A quote goes that if you don’t take good care of your credit, then your credit won’t take good care of you. Knowing full well the truth in that statement is Merrill Chandler, CEO and Chief Strategist at CreditSense. Merrill digs deep and highlights the importance of having not only a good but also a powerful credit profile. After all, what your credit looks like will determine whether you can get business lines. Merrill shares how we can build a powerful credit profile of our own and talks about credit repair, the FICO score, and the common mistakes people make with their credit profiles.
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There was a quote that once said, “If you don’t take good care of your credit, then your credit won’t take good care of you.” Why is your credit score and profile important? Your credit profile determines whether you get loans, the rates you pay and the types of loans that you can get. Your credit determines a lot more than the loans you can get and the interest rates you pay. Insurers use credit to set premiums for your auto and homeowners coverage. Landlords use them to decide who gets to rent their properties. Credit also determines whether you can get business lines of credit that can be in the millions of dollars and can be used for some of your real estate investing strategies. Since credit has become such an important part of our lives, it pays to keep track of your credit profile and understand how your actions affect it.
On this episode, we’re going to learn about the differences between your credit score and credit profile and the importance of it all in every part of your personal and business life. Before we get to the episode, I want to read a review that I found on iTunes. iTunes is where we get probably 80% to 90% of our traffic and most of the reviews show up there, but we get great reviews every week. I truly appreciate it. It is inspiring and motivating for me personally. Someone posted a review. It was titled Amazing Podcast. They go on to say, “I have been listening to the podcast. It has good content for new investors like myself. I sometimes listen to episodes two or three times. It is good content and I want to get as much content as possible. Marco provides knowledge, education and confidence to the audience. Thanks a lot to the whole Norada Real Estate team.”
I appreciate that review. It meant a lot to me as they all do. I do read them. Thanks in advance to everybody who plans to post a review and thanks to everybody who has posted a review. Last but not least, if you have a question about real estate investing, I plan to cover most if not all of them on the show in an Ask Marco! episode. I try to reply to everybody in an email, but feel free to click the Ask Marco! link at the top of the website at PassiveRealEstateInvesting.com. I will be happy to reply and do my best to cover those questions. If you haven’t already, please remember to subscribe. It only takes about three seconds. Click the subscribe button or link in your podcast player. Let’s get to our interview.
If you missed our last episode, be sure to listen to 7 Powerful Tools To Create Legacy Wealth From Real Estate (Part 2).
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How To Build A Powerful Credit Profile
It’s my pleasure to welcome Merrill Chandler to the show. He is the CEO and Chief Strategist at CreditSense. He has been an influential player in the credit restoration industry for many years. He has co-founded numerous successful credit restoration firms around the country including Lexington Law. Unsatisfied with the results of his credit repair alone, Merrill used his extensive knowledge of credit reporting and credit profiling to invent and dominate the credit profile optimization marketplace. Since 1997, Merrill and his staff of advisors have assisted real estate investors, business owners, entrepreneurs and savvy consumers nationwide to create fundable tier one and even 800 plus credit profiles. Merrill, welcome to the show.
Thank you very much, Marco. I love being here.
It’s great having you here because I met you a couple of years ago. I heard you speak a couple of times. You’re an engaging speaker. You know your stuff about credit and credit profiles. There’s a difference between credit scoring and credit profiles as we’re going to learn. You became an expert in this whole area of credit profiling. Can you give us an overview of that journey? Where did you start? How did you get here?
I started or co-founded Lexington Law, which is the largest credit repair law firm in the country. While I was there, I was exposed to tens of thousands of credit profiles, befores and afters. Being the puzzle guy that I am, the dot connector, I started noticing certain things when we would delete accounts or we’d delete a negative item, the score would go up. A five-year-old bankruptcy, the score would go up X, but a one-year-old bankruptcy, it’d go up 2x or 3x. I started doing the math with this process and started finding out what ended up being reversed engineering, the FICO scoring algorithm. I went back to FICO, I met with the CEO, Will Lansing, who then introduced me to his score development teams and the rest is history. I’ve had the inside track on what it means to be fundable, what a personal credit profile and what a business credit profile all need to look like in order to be fundable.
FICO is tight-lipped about what their algorithm is. They don’t share any of that. It’s like the Coca-Cola formula.
They don’t. I was allowed to ask 100 questions of them and I already knew more than most individuals approaching them to know about the algorithm. Before I met with the score development teams, I had to sign an NDA in order for them to even answer any of my questions. I already knew what I knew, but they didn’t want me promulgating it through the whole marketplace because they are careful with their secret sauce.
Tell us why you’re not a credit repair company. The reason I ask that question is I didn’t know the difference between a credit profile and a credit score. I thought they were one and the same but they’re not.
They are not. Credit repair is a simple process which you can do on your own. Write a letter to a credit bureau and hope something comes off. You cannot repair your way to an 800 plus credit profile. You can’t repair your way to a fundable profile. You could delete a few negative items, but FICO measures 40 characteristics of a profile. That’s only eight have to do with derogatory accounts. That means there are 32 ways that you can raise your profile and your fundability without even touching a negative account. It’s not about bad credit. One of the metaphors I use is the NBA. Bad credit puts you on the bench. Good credit will get you on the floor, but you’re not going to get the ball, fundability, credit lines, credit cards, business and personal credit. You’re not going to get the ball unless you’re a great player. We need not just to get you off the bench if you have bad credit. We need to make you fundable. There’s a whole way to address your personal credit profile, even your business credit profile so that lenders look at you and go, “I want to give him the ball. I want to give her everything she needs to borrow from me because I trust her as a borrower.”
There are about 40 items that lenders look at, but only eight of those are related to payment history. Does that mean they’re all important or only some of them are important?
Every one of them has equal status. Out of those 40, there are thirteen credit score cards. You can fall into the bankruptcy category or the collection category. Five of those scorecards have to do with negative credit. Eight have to do with positive credit. You see the trend here. They measure more when it comes to the positive behaviors that you have. If you don’t have the right positive behaviors, I hear all the time, “As long as my utilization or balances are less than 40%, I’m okay.” No, you’re in the risk department at 41%. At 40%, you’re not in the risk department, but they’re monitoring you. It’s what’s called a 24-month look-back period. This look back period guides all 40 of these characteristics, not just your payment history. Payment history keeps you in the game. These other 39 characteristics are, “When do you pay? What’s your balance over the last? What kinds of traffic patterns? What amounts do you put on the credit card?” They’re looking at the relationship between the due date and the reporting date. There’s a whole bunch of things you can trip up and fall flat on your funding face if you don’t know what you’re doing.
Clearly, it’s complicated. I’ve learned it’s more complicated than even I originally thought. Even the credit reports themselves, there are fourteen of them. A car company, if you’re out to buy or lease a car, will use one of them. A furniture company will look at it different one and a mortgage lender will look at the 8B. Is that correct?
FICO has 85 different algorithms depending on the thing you’re purchasing. There are all the FAKO scores as well. FAKO scores are anything that doesn’t have the FICO logo on it. There are 80 million users of Credit Karma and Credit Karma uses a FAKO score. They use the VantageScore. There’s not a lender out there that uses the VantageScore to approve you for a loan, but there are 80,000 of them.
That’s a lot of people and they advertise like crazy getting people to join. Their business model is to sell advertising so they want lots of eyeballs.
They are selling credit cards that most of them are not beneficial to your personal credit profile. It’s gnarly. It is a wolf in sheep’s clothing gig.
What you’re saying is a true FICO score comes only from FICO, no one else.
That is correct. You want to make sure you know what FICO score you’re working with. FICO scores also have auto scores and mortgage scores. They have leasing scores. There are collection scores. There are all kinds of stuff that do not even come close to your credit cards, paying on time or whatever. You need to know not what scores are out there, but what scores your lenders are using and to make things even more complicated, there are versions. There’s what’s called 542. There’s what’s called FICO 8, FICO 9. These are versions of scores that different institutions use so you don’t know what bureau they’re pulling. You don’t know what score algorithm they’re using and you don’t know what version of that software they’re using. No wonder you pull a credit report and go, “I can go get a car,” and you walk in there and it’s 40 points or 60 points lower than your Credit Karma score said.
It’s clearly not simple. It is complicated in terms of an algorithm, but it’s not necessarily complicated in terms of building and helping rebuild or improve your credit profile. You had a great analogy about playing on the field or sitting on the bench. The analogy I was thinking is that credit repair and working on your credit score has more to do with damage control, plugging holes and maintaining what you have. Whereas building a better credit profile is improving your overall picture and your fundability. It’s not just about the score.
Do you realize that credit scores are like the third or fourth most important indicator for a lending decision? Depending on the thing you’re buying, there are two to three more important. The 24-month look back period is how they evaluate the long-term use of other people’s money. Even on business funding, they look majorly at how you treat other people’s money. All of that comes to fundability, not credit score. We’ve been at the same conferences. People walk up to me and say, “Why do I need you? I have an 800 plus credit score.” I go, “Where’s your $1 million in business lines of credit that should come with that?” They’re like, “That’s why I’m talking to you.” I’m like, “You have a good score. It’s artificially high, but your profile is not optimized to meet business lending guidelines. All we need to do is optimize your personal profile. The business lenders will look at you like you’re the golden boy. You’re the golden child. You’re the golden girl.”
For people who are reading this and it went over their head or they weren’t paying attention, that was the $1 million ticket right there. That’s the Golden Ticket in the Willy Wonka Bar because you need to have a good or great credit profile and those other factors need to be in place. It’s not about score alone. If you have 800 plus credit score doesn’t mean you’re going to get the best deals or business lending loans.
That’s the essence of it all, fundability versus score.
A lot of people knowingly or unknowingly are doing things that lower their score now and probably damage their credit profiles. Can you share some of those more common “mistakes” that people make?
Probably the biggest one and we have resources that you could check into this in a deeper dive. Most people, when I say the words, they’ll recognize it but they haven’t thought of it before. There is what’s called a reporting date. The date your account reports to the bureaus. Chase, Citi and PNC Bank, they report on a certain day every month to the bureaus. That date is different than your due date. Sometimes they have no relationship. It could be five or ten days before or after your due date. If you’re carrying a balance, if you use that card to charge up, pay your bills, get the points and miles and all the rebates, if you have a balance when it’s reported, you’re getting what we call a chronic high balance of warning on your underwriting. Even if you pay it to zero, every month they’re reporting this high balance every time it goes to the bureaus.
You think you’re a great borrower and you’re getting docked. The number one most important factor they measure for funding is the 24-month look-back period. That look back period is going to measure that you’ve been carrying this balance. You have 200%, 300%, 20%, 50%. Some of you charge up 80% of your cards but pay them off when it’s due. If you’ve got that 60%, 70% or 80% being reported on the reporting date, that’s what FICO is measuring and it’s crushing the soul of your profile. That is the number one hemorrhaging of credit of fundability points, not even credit score points. It’s what the lenders are looking at, how you treat money. That’s what’s being reported.
It sounds like such a simple thing that’s not obvious in any way.
It is an important secret that we talk about in our education programs, our boot camps and everything. There are probably 70 of these of this level of importance that people need to know. Stop falling on your funding face. Stop tripping up and stop hemorrhaging all of these lost fundability points, credit score points because if you know the rules of the game, you can win the game. If you don’t know the rules, we’re just bumping around in the night.
Do you want to share one more common mistake people make?
We broached on it, but one of the biggest mistakes is the difference between FAKO and FICO. I cannot emphasize it enough because most of your readers out there are going to be subscribing to something else. Here’s a freebie for you. If you want to monitor your credit, go to myFICO.com and pick whichever thing you want to monitor. I don’t get paid for it. If you’re going to start taking an interest in your personal fundability and your credit profiles, you’ve got to know the facts. You’ve got to know the truth. You’ve got to know exactly what a lender is looking at, nothing else. I don’t care if Credit Karma is free. There’s no relationship between what the lenders use, Credit Karma or any other credit monitoring that doesn’t have FICO on it. That is one of the biggest blunders ignorant people make. We inherited our parents and our generation’s different beliefs about money. The second you see the truth, you have the power to make a difference.
Before I met you a few years ago, I didn’t know the difference between Credit Karma, myFICO the app and myFICO.com. There are a few others out there. There are different apps you can download on your iPhone that monitor your credit. The thing is I subscribed to myFICO a couple of years ago when I first learned about it from you. That is a great app, a great service and it is spot on accurate because not only does it give you your credit reports, but it tells you what your real scores, what’s affecting it and why it’s moving up and down.
You get weekly notices, “There’s a balance change. There’s an inquiry. If it’s not yours, go check it out.” All the credit monitoring, the credit protection stuff of any other service is included in this, but it’s real intel. It’s actionable intel, it’s not bunk.
Our audience is predominantly real estate investors. We have business owners and all people who listen to this audience all around the country and all around the world. I’m thinking of this as a real estate investor and the importance of having good credit and having available capital to jump on deals if and when they come across my desk. As real estate investors, we want to have the highest scores possible and the best credit profile so we can get the lowest possible mortgage rates. How much of a difference can your credit score make in terms of that interest rate on your mortgage? Is it a big difference? Is it a small difference? How does it scale?
Let’s say 5.50% is a good interest rate. You can count on for every 20 to 30 point difference in your score being another between almost a 0.50% point on the rate you’re going to get. Some depending on who you’re using may go three-quarters of a point, every 20 to 30 points because those are tiers. Every twenty points is a different tier set with FICO. 680 is different than 700 different from 720 different than 740. Every time you punch through one of those tiers, you’re picking up somewhere between the best a quarter, most of the time it’s about 0.50 point per tier. Those 0.50 points, if you’re a buy and hold investor where you’re trying to accumulate the ten Fannie Freddie’s that the government allows for it to have the best possible rates, you’re sitting here looking at another $3,000 a year per property that is bleeding out, $3,000 per set of three. It’s about $1,000 a year difference over the course of your mortgage is going to end up being in the dozens of thousands of dollars per property.
Improving your credit score and more specifically your credit profile to get better rates pays for itself.
It’s a no brainer for those of you who are using hard money to take down loans and things like that because you have a great personal credit profile. You have a fundable business. Imagine being able to write a check with a true business credit line. Not a credit card that ruins your personal credit. As many of you found out, you charge it up, your scores drop. You move all of that over onto the business side. You qualify for the best business. There’s 5% to 7% out there in the market for business credit lines when you have a spectacular profile. When you’re fundable, imagine writing a check and doing a deal not using hard money anymore.
I had a client that came in with my valet service. He’s in Washington State and he’s making $30,000 to $40,000 in a flip. He said that $10,000 to $15,000 of that is going every single time to his hard money lender. It would pay for itself many times over with one deal. He’s saying, “If I can save every deal, I’m saving $10,000 and putting that money in my pocket because I could write a check with the credit line, take the property down and they get long-term financing.” This is a no brainer. It’s about education. It’s about becoming fundable and doing what you need to do to stop failing at being fundable. I gave a couple of examples of how we don’t know the rules of the game and we need to in order to succeed.
If I asked you what some of the best practices or secrets are to build a strong credit profile, would it be doing the reverse of what you were talking about before as being mistakes?
There are some great things. First of all, I’m going to tell everybody, FICO looks for consistency and fastidiousness. Here’s a freebie. Most people don’t know this. Sometimes they make their payments, car payments, mortgage payments or even credit cards early. That’s fine as long as you pay something on the due date. If you do not pay on the due date, what it’s triggering if you look on your consumer disclosures and your raw data files, you will see there’s a due date and the date paid. If it’s earlier than that and if there’s no payment made on the due date, you’re not getting the FICO bonus points of fastidiously paying on the due date. We can say, “Hold on, I’m paying early.” I’m like, “Yes, you are, but you’re also not being consistent with the way FICO measures it. Know the rule. Play the game. Master the game.” I don’t care when else you pay. Pay on the due date and you will get bonus points after a few months’ worth of funding. Both FICO and underwriting software is looking for your relationship to the due date, every one of them. This is one of those best practices, how to improve your profile.
Another one that’s simple is they’re also looking for consistency. It’s how weighted in the community and how serious of a borrower you are. They’re the biggest group that says, “What have you done for me lately?” They want a consistent record. Most people don’t know that when you close an account, even a positive account, it falls off the credit report after several years. You’ve got to keep fresh credit in there to be able to leverage it, but what people don’t know is that you need the best credit profiles to have at least one mortgage and at least one auto loan. I may get clients calling me up saying, “Merrill, my score dropped twenty points. What happened?” I’d say, “Did you pay for your car or your mortgage?” They’re like, “I paid off my car. I’m getting a new one.”
I’m like, “Know it’s going to rebound, but you get fifteen to twenty points for having an auto loan. Having two auto loans don’t give you more.” They want at least one auto and one mortgage that show you that you are a consistent long-term borrower. There are dozens and dozens of these things that in our education we love informing and we want a consumer to become a professional borrower. Stop being the consumer. Your consumer credit profiles are killing your chances at being fundable. We want you to be professional borrower, so a lender looks at you and says, “I want to give you more money.”
I have a personal question. The car loan, does that include a lease or is it a loan?
Leases show up the same. Let’s say you’re leasing a $50,000 car, the amount that will show up on your credit report will be the least amount, the $20,000 of the few years you’re going to be keeping it. It’s a lower amount. You’ll get a $20,000 loan lease on your auto trade line, but you won’t get the $50,000. Buying a car gives you the $50,000 version, but it all counts.
Is it still a benefit? The lease works the same as a loan, just not as well as much.
It does give you the points for the amount that you’re borrowing because whether we like it or not, the more we borrow, the more credibility we have with other future lenders who look at us saying, “We like how this individual uses other people’s money.” That’s what they’re measuring. I call it borrower behavior. FICO calls it performance data. They measure how we treat other people’s money.
I learned a few things I’m doing wrong. I prepay my credit cards before the due date because I put big chunks on my credit card to pay it down or pay it off.
We all do. Pay off anything you want, but make the payment on the due date. Here’s another freebie. Do not pay the minimum payment ever. What message do we send the lender, fundability, not score, if all we can make is the minimum payment? To keep the algorithm guessing, let’s say your minimum payment’s $50. Never pay $50, but if you’re going to pay $55 also pay $56, $57, $52, $59. Never give the algorithm something to latch onto, but never do the minimum. We call these funding hacks. It’s legally, ethically, morally hacking the bank underwriting systems. That’s what they educate. You need to come to the bootcamp to recalibrate your entire awareness.
Every time I hear you talk about this, and this is not the first, second or third time. I always learn something and walk away thinking, “There’s so much more I could do better in improving my credit profile and score.” I want to let everyone know that I’m a relatively new client of your company. I’m working to improve my profile and increase my score of over 800 for various reasons. I want to start building lines of business credit. I could use that towards investments, investment opportunities and all that good stuff.
Write a check and do a deal.
When you’re aware and you’re looking, you see enough deal flow and if you’re working with the right people and have the right team, you will definitely get enough deal flow to be able to take advantage of. If you don’t have the dry powder or the lines of credit available to take advantage of those opportunities, you’re going to miss them. They pass you by. You have a couple of things. You have a program that does exactly that, it builds credit profiles. You also do a monthly bootcamp, which is a virtual online event. Share with us what your program is and how it works because I am part of that and it’s great. It’s incredibly detailed. Who is this for because it may not be for everybody?
We do a Fundability Bootcamp. You’re a client. You’re taking steps, but you have coaches who guide you on your particular optimization path. We call it an optimization path because of think of a target. Everybody’s approaching the bull’s eye from different arenas. Everybody has different circumstances. What I can do and what the bootcamp is designed to do is to stop people from falling on their funding face, stop funding failures and stop all of these things, the little bits and pieces. Imagine two full days of these tips, tricks, techniques and funding hacks for both your personal and your business. Do not discount your personal because that’s what business lenders use. FICO told me to my face that 80% of all business decisions come from your personal performance data, what we call borrower behaviors, as recorded on your personal profile.
They use different algorithms and filters to look at that data. If you’re not optimized for your business lending, you’re going to get big fat noes. We have a full day on personal, a full day on business and imagine technique after technique, hack after hack. If you follow the link, you’re going to see it every month. Save the page and it will update to what the next bootcamp is going to be that month. We travel around the country, but it’s available to anybody because it’s simulcast wherever we are.
We have tons and tons of testimonials of people who were blown away from all the things they’ve been doing wrong. I can’t teach you on that weekend what to do to be fundable. That’s what our coaching programs are for. Go find out how to stop making the errors in the blunders that we’re ignorant of because we don’t know the rules of the game and I don’t hold it against anybody. I’m saying now you know. The pricing is crazy valuable. It’s $97 to attend once, at the weekend. It is $197 if you’d like an entire year’s worth of access to all of the bootcamps for the entire year and it’s $497 if you want all of that and a strategy session with me. Normally, it costs $2,000 to spend an hour with me in strategy sessions at a significant corporate and funding level. That’s what we offer anybody when they follow those links. It will take them straight there and they can choose whichever package. We even give a money back guarantee at the end of the first day. If you are not blown away, then you get your money back at the end of the first day.
It’s a great program. I took it all the way. I’m knee deep into this because I’m looking to build a strong credit profile. A good way to wrap this up is you said at one point in time that a person doesn’t match up to their credit profile. A good way to end this episode is to explain to people so they understand that what they have may not be what they could have because there’s a mismatch between their credit profiles.
Show me a borrower with $1 million and I’ll add a 720 credit score. I’ll show you a borrower with $1 million, a real estate investor. Show me a real estate investor with a fundable profile and $1 million and I’ll show you someone who can leverage those $1 million into $2,000 and $3,000, and even $5,000 in check writing credit line.
Do you mean $5 million?
Yes, because of the leverage, your personal profile, your personal financial reputation is the greatest single asset in your financial life. Since we don’t know what we’re doing, we do not know how to manage it so that it matches underwriting guidelines. The term you’re referring to, Marco, people say it all the time. Your personal credit is the key to your fundability. If you do the right things, then lenders will look at you and say yes because lenders only make money when they lend, but they want a sure thing. What if you knew all the things you needed to do or stop doing and then all the things you needed to do to be attractive to a lender to know with surety and confidence? When you make an application, they’re going to approve of you. It’s possible. You have total control of your profile. We’re playing with the eight-crayon color box instead of the 128-crayon color box. Let’s add some colors and make this thing rock because you can. You will if you get the education you need.
Think of your credit and your credit profile as your financeable reputation.
It is your financial reputation. We have a free web class. It’s an hour instruction, but it’s all about the bootcamp. That’s where we’re telling you about how to register the bootcamp.
Merrill, I want to thank you for your time. This has been great information. I know there’s so much more you can talk about. This is in-depth information, but it’s great.
We’ll do it again. To your audience, get empowered. Marco’s got an amazing show. All of his guests are going to bring this to the level of awareness, insight and make you guys better investors and business owners.
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I hope you enjoyed this interview. If you haven’t downloaded the free report, The Ultimate Guide to Passive Real Estate Investing, go download that guide on our website NoradaRealEstate.com or PassiveRealEstateInvesting.com. Help us spread the word. Please visit us on iTunes and leave us a rating and review. We will see you again next time.
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