I found out. The credit cards report to the credit bureaus at different times. Some are on the first, some are on the tenth, some are on the twentieth, some are on the 27th you never know.
[bctt tweet=”Pay down your debts as best as you can.” via=”no”]
If you’re one of those people who uses your credit card all month long and then pays it off out of your checking account, instead of using your checking account all month and you think you’re doing a good thing, they might report on the 26th the day before you pay it off. You look like you used 90% of your credit card all the time, even though the next day your credit card was down to zero. Here’s what you do. You use it. We’re in the 21st-century kids. Go online, pay it off. Use it for gas, for groceries, go online before you go to bed, pay it off. What that does is it builds up your credit. It shows that you’re responsible. This is getting into the big tips. Those of you are getting close to buying a house, here’s some important stuff.
If you have a credit card and you get it down to a zero balance, you do not want a zero balance. I found this out from a credit expert. If you have a $10,000 credit card and it has a zero balance, it keeps a zero balance for up to six months. It actually lowers your score. A lot of people out there don’t know this. A lot of people don’t know that zero balances are not a good thing. We all know you’re trying to be responsible, but you have to know the tricks the way that the credit bureaus look at you and there are 28 different scores. Never keep a zero balance for more than six months. Keep it below 20%. Some people say 30%, the truth is you want to keep it below 20%.
Once you get down there, you’re getting to the end and you’re getting ready to go, if you need a little bump, if you need to get from 715 to 720 and you’re right at the end. If you’re reading this because you’re figuring out how to buy a home and you’re getting ready to write an offer on the house, you can do something called a rapid rescore. Talk to your lender, talk to your professional. A rapid rescore is going in correcting a mistake with the credit bureaus. It costs a little bit of money, $150, $250, but your score can go up 10, 15, 30 points in a matter of 72 hours. That’s something that you can use.
This is the very biggest tip. At the end of the period when you’re getting ready to get that big application in for the mortgage, at the time of the applying for the loan, if you’ve been doing what I told you about. If you’re keeping your credit card balances below 20% and not zero, this is where it gets tricky. If you’re a couple of weeks before you’re applying for a mortgage on a home, you want your balance to be between zero and 1%. I’m not telling you this because I made this up, I’m telling you this because I just talked to somebody a lot smarter than me about this stuff. Someone who’s been doing it for a long time between zero and 1%. You don’t want to keep it there for years, but as you get up to ready to buy a home between zero and 1%, it can bump your score ten to fifteen points. That’s the big trick.
How do you do these things besides these tips and tricks? What happens if you’re one of the 77% of the people who have incorrect information on their credit report? What if you’re five years away? What if you’re three years away? What if you’re two years away and you’ve got a bunch of crap on your credit report and you’re trying to figure out how to get it off? You can talk to a credit specialist. I just spoke to one for about an hour. You’ve probably got one in your area. You can hit me up on Instagram. That’s @DavidSidoni #HowToBuyAHomeGuy. I’ll be able to get you some information and maybe help you out with somebody in your area. This is my new mission. I may not know somebody in your area, but I can tell you there are some good credit guys out there.
What they do is help you with the challenges. Why are we going to challenge? What’s going on? It’s not the fact that it’s wrong, they can challenge derogatory hits on your credit report for things that you actually did do wrong or that you did do incorrectly. There’s a very strict law. The credit bureaus need three valid pieces of information and validation that it was you and that you were late on your payment or that you skipped town and didn’t make your last payment. It’s very easy to challenge them and go on there because you can challenge things like typos on the date of birth, the address, if the middle name is spelled incorrectly, the middle initial, if the dates are incorrect, if the dollar amounts or the cent amount is off by a penny.

Important Links:

• Experian
• TransUnion
• Equifax
• Credit Karma
• FreeCreditReport.com
• Better Business Bureau
• AnnualCreditReport.com
• How to Buy a Home with David Sidoni – Facebook
• @DavidSidoni – Instagram
• MyFICO.com
• [email protected]

This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
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