Credit Scores

Transcription 

Steve: This is stevecurrington.com in The Steve N’ Tyler Show episode number 41.
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Announcer: Welcome to The Steve N’ Tyler Show with stevecurrington.com and Tyler Whyburn.

Steve: Who negotiated a contract for you?

Tyler: [unintelligible 00:00:15]

Steve: You’re pretty smart. Good for you, man.

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Announcer: They’re talking about everything you need to know about mortgages, home loans, and more. Nobody knows mortgages like these two. Get ready, because here’s Steve and Tyler.

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Steve Currington: What is up? Podcast universe. It’s stevecurrington.com on The Steve N’ Tyler Show. I’m here with Tyler. Hello, Tyler.
Tyler: Hello.
Steve: Hello, Tyler Newman. Hello, Newman, right? You don’t watch Seinfeld?
Tyler: Never.
Steve: Oh my goodness. Guys, we have to stop the podcast right now. We can’t talk about credit scores today. We need to edu — you never watched Seinfeld?
Tyler: I don’t think I’ve ever been able to make it through an entire episode.
Steve Currington: You’re a terrible person. We’ll talk about – listen, I’m going to table that right now, so [laughs] thanks for tuning in to our podcast. Today we’re talking about very basically, very basically, Tyler, what are credit scores? Boom. What are credit scores? I’m going to give you guys a — from the book, what’s the book say? That’s what I was asked. The dealer at the blackjack table; “What’s the book say?” “Hit.” The book says credit scores are numbers that are derived from a consumer’s credit history. The number reflects the various credit details on a consumer’s past. People with higher credit scores get better rates than those with lower credit scores. A score also attempts to determine the likelihood of default on a loan. The higher the score, the less likely of missed payments.
The lower the score, the greater the credit risk, at least according to the scoring model. Here’s what’s craziest, no one knows. It’s like a Sikh – Okay, here’s what it is. This is the only thing I can compare it to. You know the baked beans commercial? Is it Boston’s baked beans? They had that dog and the dog’s the only one that knows the recipe.
Tyler: Is that Bush’s?
Steve: It’s Bush’s, that’s what it is. Bush’s baked beans. That’s the deal. No one really knows the recipe, the real — We’ve got some general parameters of what is derived in your credit score, but really it’s like the secret Bush’s beans recipe that only the dog knows. Only the credit reporting agencies know. The C.R.As they call them. We have some general stuff and I’ll hit that here in a minute so that – Luckily, you’re talking to a couple guys who are certified FICO professionals. We know credit like most people don’t know credit. You’re going to Tulsa Mortgage, you want to talk to somebody that knows credit like we know credit, because we can advise you whether the score you have is going to get you a better rate, a worse rate, whether it’s going to matter.
There’s a lot of what I would call hocus-pocus out there, Tyler, right? We deal with that every day about things that people have been told about credit scores or about qualifying and all that stuff. We’ll dispel a couple of the rumors that we have today. I’ll let you hit that one. What’s the number one rumor that we get every single day?
Tyler: [unintelligible 00:03:37]
Steve: Okay, let me just ask you, because I know your answer to this. “Hey, great, nice talking to you, Tyler, I’d like to apply, but I already talked to this other lender yesterday, and so is my score going to go down if you pull it?
Tyler: No.
Steve: You don’t have to answer. I want you to elaborate on that in a minute. That’s the question that we get a lot. I’ll let Tyler hit that here in a minute and give you the whole — He gave you the easy ‘no’, but we’ll explain that for you. One of the things that I thought was interesting in some of our research that we did — remember we talked about this last week that they didn’t really get really detailed into credit scores until the ‘90s, which is basically when credit cards got really sexy. Tyler wasn’t even born till the ‘90s; Just kidding. For people that just don’t know, really, if you’re 25 right now, 26, then we’re in 2016 here at this Tulsa Mortgage Lender company. You’re 26. That means you’re maybe born in 1990. That’s when they really started not manually calculating credit scores.
They use a FICO scoring model now called FICO 8. Here’s a little known fact. Did you know that when you apply for credit that you get a different score based on the type of credit that you apply for? Did you know that, Tyler?
Tyler: Mind-blowing.
Steve: Yes, mind-blowing. Here’s the deal. Every type of credit that you apply for has a different risk tolerance. It makes sense. If you’re applying for a credit card, if you’re applying for a car or a mortgage, there’re different risks, right? A mortgage is a pretty heavy risk, so your credit profile and your credit score might actually be lower if you’re applying for a mortgage than it would be if you’re applying for a car. People all the time will call and say, “Well, I got Credit Karma or — What’s this? It says my score is 757 and –” Here’s the deal. Maybe, we’ll see when I pull it, because what happens is when you apply for credit, they put you through the original FICO scoring model and then they dump you into a bucket based on what type of credit you’re applying for.
If you’re applying for a car, then you’re going to go into the auto loan bucket. If you’re applying for personal loan, you go to personal bucket. If you’re applying for a mortgage, you go into that mortgage bucket. Just be aware of that, that your credit score is going to fluctuate. First of all, it’s going to be typically vastly different from whatever scoring number that you get from any service you pay for monthly. No offense to anybody out there that has credit monitoring or that monitors their credit score. If you’re getting it for free, the score part of it awesome. If you’re paying for the score, don’t. We call it a FAKO score, because it’s based on a scoring model that no one uses anymore. Just be aware of that. We’ll talk about credit scoring and how that happens, and how that affects.
Just remember, every bucket will determine your score and it’s based on the type of credit that you qualify for. Tyler, “Hey I’m ready to apply for a mortgage with you, but I just talked to another guy two days ago, is my score going to drop if I apply with you?”
Tyler: It’s not going to drop. You get a certain timeframe. I think it’s about 30 days to shop for a mortgage. They actually allow you to do that, so anybody that tells you otherwise is just trying to sell you.
Steve: Yes. We call it a sales tactic. “Hey, man, look. Your credit’s perfect, Tyler, but in order for me to get you this really low rate, you’re right on the line. Don’t go get your credit pulled by anybody else, because I don’t want your score to drop.” That’s bull —
Tyler: Punch him in the face
Steve: What they’re doing is, they want to make sure you don’t call us and get a lower rate. [laughs] I use that example, because that someone has good credit. Someone who has bad credit is more likely to believe that, because here’s this situation when you have bad credit or borderline; “Hey, man, I barely got you approved, so don’t go getting your credit pulled by a bunch of other people, because your score might drop and then you can’t buy.” It’s a fear tactic. Car dealers, sales people do that. Mortgage people have done in the past. There’s actually laws that have been passed that allows consumers to shop for big ticket items like cars and mortgages. What Tyler was alluding to is they’re going to take our inquiry and whatever inquiries.
You don’t want to go apply for auto loans with 15 different car dealers, and apply for a credit card, and a personal loan, and a mortgage times six, necessarily. If you applied with three different mortgage companies this week in 30 days, they’re going to take all three those inquiries, they’re going to lump them together and count them as one. Boom. Little known fact; People didn’t know that. Just be aware of that. That people use that as a sales tactic to make sure that you don’t shop and find out that there may potentially be a better rate, or better terms, or a better deal out there. I’m going to talk a little bit about specifically the thing that we see the most on credit is credit cards and what we call your revolving account information.
One of the things we see a lot is we have somebody that maybe is limited on credit, maybe they have not the best credit scores, maybe they don’t have a lot of established credit and they don’t have any credit cards. If you don’t have any credit cards, then revolving credit, department store accounts, your Visa Master Card, credit cards represent 30% of your score, right, Tyler?
Tyler: Right.
Steve: 30% of your score and so, if you have a car payment which is considered an installment loan and maybe you’ve got another personal loan which is also going to be considered an installment loan, and maybe even you’ve got a mortgage, then you’re going to get a score. You pay on time, your credit scores are going to be what they are, but if you don’t have revolving, I tell people this all the time, it’s equivalent of “I’m in school. I’m trying to get a 4.0, but I didn’t take math.” There’s no way you are going to get 4.0, because you don’t have the subject. It’s not there, so it’s the same thing with credit scoring and with revolving credit or credit cards.
Credit cards aren’t bad. They use them to determine your score and it actually represents 30% of your scores, so what we do many times to get somebody a boost in their credit score is just to establish a credit card, right?
Tyler: Right.
Steve: Open up a card, because here’s the thing, that 30% is derived from, Tyler, your available credit versus your balance. So if you have a $1000 limit on all of your cards and you have a $300 balance, your ratio is 30%. The ideal number is, write this down, 21-23%, 21-24% of your available credit. So what that means is, if you have $1000 limit, you don’t want to carry a balance higher than $240, and that will give you the optimum score.
Now, if you have a balance of $500, you’re still going to get some credit score for having revolving credit, you’re paying it on time, but if you pay that balance down from $500 under 240, you will get a boost in score. We just had a — [unintelligible 00:11:38] right now? The guy’s got a score in the low six hundreds. We had him actually pay off, and I would never advise doing this unless you talk to a lender and talk to an expert like myself or Tyler, is I had him pay off two credit cards. They were collections. They were actually past due, but when I did a — we have a — we call it a [unintelligible 00:12:03] simulator, and when I did the [unintelligible 00:12:04] simulator, it told me if he took the balances on those accounts to zero, that he got a 89 point boost in his credit score.
Tyler: That’s big.
Steve: 89. He is in the low six hundreds and he goes from the low six hundreds, and he ended up — One of the cards didn’t report appropriately, so he ended up going from the low sixes up to almost a 660. Just from paying these two cards, and he settled them, so he actually — One of them he owed five grand on the other one he owed four grand on. He paid about 1,500 bucks for each one of them, so a total of about three grand. He got them paid and he got about a 50 point jump in his credit score just by paying those credit cards off.
You can be very specific and you can use those revolving accounts to really get a boost in score if you need it and so, if you’re border line on credit and you’re not sure, then there’s one or two things might happen is you might not have any revolving credit in any credit cards or you may not be utilizing it correctly.
We see it all the time. How many credit cards do we pull in a day? A bunch, but I bet you, if I went in — maybe we ought to do this, and we’ll talk about it in our future podcast, is keep a tally of how many times we pull credit and it says two things. “Too many enquiries in the last 12 months,” which is crap and everybody’s credit report says that. 99% of credit reports say. You’re using your credit, so I don’t know how you’re not supposed to have an enquiry.
Then the other thing is “lack of recent revolving account information,” or “proportion of balance to credit limits on bank revolving accounts is too high.” How many times do you see that, Tyler?
Tyler: Every day.
Steve: Every day. It’s not bad. It’s just that, when you’re in the process of applying for credit, buying a house, car, or whatever it is, there’re just things you can do if you want to optimize, as I would call it, your credit score, because it‘s not necessarily that you’re not going to qualify. It’s just your credit score is going to, in many cases, although on your government loans or FHA it’s not as sensitive, but on a conventional loan it makes a big difference.
Now, the way that a lot of lenders, if you are getting your mortgage in Tulsa Mortgage Lender from Steve Currington, you will find we just locked a girl yesterday, two days ago, right? She closed on Friday and she has a perfect credit, score and she’s doing FHA, and she — we really reward the people that have high scores. Every lender does, because it’s a low risk.
So she got an incredible interest rate, because of her high credit score, but it’s less of an impact on your rate if you doing FHA versus conventional. Now, if you’re doing a conventional loan, the lower your credit score is — What happens, Tyler?
Tyler: The higher the rate.
Steve: The higher your rate. It just is what it is, so you want to get educated depending on what type of loan you’re getting and what that means for your credit score, and what that means for your rate. If your credit score is in the lower range, you can really get focused on getting with your Tulsa Mortgage lender and find out what needs to happen in order to get that score to where it needs to be.
You can find more information about credit scores, and myself, and Tyler, and what we’re good at, at our podcast which you’re listening to now, but if you got to our podcast page, which is stevecurrington.com, you can find it on there and you can find lots of resources there. You can also go to tylerwhyburn.com. You can go to getqualified.com. That’s all we’ve got for you today, folks. Thanks for listening to The Steve N’ Tyler Show.
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