Hello my friends. Welcome back to Passive Real Estate Investing where we dive into the world of real estate investing among other related topics. To help you with your real estate investing journey, today we’re doing something a little different. We’re going to take a trip down memory lane and showcase an important episode from the past on what we call our throwback Thursday episode. Now, whether you’ve been with us since the beginning, which goes back to 2015, or you’re tuning in for the first time, this episode is a must listen, we are revisiting one of our more popular episodes from the past, and believe me, what we discussed back then, whether it’s six months ago or six years ago, is just as relevant today. So sit back, relax, and let’s rewind the clock for this great episode. Enjoy.
Today we have another great episode today is about your credit score and your credit profile. Something very important as you know, because the better your credit, the better financing in terms you get on your loans, whether it be mortgage financing or for car loans or appliances or furniture or whatever it might be, even for renting. I mean, a lot of landlords will pull your credit to see what the risk factors are preventing you from making timely payments every month to them. So credit is incredibly important. It’s something you should build and protect. And my guest today is gonna talk about what credit is, how it works, how to build it and protect it, and some of the hacks to improve it. Some of them are quick. So you might wanna stick around to the very end of this episode and listen to some of the quick hacks that allow you to boost your credit and quickly with that. Let us get to our interview with Todd and I hope you learn a lot from today’s episode.
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Throwback Thursday Episode (The episode originally took place in the year 2022)
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Well, it is my honor to have a special guest today. His name is Todd Wilson. Todd is a loan officer, but he’s also a credit expert. He teaches people how to take control of their credit. He’s the author of a great book called Crack the Credit Code. I love that title. Todd spent two decades learning about credit and after experiencing the effects of not knowing enough about it, he really made it his mission to research all the smallest details about credit and how it works. So with that, Todd, welcome to the show.
Thank you. How are you Marco?
Doing great. It’s great having you on. And there was a lot of fun chatting with you before this recording. I’m kind of excited to dive into the meat and potatoes of this topic because everybody has one common denominator and that is they have a credit profile and they have a credit score. Most people don’t know how it works, how to build it or how to destroy it. They probably know how, how to destroy it better than they know how to build it. <Laugh> but you know, it’s something that we’ve talked about in the years past on the show. And I just think it’s well worth revisiting, especially at a greater depth with you, because it’s something that we need. It’s important if we’re gonna take control of our financial lives or we’re gonna be borrowing capital to invest in real estate or whatever it might be. So I really think this is an important topic for everybody to listen to this touches everybody. It’s not one of those things where I might be interested in real estate, or I might be interested in this or that this impacts everybody. So with that, why don’t you tell us about yourself? How did you get into this whole credit expert space? What was your journey?
Well, starting out as a loan officer, I had to learn about credit to begin with and, you know, everything was going pretty well as I was learning about credit and improv my own and then 2008 hit and it hit me pretty much as hard as it had hit anybody at all. I mean, you know, I went through bankruptcy, foreclosure, you know, lost everything. And I decided at that point, credit kind of got me into that mess. So I wasn’t gonna use credit anymore. And so I didn’t use credit for about three years and I realized how much that was actually holding me back because I couldn’t buy a house. I couldn’t buy a car, couldn’t even rent a car or get a hotel room without a lot of trouble. So I decided that I had to get back into the credit game, but I didn’t know how to do it.
And so I decided to ask a bunch of other people who were in the same industry, cuz I figured they know about credit too. The problem was, most of them had no idea how to get credit when you had bad credit or no credit at all. And so finally somebody gave me a suggestion on how to get my first new account. And I got that account. I couldn’t believe I got approved. And then after about six months I checked my credit score and it was actually the highest it had ever been. So I went, okay, obviously I’m doing something right, but I don’t know the whole picture. And so I started doing more research because I didn’t wanna fall into the same mess that I was in before. And as I was doing all this research, finding out how to control my credit, I found something really interesting, which was, is actually kind of shocking, which is that there’s about 250 million American adults, right? Well, 87 million of those have what’s considered bad credit. And then there was another 45 million that had no credit score at all. And as soon as I realized that I was like, that’s over half the adults in the us have either no credit or bad credit. And so the journey changed from being my own personal one to, I need to make this available to other people too.
Interesting. So you went down this road of learning about credit because it’s not that you needed it, but it was interesting to find out how many people didn’t have credit or had bad credit in America.
Yeah. I mean, you know, I found myself down that rabbit hole. Yeah. You know, finding out more and more data. And I was like, okay, this stuff needs to be known because you know, credit bureau will give you a certain amount of information, but they don’t dig deep. Right. They don’t tell you how to use, you know, the different credit scoring factors against each other and with each other to really effectively manipulate your credit score.
Well, I always like to start with the basics on the show and ask the most fundamental, basic question to get things started. What is credit? I mean, everybody hears it. They have an idea of what it is. I would believe that most people would answer that question of what is credit by saying it’s a number or a score, but it, I know it’s more than that. So let’s just start with that. What is credit?
Credit is what people who are willing to lend money, what they look at your profile, how it’s their willingness to lend money to you. And it’s based on their confidence that you’re gonna pay them back, you know, first and foremost, and there are other things that are gonna consider too, but are you gonna pay ’em back? And that’s their number one concern.
Yeah. And, and it, it is true that when we talk about someone’s credit, we’re talking about not just a credit score, which is to me boiling down everything about someone’s credit profile into a numbering system. So it’s like a quick metric if you will, but there’s so much more to credit. It’s an entire credit profile is a new.
Absolutely. I mean, there’s so many different things that go into it. You know, it, it’s easy to look at and say, it’s a number because people say, well, how’s your credit? Oh, I have a 700, you know, is, is a pretty pat answer. Or I have a six 50 or I have seven 50 or I have 800, but it doesn’t really tell you what does their credit really look like? Because you can have an 800 credit score having one credit card and you have one credit card. You know, you got a $5,000 credit limit. It’s not gonna be enough to buy a house. You know, a guy with a seven 20 credit score. And he’s got a lot more to his profile is gonna have a much easier time buying a house
And get a better rate. That’s right. So, I mean, this is probably such an obvious question to many people, but why is one’s credit so important? I mean the obvious answer is to be able to borrow, borrow money, get a loan, but is there more to it than that? I mean, I think it touches many areas in one’s life.
It really does. I mean the obvious answer is yes, it’s going to affect whether you can get money from other people, but going deeper than that, it’s the rate. What it’s gonna cost you. How hard is it going to be? You know? And then can you get another loan and another loan? I mean, how far can you extend yourself and how much can you leverage other people’s money to get forward in life? Because you know, for anybody, who’s an entrepreneur to really grow. You have to have credit unless you’ve inherited a bunch of money and you just got cash to burn, which is rare for an entrepreneur entrepreneurs. Don’t generally come from that kind of background. They come from a background of, Hey, I need to make it on my own and making on your own, usually entails having to have credit. So you can borrow money at a rate that is not gonna be so expensive that it makes it untenable for you to build your business.
Yeah, that’s true. So there must be some myths wrapped around credit, what it is, even how it works. I can’t imagine probably how many myths there might be tied to credit, but what might be one of the biggest myths tied to credit? One
Of the biggest myths I would say, has to do with getting your credit pulled, you know, credit inquiry.
Yeah. Cause I’ve had people call me and say they pulled my credit. My score went down 50 points and having your credit credit pulled one time, absolutely positively cannot cause your score to drop 50 points. It’s impossible. More than likely what happened was they checked our credit score on credit karma or, you know, they checked, you know, Experian or, you know, Equifax or something or maybe one of their credit cards said your credit score is this. Then they applied for a mortgage. And the mortgage credit scoring is a different scoring model. There are over 50 different credit scoring models. And so when somebody says, my score is, that’s just one of their scores, you know? So their score was 700 and then they applied for a mortgage and all of a sudden it’s six 50 <laugh> well it’s because it’s a different scoring model. It was probably pretty close to six 50 before it was pulled.
Right? Yeah. That’s something I learned, not that long ago, but long ago, I’d say six, eight years ago. Maybe at most I thought, you know, a credit score was a credit score was a credit score, but there are three bureaus, but each bureau has different models. And there’s your fi O eight, which is one mortgage lenders. You look at a FICO four and six and 12 or something like that. I mean, there’s all these different models. Can you maybe talk about that? Why there’s different models and what it might mean?
Yeah. So you’ve got, as you mentioned, you’ve got the mortgage ones, you’ve got ones for car loans. You’ve got ones for credit cards. You’ve got the ones that sell to the public, you know, and, and there are various other ones that, you know, honestly, I don’t know what they all are because it’s not important enough to really dig in and find out, Hey, what’s the, what are all of ’em? You know, but for mortgage, I’m sure it’s weighted a certain way towards mortgages because what’s the most important thing to a mortgage lender. It’s the guy’s mortgage payment. Have his mortgages been paid on time? You know, if you have a mortgage late, I’ve seen people’s credit scores drop a hundred points from one mortgage, late payment, whereas a credit card payment, I’ve never seen somebody’s credit score on a mortgage credit report drop anywhere near that much. So that would be my guess, is that they’re weighted in terms of those industries, like for car loans, you know, your credit score is usually from what I’ve seen, always gonna be higher when you’re applying for a car loan than it is when you’re applying for a mortgage.
Interesting. One of the services I’ve subscribed to, you know, it’s not cheap, but it’s not expensive. It’s my FCO. And it allows me to actually track the real scores and real history and activity on my credit with the different bureaus as well as all the different, well, not all of them, but a lot of them, the different FCO models. And I don’t check it every day or every week. You know, I’m not that obsessed with it, but it’s something that I do look at maybe once a month just to see what’s going on. And if, you know, if some, if there’s an issue, you have a late accidental late, it’ll give you a notification, it’ll flag it and tell you, Hey, you know, you just had a 30 day late recorded or whatever it may be and you can address it. It’s, it’s actually pretty good service, but it’s just one way to keep track of your credit score, credit profile and you know, activity that’s going on.
And I think anybody who’s interested in monitoring or building their credit score and working on their credit profile is probably well advised to subscribe to a service like that credit karma is very shallow. One dimensional not to knock ’em down or anything. It’s, you know, it is what it is, but it’s it’s for the masses. It’s just a consumer based free credit scoring system. But you know, what, what are they doing? They’re selling ads and they’re selling products from all their sponsors. And that’s, you know, they’re driving you there with a free score. Meanwhile, they’re selling you, you know, insurance and loans and credit cards and other things. So, you know, it makes sense, but I like the service I’m using. And do you think it’s a good idea for people to track and monitor their credit and credit score using service like that?
Absolutely. You can actually get a free account on experie experi where you can track your experience score, but it’s not gonna give you as much as what you, what you’re subscribing to and you pay, what, what are you paying like, you know, 25 bucks a month or something?
I don’t think it’s that much, but…
They’ve got different plans. I think there’s one maybe is like 15 one’s at 25. And, and then you can probably pay more. I think one for that gives you like all three scores, whatever you want ’em. And, but I think it’s important to have that sort of monitoring service because then you can see exactly what’s going on and you know, in comparing it to credit karma, there are two big differences. Number one is Credit Karma is not a FICO score.
Yeah. It’s, it’s a diff it’s called vantage. And it’s actually developed instead of by FICO, by the three credit bureaus. And so it’s got different things or are used to weight your score, for example, on vantage, they take your credit card, not what you owe now, but they also look at your history, like your recent history of what has been owed on your credit cards. Whereas on F ICO, let’s say you’ve got a $10,000 credit card. You owe $9,000 on it. And this dragging your score down. If you pay that off next month, your score jumps up. Whereas on vantage, it doesn’t jump up as fast. It’s gonna take more time because they’re still looking at, oh, but you had that $9,000 balance before. So, you know, it can kind of skew things and I’ve had people call me, yeah, credit congresses, I’ve got a seven 30 credit score and then we pull their score and it’s a six 70 is a big difference.
<Laugh> yeah, very. So the scores are really just an oversimplified means for lenders to qualify you or to what is it like a spot check to see if you meet the minimum standards for a loan or for credit? Is that the reason for credit scoring and the reason why we have scores?
Well, that’s the way they’re used now. But the original reason that they came up with the scores was to determine the likelihood that somebody would have a 90 day late payment at any time in the next 24 months. And so of course that is no longer the emphasis. Now it’s okay. If you have a credit score of X, then you qualify for this. If you have credit score of Y you qualify for that and it’s become completely different from what was intended in the first time, I’m sure that fair Isaac, you know, which is the company that makes these FICO scores. I’m sure they’re thrilled about it. <Laugh> because the scores have become the end all be all. I mean, I’m, you know, as you mentioned, I’m a loan officer and I do a lot of private money loans and some of my investors will say, well, what’s the guy’s credit score. And you know, I have to educate them into, you know, look, this is private money. That shouldn’t be your primary concern, cuz if they had a great credit score, they don’t need you.
So what becomes the metric then, or the criteria?
Well for private money, the score really isn’t such an important thing except for, you know, some individual investors it’s more about the property and how much is the property worth, right. Compared to the loan. And what’s the guy’s, you know, plan. Does he have a plan that makes sense. And is he gonna actually make the payments, do he have confidence that he’s gonna make the payments? And if he doesn’t that equity in that property is the fallback.
Yeah. Well that’s asset based lending, not so much credit based lending, but that’s right. But they still go hand in hand they’re they’re still gonna look at the borrower regardless. Right. Of course. Interesting. So sounds like credit and credit scoring has really become a risk mitigation tool. Am I correct? In that assumption?
Absolutely. Okay.
Got it. All right. So we’ve talked about credit, what it is and you know, why it’s important credit scores and scoring before I kind of move on to the next part of my questioning. Is there anything else you want to add or talk about or something I missed as it relates to, you know, credit scores and credit profiles?
Well, I think that something that’s important for people to know is that if you don’t have to have perfect score to get a good loan or to get a loan that works for you because you don’t necessarily have to get, you know, the best loan, the best rate to make something work. I mean, for example, if somebody’s buying a property that they’re going to rehab and then, you know, they’re either gonna sell it or they’re gonna refinance it, really, the important thing is to make sure the numbers are gonna work. You know, is this property going to either cash flow or is it going to provide profit in the end and you know, looking at, you know, well, my credit score has to be X before I can go and make money would be a huge missed opportunity.
Right. Makes sense. Okay. So one thing we can agree on is everybody listening to this tens of thousands of people all have a credit score and arguably a credit profile, which distills down into this credit score. Right. I have a pretty good idea of what you’re gonna say here, but a lot of people are not familiar with credit scoring the components that make up a credit score. So what are the biggest parts in the smallest parts of a credit score? What makes up someone’s credit score?
Well, the biggest part is your payment history. Okay. You know, have you had late payments or have you not had late payments? And there are varying degrees of that that, you know, we probably don’t have time to get into here, but I mean, I could, you know, go on for a while, but that’s your number one thing is how is your payment history? And recent is more important, you know, so that’s why credit repair is usually not advisable because the easiest things to remove are the older things that have less effect on your score. You know, if you had a late payment last month, they’re not gonna get it removed 99 times out of a hundred or maybe 999 times out of a thousand, it’s not gonna be removed because it’s too recent. The creditor says, well, wow, it was late. We got proof it’s right here.
The next thing is the credit usage and this is mostly credit cards, but not only credit cards that also applies to your other credit lines, you know, mortgages, car loans, whatever. And it’s how, what percentage you’re using. And, you know, the, the biggest focus is always credit cards because that is the biggest part of this. So if you want to, you know, increase your credit score quickly, one of the fastest ways to do it is paying down credit cards. You know, whether you can get the, you know, money from earning or borrow from a friend or family member or, or something in order to make something happen that can be done very quickly.
So that makes a lot of sense. As far as recent utilization and credit payment history, I’ve heard all kinds of mixed things about credit cards and lines of credit. I even remember closing a $500 credit card, which was only $500. I never used it, never wanted it. And the reason I wanted to close is because they had this ridiculous annual fee of like $79 for a $500 credit line. That was just so silly. And I thought this is more of a pain in the butt and a cost than I needed. It wasn’t worth it. And I was never gonna use it. So I closed it and it had an immediate impact on my credit, like my credit scores. And it was a significant drop like point drop. Why? Because I closed this one account. So you can comment on this, about how much credit you have and the utilization of that credit, not just the payment history. Why did my credit get hit so hard by closing a $500 credit card?
Well, obviously I don’t know the exact numbers of everything, but if you let’s let’s work with some real numbers, just so we have somebody to compare it to. So let’s say we’ve got somebody that’s got $10,000 in available credit and they’re using $3,000 of that. And that’s a pretty good ratio. You’re using 30%, which is what’s recommended now that’s 10,000 total credit available. But one of those cards he has is half of that. It’s 5,000. And he gets off at that creditor for some reason who knows what, you know, maybe they say he had a late payment and he said, no, I paid it on time as you’re processing that, messed it up. Or maybe there’s the annual fee that he doesn’t like. And he doesn’t, you know, the rate’s too high or whatever. So he closes that account, but he still owes $3,000 on his other cards.
So now he owes 60% because he only has 5,000 available. So his credit usage went from 30% to 60% and that would make his credit score drops significantly. I mean, you could drop a credit score, 75 points just by doing that one thing, which is, you know, it can be brutal, but if you know, you’re gonna close that credit card before you close it, first thing you do is you call them up and say, Hey, can we get rid of this annual fee? Can we lower my interest rate? Where’s they can say is no. If they say no, all right, we’re gonna leave that thing open. They’ve already charged the annual fee. So now, you know, you’ve got it calendar for next year in between now. And then you add some additional credit card availability, you get a new credit card you ask for increases on your existing card, something like that. And you replace it and then you can close it. No big deal.
Yeah, I did that. I tried to negotiate the fee. They wouldn’t do it. It was just pointless. I mean, I have so many other credit cards. I have percentage wise that $500 was just a fraction of, you know, the credit I had available. So I, I wouldn’t have imagined it would’ve affected my credit score like it did, but it did. It was like a, a very significant impact. And very quick, it eventually recovered. Like it was like three or six months later, you know, the credit scores started to go up again, you know, significantly, but it just had such a big impact right away. So it was just a weird thing. I don’t know. Yeah. Okay. So let’s talk about establishing credit. You know, people have credit of some kind good, bad or otherwise, but for someone who’s trying to establish credit, what’s the starting point. What, what’s the biggest piece of advice you can give to somebody when it comes to establishing that credit?
So if you have no credit at all, then the first thing I would do is go to a credit union, not a bank and get a secured credit card. And that’s, if you have either no credit or bad credit, because what you’re doing is you’re giving them money to put in a savings account as security for that card. So if you want a thousand dollars limit, you’re gonna put a thousand dollars into a savings account that you can’t touch because it’s security for that card. And then you can establish your credit with that card. You use it, use it once a month for something you would normally pay cash for, pay it off when the bill comes. So you’re not paying any interest on it. And then, you know, over time it builds your credit. And then the other thing about the, the reason I say a credit union instead of a bank, there’s two reasons actually number one is a credit union is more likely to approve you than a bank.
And second credit unions give lower interest rates than banks. You know, so you, you go to a bank and you might end up with, you know, 33% interest rate go to a credit union. It might end up with less than 15 and chances are, you’re gonna keep that card for longer than just during the time that it’s secured. Because once you establish your credit, then you can ask them, Hey, can we change this from secured to a regular card? And by the way, can we raise the limit? And then now you’ve got this card. If it started with a lower rate, then it’s going to stay, stay with a lower rate. If you started with a higher rate, they’re not gonna all of a sudden say, we’re gonna give you, you know, 11% on your interest rate or they’re gonna keep it at 33.
ight? Okay. So that’s group number one, group number two, or people who already have established credit, not maybe the best credit stellar, you’re probably in the six hundreds, maybe the low seven hundreds under seven 20. How do those people build better, stronger credit? I’m sure there’s probably a lot of techniques or strategies here, but maybe you can share one or two of them.
Sure. For somebody that’s got actually, you know, fairly decent credit, but they, they’re not where they wanna be. They’re not in the upper seven hundreds, but they’re in the 700 range. I think one of the best ways to do it is to get an unsecured loan. You can’t just get ’em anywhere. I mean, you know, you walk in a, you know, your bank and they’re gonna say, well, we don’t do unsecured loans. Or if you do, they need the same credit requirements that you would need to get like the best possible loan anyway. But there are several companies out there. I mean, there’s you know, SoFi, there’s earnest, penned, you know, Navy, federal credit union, you know, you got, you know, if you’re not, you know, ex-military, it’s, there’s a little, you know, finagling, you have to do it again. It’s a Navy, but penned, you don’t have to be banked to get into there, but these guys will, will approve you when you don’t have the best credit score, but you have good payment history, especially if you’re gonna take that loan and use it to pay off other debt, particularly paying off credit cards, because then that’s gonna make your credit score jump.
Interesting. Would you consider that a hack? Is that one of the hacks you like to refer to? Yeah,
I would call that a hack for sure.
eah. Okay. So if someone’s not in the low 700, let’s say someone’s in like mid six is 6 46 60, which I know there different break points when it comes to credit scores. Like, you know, and these probably have changed over the years, but six 20 I remember was a break point. And then there was 6 46 60, you know, where you are more opt to be approved or you have a better interest rate than 7, 7, 27 40, I think seven 40. Is that magical number where you get into like what’s considered, you know, premium or exceptional credit. Yeah.
You pretty much get what you want.
Yeah. So are there other techniques or hacks that you would recommend someone to jump from those levels? 646, 66, 87, 720. That secured line is obviously a great one.
Yeah. There’s, there’s one. That is, it is really cool. If you can do it.
Okay.
And it’s called authorized user. And so you get added to somebody else’s credit card is an authorized user. And obviously to do this, it has to be somebody that you trust and that they trust you. Typically, it’s gonna be somebody that’s family, maybe a really close friend, you know, but it’s not something that you want to pay for. There are companies that will pay that will sell you this.
Wow. Interesting. But
You’re, you’re given your social security number, your birth date, your home address to complete strangers that you don’t get to use any of this credit. You’re not applying for credit. So I think it’s a bit dicey to do something like that. And you know, it can get fairly expensive too. I’ve talked to people who have done it. I’m like, I don’t think it’s a good idea, but if you can do it with a family member, you know, that has good credit, they don’t carry a high balance on their card and you don’t have to get added to all their cards, just one, you know? And, and, you know, you gotta approach ’em in, in the right way and explain to ’em that, Hey, I don’t want to use this card. I just need some help. In fact, the card can go to your house. I will never see it. I don’t ever get to use it. And then you get added onto their card and you get not only the benefit of having them have a low balance and high credit limit, but you also get their entire credit history on that card. So if they’ve got good payment history for 10 years, you suddenly have good payment history for 10 years on your credit.
So you’re writing on the coattails of someone else’s good credit and credit history to help boost and bump your own credit score. Yeah.
Huh. And it works great to help your kids establish credit too.
Yeah, it’s interesting. That’s a great suggestion. So if, if I came to you and said, or asked you, what would you say are the three best hacks, for lack of a better word, three best ways, three best hacks to boost my credit score slash credit profile or credit, you know, strength, but credit score. What would those top three be? I, you might have mentioned two of them already.
I, I, I think we’ve already gone through all three of them. <Laugh> but there’s, there’s actually another one that most people don’t even think of. But this one is particularly useful. If you use your credit cards to pay for stuff all the time, okay. If you’re buying your groceries, you’re doing your online shopping, you know, whatever it is, you know, if you buy everything on Amazon, you use one card for it and then you pay it off. At the end of the month, chances are, you’re gonna be running a fairly high balance by the end of the month. And so what you do is you find out when they’re gonna report to the credit bureaus, which is usually the same day that your statement is generated. So if you look at the statement, date, you go, okay, well, they, they generated on the 23rd of the month. So then on the 21st or 22nd, pay the card off instead of waiting until you get your bill. And then they report zero balance.
Interesting.
You know, I’ve seen that, you know, for me, it probably makes, you know, 20 points of difference on my credit score every month.
So how do you find that out? Do you call up the credit card company and ask them?
You just look at your bill. So you look at what you look at your statement from the credit card company. Let’s say you got your credit card from B of a and you go, okay, I’m gonna look at this. All right. The statement date, and it has a statement cut off date, and it shows like the 23rd of the month you go, okay, good. So I’m gonna pay it one or two days before that.
Yeah, I was gonna say there, there’s gonna be difference between the statement date, which to me is not that important. And the reporting date, which to me is the important date.
Well, they’re usually the same because what they’re doing is that’s, that’s their statement, cutoff date. It’s not the actual date. They send you your statement. The statement is not available to you for, you know, a couple more days after that. Usually I have a credit union that I have an account with and I found out that they don’t cut it off that way. And so I did trial by trial and error where I did it. And then I was like, oh crap, I missed it because they reported that last day of the month, every month. So I went all right, last day of the month, that’s the day to pay that one off.
So the hack you’re referring to is to pay off your credit card, ideally in full about two business days before the, the closing date or the statement date.
Yes.
And you do that religiously every month. And that effectively shows you have a zero balance. Whenever they, as in your credit card company reports your credit balance to the credit bureaus. And it, even though you’re running a balance, it shows you have a zero balance.
Exactly.
I love that.
And you still, you still get your points. If you have a card with points or miles, right. You still get all those.
Yeah. That’s a great hack. Cool. Okay. So kind of the part three of my three part question about, you know, establishing credit building credit. Now the third part is, is how do you protect your credit? This might be a simple answer, but you know, you’re taking the time and energy to build up your credit score, credit profile, you have stellar credit. Now you don’t wanna damage it. How do you protect it? Obviously you don’t want any late payments. That’s probably the most obvious thing, but are there other things you can do to help protect your credit?
Absolutely. Number one thing that I recommend is that when you’re shopping online, you have one card for shopping online and you do everything on that card because then if it gets compromised, somehow it’s just one card, never use your debit card for online purchases, because what happens is if that gets compromised, then it puts your bank account at risk. And not just your card, if you can get a card replaced, you know, in just a couple of days, usually, well, a few days, depending on who has the account, but a debit card, if they take money outta your bank account, that could cause a real problem. You know, you gotta pay rent or mortgage or, you know, whatever you gotta pay, if your cash is compromised, then you know, that is a big problem.
Interesting. So you’re suggesting using a credit card, not a debit card for all online purchases and having more than one card one for your online shopping and then one for your offline, real world purchases. Is that what you’re suggesting? Absolutely. Okay. So that that’s a protection mechanism. That’s not that doesn’t do anything for your credit, right?
Right. Exactly.
Okay. Huh? That’s interesting. Yeah, I’ve had, I’ve had one of my credit cards compromised at least three or four times. And it’s very frustrating cuz Wells Fargo will call you and tell you, okay, were these your charges? You say no. And then they say, okay, well we’re, we’re gonna close your card down starting right now because we’re reporting this as fraudulent activity and to protect you, which is very frustrating, cuz I’m traveling and I need my credit card to pay for things. Now I can’t use it now. How’s that protecting me? You know, we’re basically closing your card. We’re gonna send you another one, but that doesn’t help me in the meantime. Now I have to, you know, use my debit card or find some other way. Okay. But that’s good advice as far as how to protect your credit. Is there anything else you want to, you know, talk about or add to that in terms of protecting your credit? What do you think of those credit? What are they called? There’s services that charge you a monthly fee to monitor your credit and you know, notify you immediately and you know, kind of lock your credit. Like life lock, I think was one of them life lock they’d lock your credit system or score down so nothing can be affected or reported on is, is that legit?
Yeah, it, it is legit. And I think the one thing that that could be useful for is if you’re afraid that somebody is, you know, trying to use your identity to apply for credit, you know, if, if that becomes an issue, you know, or, you know, maybe if somebody’s getting divorced, you know, so if you’re getting divorced and you wanna just have a, a clean break and have, you know, you’re soon to be X, not have access to your stuff, you know, you could say, okay, no new credit is being applied for. And you know, obviously there’s a lot of other, you know, things that are involved with all that. But I think for most people just on an ongoing daily basis, there’s probably not enough need for it to justify the expense because you can keep track of your own credit. I mean, you know, unless you’ve got 30 credit cards, you’re trying to keep track of, that’s a lot of cards. If you have somewhere between three and seven cards for most people, that’s plenty.
Yeah. It really is. You mentioned divorce can divorce affect your credit just because of the sake that it’s a divorce, not that’s, you know, whoever your spouses you’re divorcing is like trying to charge everything under the sun to your card.
No divorced by itself will not affect your credit. But there’s actually a chapter in my book about divorce, you know, handling it because if you’re getting divorced, you need to actually be proactive so that you don’t have two people going their separate ways with their credit ruined because of emotions. If you go in and go, all right, well let’s agree to a few things and you know, get this sorted out so that you’ve got your own accounts, you know, separate ’em out and don’t, you don’t wanna get caught with, okay, well she gets that house. He gets this house and then he’s supposed to make the payment on her house and he doesn’t, and it’s affecting her credit and he doesn’t care about his credit. And you know, I’ve seen stuff like that happen before.
Right? Interesting. So I’ve heard that no credit can actually be worse than having bad credit. Is that true? How does that work?
I wouldn’t say that it’s worse. It might be worse to some people. I wouldn’t say it’s worse. I think what it basically does is it gives you a clean slate so you can start and it may take a little bit longer to build up than somebody has bad credit, but it depends on the reason they have bad credit too. I mean, you know, if you got, you know, quote unquote bad credit because your credit cards are charged up to 95% of what’s available, you know, depending on the amount, it could take a long time to pay that down. Right? If you have bad credit because you had late payments, you know, you, if you can get everything cleaned up and get those payments, all handled and up to date, you know, after a year, usually your credit score can be pretty good. All other things being equal. Whereas, you know, building credit, it could take, you know, a year, two years to, to really build up your credit.
Yeah. Interesting. Kind of the last thing I wanna ask you is about bankruptcy. There’s so much misinformation around bankruptcy. I’ve heard many things. What I’ve boiled, everything I’ve learned about bankruptcy down as far as it relates to credit is that the first year don’t count on getting any credit. After two years, some lenders will start to open up to you knowing that you have a BK on your credit profile. Then I think it’s after seven years, I’ve after seven and 10, but after seven years that BK could be or should be wiped off your credit report, certainly after 10. But anyway, that’s all I know. What can you tell me about bankruptcy and how it affects one’s credit?
Okay. So the first thing to know about bankruptcy is that you’ve got different types. The most common are chapter seven, which is where everything just gets wiped out and chapter 13, which is where you have a payment plan and some things can get wiped out, but you have a payment plan to get everything paid off, usually over three or five years. And the chapter 13 goes on your credit and stays there until your seven years out from having it filed at chapter seven will stay on there for 10 years after it’s completed.
Okay.
That’s the first thing. The second thing is when you’re looking at what the effect is and your ability to get credit, you can still get that secured credit card immediately. So you can, and I recommend it. If some, if you’re going through bankruptcy, as soon as it’s done, get that first secured credit card, if you can be added onto somebody’s credit as an authorized user, do it because you’re building up good credit history faster. And you know, I’ve heard people say, well, it’s gonna ruin your credit for seven years. Not true because you can actually get an FHA mortgage, which is a pretty decent mortgage. After three years, they’re extenuating circumstances. It could be after two years and, you know, extenuating, the circumstances could be, you know, divorce or, you know, some kind of illness or something. It’s really up to the, the mortgage lender to determine if it’s legitimately, you know, a reason they can do it after two years as opposed to three, but there are still other programs you can get after one year. And there are some even you can get immediately just it’s gonna cost you more. And after four years, you’re basically in a spot where the bankruptcy is not going prevent you from getting credit as long as you’ve kept your credit clean after that.
So it sounds like the worst case scenario or best case scenario is after one year, you can start getting credit with a bankruptcy unless it’s F well, no, even with FHA, you can’t.
You can get some credit immediately. Usually the stuff you can get immediately, if it’s not like a private money loan on real estate. Got it. And it’s not, it’s either gonna be secured or you’re added as an authorized user onto somebody’s account. Got it. Or completely predatory.
Okay. Interesting. Now what, what are the rules with conventional financing? How many years after your bankruptcy has been discharged? Can you start qualifying for conventional loans?
Four years for in a regular conventional loan and then three years for, you know, FHA, which is pretty close to conventional.
Okay. Got it. Interesting. Before we wrap it up here, is there anything I didn’t ask you that I should have asked you about credit credit repair, credit hacks? This is such an interesting topic and I’m sure we can go down, you know, kind of all kinds of different paths and rabbit holes about it.
Yeah. Yeah. We can talk about this all day long, literally and not reach the end <laugh> so I think you covered pretty much everything, but one thing I definitely do want to point out is that the whole thing with credit inquiries, you know, that makes up 10% of your score. And so, you know, depending on which credit bureau it’s on, you know, it can make up a maximum of 55 points of difference, but it’s not just on credit inquiries. It’s also new accounts it’s included into that bucket.
And how long does that stay on as a, as an inquiry before it’s dropped and your score goes back up where it’s supposed to be
One year
An inquiry can last a year.
Wow. Well, it stays on your credit report for two years, but it only affects your score for one.
So is there a real danger in having multiple inquiries if you’re shopping, which I think is a legitimate thing to do, if you’re shopping around for a loan for the best rate, in terms.
It depends on the type of loan. If you’re getting a mortgage or a car loan, then you’re given a brief period where you can shop as much as you want, have your credit pulled, you know, a hundred times. And it counts as one inquiry. And that time period is either two weeks or 45 days, depending on which credit scoring model we’re using. So I recommend keep it to two weeks because then you’re sure.
Right. I did not know that. That’s very interesting. Good to know you got a two week window <laugh>
Yeah, I love it. You know, it helps because when you go shop for a car, if they don’t quite have the car you want, or they, they can’t quite get the, the model you want or you don’t like the terms, you know, you’ve got that freedom to go somewhere else and it’s not gonna cost you anywhere with credit.
Right? Yeah. Good advice. Very cool. Todd. Well, Todd, listen, this has been very interesting. I know we can go on. You’ve got a great book. It’s what, is it crack the credit code?
Crack the Credit Code.
So share with our listeners where they can find you learn more about you and your find your book and anything else that you might be involved in.
Well, I’ve got crackmycredit.com, which is you can buy, you know, the ebook or you can get the hard copy on Amazon. And then you know, if, well, as we already discussed, I do mortgages, you know, primarily in California, cause that’s where I’m licensed. And you know, I could do some other stuff outside of California, just not, you know, the owner-occupied stuff. Cause you gotta be licensed wherever you do on those other states. You don’t necessarily have to for the others, but you know, somebody wanted to contact me. They could actually call me up. My office phone is (707) 401-8080.
And that’s on your website I assume.
Yes it is.
It’s okay. Give out your website one more time.
Perfect. All right, well, we’ll get that in show notes and transcribed for the website as well. This has been great. I appreciate you taking the time today, Todd. This is all fascinating stuff. So hopefully people have learned more about the credit, how they can hack a better score. So thanks for coming on.
All right. Thanks for having me on. Great.
Well, I hope you found this episode, helpful credit is clearly important and something you should be aware of if not working on, on and off throughout the year. And I think there was a lot of good tips and hacks that were shared with us today. So if you haven’t been working on this stuff, maybe that was a good time to start monitoring and working on your credit to improve it. So you can get better rates and qualify for better financing of all kinds, including mortgage financing. Anyway, that is it for today.
I hope you enjoyed this week’s throwback Thursday episode. If you haven’t already, remember to subscribe so you don’t miss out on a single episode. If you have a question about real estate investing or finance, simply go to passiverealestateinvesting.com and click the Ask Marco button. . I read all of them, I reply to many of them, and sometimes I cover them on the show, and I’m gonna try and do more of that. So, I am going to encourage you to go to passiverealestateinvesting.com and submit your question for Ask Marco. Lastly, help us share the show with other like-minded people that you know who can benefit from it as well. Just visit us on your platform. Most of you are on iTunes and leave us a rating and review. I would greatly appreciate it. I read them all and I will thank you in advance. And that is it for today. Thanks for listening. I will see you on our next episode.
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