[00:00:00] Welcome to the FICO Diva Show. I'm Al Diva Rubelgava and today we're taking control of your financial future. You're watching now Media Television. Welcome to the FICO Diva show. The space where we turn financial confusion into clarity and clarity into confident decisions. I'm Aldeva Rubelgava and today we're going to talk about something that affects almost every part of your financial life.
[00:00:25] Your favorite C word. Your credit, from your car loan to your credit cards to whether you get approved for a home credit is quietly in the background saying yes, no or you'll pay more for that.
[00:00:41] So let's start understanding what credit really is. When a credit score means who's keeping score building behind the scenes.
[00:00:50] So what is a credit score? How many credit bureaus are there? That's such a great question.
[00:00:57] Many people assume that there's only three credit bureaus out there, but there's actually more. And credit is based on trust. Lenders trusting that if they give you money today, you'll pay it back tomorrow. Your credit score is a three digit snapshot of how risky and reliable you look as a borrower based on your past behavior with debt.
[00:01:20] The three major credit bureaus that everyone's aware of is experian, Equifax and TransUnion. There are more bureaus out there such as LexisNexis and others that people do not know as they run silently in the background. But people do reflect on each bureau collects information on your accounts and payments. They don't all have the exact information data.
[00:01:45] So scores can be different.
[00:01:47] What causes them not to have the same information?
[00:01:52] You have one account, three bureaus, three different scores. Let's talk about that.
[00:01:59] Your creditors choose who they're going to pay to report to.
[00:02:05] So some creditors choose to report to all three bureaus, some choose to report to only two and some choose to report to only one. If all of your creditors would choose to report to all three credit bureaus the exact same way, we would all have the same three credit scores.
[00:02:25] So main factors in your credit score is your payment history, which means being on time or versus late, how much of your available credit you're using, how long you've had your credit, a mix of accounts, new credits and inquiries. So let's talk about your payment history.
[00:02:46] Some of you may life happened and maybe you make a late payment. And when I'm talking about late, I'm not referring to one or two days late. I'm talking about hitting the 30th day late.
[00:02:58] How does that impact you on your credit cards?
[00:03:02] It impacts you approximately 50 points.
[00:03:06] Paying an auto loan late can impact you 80 to 120 points.
[00:03:12] Paying a mortgage late, which is your biggest asset, it's also your biggest hit.
[00:03:18] It can impact you about 200 points on average.
[00:03:22] So making at least the minimum payment on time is really crucial.
[00:03:28] How much of your available credit you're using. So with this one, this is based on your credit cards, it's not based on loans, okay? So I want you to think of credit cards as something that can really impact your credit negatively or positively. I want you to think of credit cards as the more I spend on them, the more I lose my points.
[00:03:55] But when we get down to the next segment, I'm going to go into that a little bit deeper.
[00:04:00] How long have you had your credit? So having an account that you've had for five, 10 years is actually stronger than an account that you just opened up today.
[00:04:12] Reason being is that the history of the account builds up credit.
[00:04:18] Lack of history gives you poor points, but not as strong as an account that's aged. And sometimes there's times where I'm like, it's okay to close that aged account, but not till certain things happen. And we'll discuss that in another segment as well.
[00:04:37] Mix of accounts that would be revolving debt versus installment debt.
[00:04:44] And we're going to discuss that in the next section segment as what that looks like so that you can understand the differences.
[00:04:52] New credit and inquiries. So inquiries, amazingly, really impact your scores. Inquiries stay on your credit report for two years, they impact your scores for one year, but they stay on your credit report for two years.
[00:05:09] Why do inquiries matter?
[00:05:12] Let's say you have an 850 credit score, which is the highest FICO credit score you can get. And you're being denied for credit based on too many inquiries. And you don't know why, because too many inquiries are an indication of financial distress.
[00:05:30] Why is this person fishing? Why is this person looking for so much credit right now? What's going on in their personal lives that's impacting them?
[00:05:40] And those are things that we as consumers don't think about, but our lenders focus on.
[00:05:48] So that's why you're like, why did I just get denied? I have perfect credit. I've never been late, everything's wonderful.
[00:05:55] And they're denying me based on inquiries. That's the reason why. So be careful with that.
[00:06:01] Having a lot of new credit can also impact you positively and negatively because why are you getting so much new credit right now, what's going on?
[00:06:12] Again, simple questions that our lenders are actually focusing on.
[00:06:18] So your credit score is a risk number. It's not a moral judgment. I know that many of you out there, life's happened. Maybe you've gone through a divorce, maybe you lost your job, maybe your hours got cut and life just happened and you were able to. And now you're not able to pay your bills. And you know what? It's a temporary setback.
[00:06:43] There's no judgment when it comes to your credit scores because we all know that life happens to everybody.
[00:06:52] Life happens when we least expect it.
[00:06:55] And so be kind to yourselves if you feel that your credit is impacting you negatively. It might be right now, but it's fixable.
[00:07:07] It's something that you can learn from. It's something that, if you get with the right companies, you can educate yourselves on. And so those are things that we really, really pride ourselves on to make you feel comfortable, make you understand how credit works, to empower you to make the best decisions.
[00:07:29] Now, there are three major bureaus, and your credit scores can differ with each one. I discussed this earlier.
[00:07:36] So with that, always remember that we all have different apps, right? And our apps have different algorithms. So there's over 60 different FICO score algorithms out there. But your lenders choose which algorithm they're going to be focusing on. So let's talk about that for a minute. You have this app on your phone that gives you a free credit report, and it only gives you TransUnion and Equifax. It does not give you Experian, and you're focused on that. But that app is based on a Vantage score. It is not a FICO score.
[00:08:17] Okay, so then you're like, okay, well, I also have the Experian app. Wonderful. Now you're comparing a Vantage score against a FICO 8 score. Their night and day.
[00:08:29] So understanding the algorithms really make a difference.
[00:08:35] Also, you have other apps that are linked to your credit cards. Those apps are also based on a FICO 8.
[00:08:43] When you go and purchase a home, your lenders are pulling a FICO 2, FICO 4, FICO 5.
[00:08:50] When you're buying solar, they're looking at a FICO 9.
[00:08:56] When you're buying a car, they're looking at an auto Vantage score.
[00:09:01] So once you realize that your lenders are basing their credit decisions on the permissible purpose behind. Behind the pull, meaning the algorithm that they need in order to qualify you for the loan that you're trying to get, it makes so much sense because I know a lot of people get really upset and they're like, well, my app says that my score is here. It is according to that one. But according to the lender's permissible purpose behind the pull, they're looking at a completely different algorithm.
[00:09:37] So when you understand that it helps, you know why you're being approved or denied.
[00:09:45] How many of you have friends who've purchased a vehicle and they've told you, I have a 900 credit score?
[00:09:52] You do with an auto Vantage score because your Vantage score can go up to 900, but your FICO score only goes up to 850.
[00:10:03] So understanding those differences make a huge difference.
[00:10:08] Lenders see the data that the bureau has on you.
[00:10:12] There is no single universal file. That's why sometimes husbands and wives think, can I, can. Can both of us work on our credit? Yes.
[00:10:23] However, you have two individual files because you have two individual credit reporting files, even though you're married and joint.
[00:10:33] So keep that in mind.
[00:10:35] You should review your credit scores regularly and know what's on them. It's really important.
[00:10:43] And then coming up next, I'll break down two types of debt that people are consistently confusing. Revolving and installment debt.
[00:10:52] Why using them is the wrong way and can cost you thousands of thousands over time. And also using them the right way. We'll be right back with more strategies to elevate your credit, eliminate debt, and build lasting wealth. Stay tuned. Hello, I'm Al Diva Rubelkava, host of the FICO Diva show on NOW Media Television. As a financial strategist and entrepreneur, I created this show to help individuals unlock real financial power through credit education and wealth strategies. Strategy. We're looking for contributors, credit experts, financial advisors, business funding specialists, entrepreneurs, wealth strategists and mindset leaders. If you're building tools, strategies or systems that help people achieve financial independence, I'd love to have you join the conversation. The FICO Diva show airs weekly on Now Media Television and streams on Roku, Apple TV, iHeartRadio, SiriusXM and major digital platforms. Let's redefine what financial freedom looks like. And we're back. I'm Al Diva Rubelgava and this is the FICO Diva show on NOW Media Television. Let's continue building. Welcome back to the FICO Diva Show. If you're learning something new about how credit really works, remember you can always stream NOW Media TV live or on demand.
[00:12:12] Keep building your financial toolkit.
[00:12:15] Now, let's talk about something that shows up on almost every credit report.
[00:12:20] Revolving debt and installment debt.
[00:12:23] They Both count as credit, but they behave very differently. They affect your scores and your cash flow in different ways.
[00:12:33] So let's talk about revolving debt. What is revolving debt? I want you to think of your credit cards, okay? So I could spend, I could pay, I could spend them, charge on them, I could pay them. So it's always revolving, okay?
[00:12:50] Installment debt means it has a time frame to end.
[00:12:55] So let's think about your auto loans. Auto loans have five to six years to be paid off. Nowadays. Some loans have up to seven years to be paid off. So, so you know that once you make that payment, the final payment, that account's going to close.
[00:13:12] That's also with student loans, auto loans, mortgage loans, personal loans, just because loans.
[00:13:22] So just keep in mind that anything with a loan is an installment debt.
[00:13:27] Why is revolving debt so important?
[00:13:32] So revolving debt gives us a credit limit. It's on your credit card.
[00:13:37] And let's say that you have a credit limit of $1,000.
[00:13:43] How much should you spend?
[00:13:46] Some people will say I can use all thousand dollars.
[00:13:51] Some people will say 50%, some people will say 30%.
[00:13:58] The accurate response is we should only use 30% or less of our credit limit.
[00:14:07] So if we have $1,000 credit card and we spend $500 to $1,000 on that card, we ourselves are dropping our scores 80 to 120 points.
[00:14:23] By using 50% to 100% of our credit limit.
[00:14:28] When we use 30% or less of our credit limit, according to our creditors, we're now showing financial responsibility because we're not maxing out our cards.
[00:14:42] So when you think about that, I want you to think of a teeter totter. You're a kid and used to play on a teeter totter, right? So what happens when you're on a teeter totter? When two people are on both ends, you're level, there's nothing pushing you up or down. But the more debt goes up on a credit card, the more your scores go down, the more your debt goes down on a credit card, the more your scores go up.
[00:15:08] So when you think of revolving debt, I want you to think of debt up, scores down, debt down, scores up. When you think of credit that way, it makes so much sense because that's exactly how it happens.
[00:15:23] And a lot of people life happens again.
[00:15:28] They have to max out their cards and then their scores drop.
[00:15:33] And sometimes if your creditors are seeing a lot of financial distress, do you know that your creditors pay attention to where you shop?
[00:15:42] So let's say that you've always shopped at big stores, I'm going to pick on Target, Walmart, things like that. You always shop there and now all of a sudden you're going more towards the dollar store because life happened and you need to be a little bit more financially conscious at the moment.
[00:16:03] Your creditors pay attention to those spending shifts and sometimes they lower your limit down to your balance.
[00:16:13] And when that happens now, they maxed out your credit cards, they dropped your credit scores and they took away your buying power.
[00:16:24] So it's really important to manage these things so that that doesn't happen.
[00:16:31] There is a trick and, and I'm going to talk about that here in just a little bit, but I want you to think about what I just said.
[00:16:40] Now, when it comes to installment debt, installment debt is different. Installment debt impacts you more. If you have a late payment, again, not being one or two days late, I'm talking about being after 30 days late.
[00:16:56] So whenever you pay an installment debt especially, especially a vehicle, it could drop your scores 80 to 120 points.
[00:17:05] When you pay a mortgage late, it could drop your scores 200 points. When you pay a personal debt late or personal loan late, it varies. It could be between 75, 100 points. I've seen things like that.
[00:17:19] But it's really important to know, let's say that you've never been late, you always made your installment payments on time.
[00:17:29] And here comes the glorious day where you make that final payment and you're like, finally, I'm done with this account, here's my final payment.
[00:17:37] What happens to that account?
[00:17:40] It closes on you.
[00:17:42] What happens to your credit? It dings you 50 points because you just closed an account.
[00:17:49] I know it's not fair, but that's what happens. So that's why even whenever you have a credit card that you're no longer using, that's just sitting there on your credit report and it closes, it dings you 50 points because whenever you close an account it takes away your history and that's what causes that point loss.
[00:18:09] So be mindful of that. I see a lot of people with these short term loans and it's a lot of buy now, pay later, six months, same as cash, four months, same as cash.
[00:18:25] And I really wish that they would make these accounts revolving, but they don't. They're all installment debt. So I've seen clients with 30 installment debts for $300 items, $150 items, just because of the convenience of can pay it in four months, zero interest, I could pay it in six months, zero interest, but keep in Mind that every time you pay off that account, it's going to lower your scores instead of improving your scores.
[00:18:57] So is that a smart financial decision?
[00:19:01] Only you can answer that for yourself, but it's things I want you to be aware of. Okay?
[00:19:08] Now once you're approved for a credit limit, you can use it, pay it down and use it again.
[00:19:16] Your balances change from month to month.
[00:19:19] Your minimum payment changes based on the balance your interest is charged on, whatever balance you carry. And again, this is going back to revolving debt.
[00:19:33] So there's a I told you I was going to give you a trick and a tip. So there's two important dates on the statement and many of you nowadays, because you're getting everything electronically, everything on your apps, you're no longer looking at your statements and that's a big mistake. And I'm going to tell you why.
[00:19:55] Because you're focusing on when's my due date and how much do I need to pay.
[00:20:02] And yes, that date's important because if you don't pay your minimum payment by that date, you're going to get a late fee.
[00:20:12] But the one area that you need to focus on and that you don't is your statement ending date.
[00:20:20] So I'm challenging you all to go into your apps and go into or assess documents and statements.
[00:20:28] Start looking at your statement ending date.
[00:20:32] Here's the reason why.
[00:20:34] Whatever balance you have on that date is what gets reported to the bureau's.
[00:20:42] It's not the payment that you made on the payment due date, it's the balance that you have on your statement ending date.
[00:20:51] So if life happens, you need to max out your card, Be aware of your statement ending date.
[00:21:00] Pay down your credit card at least two days before the statement ending date and then don't charge on it again until the day after the statement ending date.
[00:21:12] And that's a way to trick the system. Still do what you need to accomplish but not worry about having a maxed out credit card impact your scores.
[00:21:24] So start looking at your apps, start looking at your statements, focus on your statement ending dates. Yes, your due dates are very important, but focus on your statement ending dates. Whatever balance you have on that day is what's going to be reported to the bureaus. So be aware of that.
[00:21:44] Now when it comes to installment debt, of course you're going to borrow a fixed amount of money one time, pay it back with fixed amount of payments over term, you're going to have a clear payoff date, a schedule you can budget around.
[00:21:59] You're going to have an impact on your credit and your cash flow.
[00:22:04] Your high credit card balances can hurt your scores, as we just discussed quickly. By increasing utilization, installment loans paid on time can help show stability.
[00:22:17] So having a healthy mix of both managing well strengthens your overall credit profile.
[00:22:27] So I really want you to think about that. Revolving is your credit cards. They're flexible and easy to misuse.
[00:22:37] Watch your balances.
[00:22:39] Installment is for structure and predictability.
[00:22:43] Good for long term planning.
[00:22:46] High utilization on credit cards can damage your score even if you never missed a payment.
[00:22:54] Lenders like to see how you can handle both types of debts responsibly.
[00:23:01] In the next segment, we're going to tackle a sensitive question.
[00:23:07] How long is debt actually collectible?
[00:23:11] What really happens with judgments and bankruptcies?
[00:23:15] This is where law, credit reports and real life all meet together.
[00:23:21] Stay tuned. We'll be right back. We'll be right back with more strategies to elevate your credit, eliminate debt and build lasting wealth. Stay tuned. Hello, I'm Al Diva Rubelgava, host of the FICO Diva show on NOW Media Television. As a financial strategy strategist and entrepreneur, I created this show to help individuals unlock real financial power through credit, education and wealth strategy. We're looking for contributors, credit experts, financial advisors, business funding specialists, entrepreneurs, wealth strategists and mindset leaders. If you're building tools, strategies or systems that help people achieve financial independence, I'd love to have you join the conversation. The FICO Diva show airs weekly on Now Media Television and streams on Roku, Apple TV, iHeartRadio, SiriusXM and major digital platforms. Let's redefine what financial freedom looks like. And we're back. I'm Al Diva Rupalgava and this is the FICO Diva show on NOW Media Television. Let's continue building. Welcome back. Now let's talk about something many people only learn the hard way.
[00:24:32] How long is debt legally collectible and following you and what happens with judgments and bankruptcies?
[00:24:40] I'm not here to give you any legal advice, but I want you to understand the basic framework so you can ask better questions and protect yourself.
[00:24:51] How long is debt legally collectible?
[00:24:54] So in this segment, I'm going to talk about my favorite word, sol.
[00:25:00] And sol means statute of limitations and how long a creditor or collector can sue you for old debt.
[00:25:08] So let's talk about that now. We have 50 states and every state has their own statute of limitations. And I'm not going to go over all of them because I don't have them all memorized. But I Have quite a few memorized.
[00:25:22] So in the state of California, Texas, they have four years from date of last payment to take you to court.
[00:25:33] So what does that mean? That means that any debt older, and I'm talking about collections charge offs, anything that's negative, they have four years from the date of last payment to take you to court. Okay?
[00:25:51] So any debt older than today's date, 20, 22 and older is not legally collectible by law.
[00:26:00] They can still be on your credit report for seven years if you do nothing, but they cannot take you to court after four years.
[00:26:11] Now Arizona, Washington, Oregon, they're six year states.
[00:26:18] Wyoming and Kentucky, they're 10 year states.
[00:26:21] Florida is five years.
[00:26:23] So every single state has their own statute of limitations.
[00:26:29] So it's really important for you to know how long is debt legally collectible in the state that you live in? Because sometimes, especially nowadays, we're getting a lot of collection phone calls and we're getting a lot of collection phone calls for time barred debt.
[00:26:47] And a lot of people have been gifting away their money to debt that's no longer legally collectible.
[00:26:57] I wanted to, I want to warn you about something.
[00:27:00] Let's say a debt collector calls you and you remember that back in 2019 you had this credit card with ABC company and this debt collector calls you and they're like, hey, I'm calling you to collect on this debt. And you're like, oh, I remember that debt. Yes, I know I didn't pay it, but let me, let me go ahead and make a payment right now. Okay, number one, stop. Don't ever do that. Because we as humans love to tell our stories.
[00:27:37] We love to say why we didn't pay.
[00:27:40] What happened in our life at that time, it's none of their business.
[00:27:44] Life happens to everybody. Okay, How I want you to respond is when was the last time I made a payment? Oh, no, don't even say I. When was the last time a payment was made on that account?
[00:28:00] Let them tell you.
[00:28:02] And if that date exceeds the statute of limitations in your state, you can simply tell them, I no longer owe this debt.
[00:28:14] So you need to stop calling me and put me on your do not call list.
[00:28:19] And they're going to try to convince you that you owe it.
[00:28:22] You don't.
[00:28:24] Now if it's something that's still within statute of limitations, you can ask them for a debt validation letter to be mailed to you.
[00:28:36] Do not email it because that's instant physically mail it to you. And you also want to see date of last payment who the original creditor was and all of that information.
[00:28:51] This is important so that you're not just gifting away money to time bar debt. Okay?
[00:28:58] Another thing, let's say that debt collector calls you about ABC debt and you go, yeah, I couldn't afford to pay that. But let me, let me make you a payment right now. Can I get set up on a payment plan?
[00:29:14] Making one payment today just reset. Set your statute of limitations to the new time frame.
[00:29:25] So be very, very, very careful with that. Don't assume that everyone out there trying to collect is doing it legally and ethically.
[00:29:36] They're relying on the fact that you don't know how long debt is legally collectible and they're relying on the fact that you're going to pay it.
[00:29:46] So protect yourselves, get to know how long debt is legally collectible. If you follow me on TikTok, which is fico diva, you're going to see I have all the statute of limitations put on there by state. It's also on my Instagram, which is at ficodiva. But you'll be able to see all of the statute of limitations per state. You'll be able to see who has 3, 3 years, 4 years, 5 years, 6 years, and even up to 10 years to collect on debt.
[00:30:20] So protect yourselves. Don't just gift away your money because once that period passes, the debt can become time barred for lawsuits.
[00:30:31] Now, collections may still try to collect you for legal rights and rules around anything that's specific, but you should always get, you should always get guidance when it comes to your, to your credit.
[00:30:44] You want to look at your credit report versus legal versus the legal clock, the legal clock how long they can sue you and collect the credit report clock, how long negative information can appear on your credit report.
[00:31:00] Let's talk about this subject right here.
[00:31:03] Anything negative can stay on your credit report up to seven years from date of last payment.
[00:31:13] A bankruptcy, however, can stay on your credit report for 10 years after the discharge date.
[00:31:21] So it's important to know that credit inquiries will only stay on your credit report for two years.
[00:31:29] However, they only impact your credit scores for one year.
[00:31:35] So always look at that when you're looking at your credit report. Some credit reports will give you, they'll show you the date of last payment. If you're ever looking at a mortgage report, it's going to say dla, which means date of last activity. Focus on that date.
[00:31:54] Don't just gift away your money on time bar debt.
[00:31:59] Now, sometimes life happens and we need to file bankruptcy and that's okay.
[00:32:04] I want you to know it is perfectly okay if you need to file bankruptcy. In fact, creditors love you after bankruptcy. And you're probably thinking, why is that okay?
[00:32:17] Once you file bankruptcy, you especially chapter seven, you get rid of all your debts, you start fresh.
[00:32:27] After you start fresh, you can start getting secured credit cards and rebuilding your credit. And you want to do this immediately after your discharge date because you don't want to sit there and go, oh, I filed bankruptcy, I can't get credit. It's the opposite. All the credit card offers start coming in the mail because you can't file bankruptcy again for eight years.
[00:32:50] So now if life happens again, the creditors are protected from you.
[00:32:55] And that's why they want to give you credit and they want you to rebuild your credit. And guess what?
[00:33:02] How soon after bankruptcy can you purchase a home?
[00:33:07] I've heard people tell me, oh, I can't buy a home for seven years or 10 years. No, two years after your discharge date, you can buy a home.
[00:33:19] So don't let what's happening in your life today prevent you from filing bankruptcy if that's what you need to do.
[00:33:29] Bankruptcies are not for everyone, but if you're in such a financial distressed situation, just know it's an option.
[00:33:40] Now let's talk about judgments.
[00:33:42] So judgments change the statute of limitations.
[00:33:47] What that means is the creditor sued you within, within the time frame of your statute of limitations for your, for your state and they now have a physical judgment against you.
[00:34:00] You need to be very careful with judgments because judgments are often, they have up to 10 years to collect and in some states, states they can renew the judgment six years, I'm sorry, six months before the 10 years for an additional 10 years.
[00:34:16] And then six months before the 20 years, an additional 10 years. So they can keep on renewing these judgments or they can sell them to other attorneys and allow them to renew the judgments.
[00:34:28] So it's really important to look into this. There's a lot of red flag credit accounts that, that as soon as I see them on a credit report, first thing I do is look for a judgment. So to see if you were even ever served, if you ever got a judgment against you maybe you're not aware of, but it's things you need to know.
[00:34:47] With judgments, it's not just I got sued for $1,000 and now I owe $1,000.
[00:34:55] In those 10 years, they can add Memorandum of costs, which means they're now adding interest, they're now adding fees just because they feel like it. Fees and they can add these memorandum of costs whenever they want.
[00:35:10] I have a client and this is a true story. They had a $3,000 judgment in seven years.
[00:35:18] The creditor added so many memorandum of costs that $3,000 became $17,000.
[00:35:26] So it's important to understand if you have any judgments against you and those are the accounts you need to settle on and get and get them out of the way or if you file bankruptcy, this one here is really important.
[00:35:40] If you file bankruptcy, you need to make sure that they get this judgment included and dismissed.
[00:35:48] Because a lot of times you assume I filed bankruptcy, I no longer owe this debate.
[00:35:53] But in reality, the attorneys don't get the judgment satisfied and deleted and it can still become collectible. So just things to keep in mind.
[00:36:07] So statutes of limitations limits lawsuits, but they do have up to the statute of limitations. Time to take you to court. So, so keep that in mind. In our final segment, we're going to connect all of this to one of the biggest financial decisions many families make. Buying a home.
[00:36:29] What should you look for in your credit before you apply for a mortgage? And what can you start fixing today?
[00:36:35] Stay tuned. We'll be right back. We'll be right back with more strategies to elevate your credit, eliminate debt and build lasting wealth. Stay tuned. Hello, I'm Aldeva Rubelgava, host of the FICO Diva show on NOW Media Television. As a financial strategist and entrepreneur, I created this show to help individuals unlock real financial power through credit, education and wealth strategy. We're looking for contributors, credit experts, financial advisors, business spending specialists, entrepreneurs, wealth strategists and mindset leaders. If you're building tools to strategies or systems that help people achieve financial independence, I'd love to have you join the conversation. The FICO Diva show airs weekly on Now Media Television and streams on Roku, Apple TV, iHeartRadio, SiriusXM and major digital platforms. Let's redefine what financial freedom looks like. And we're back. I'm Al Diva Rubelgava and this is the FICO Diva show on NOW Media Television. Let's continue building.
[00:37:40] Welcome back to the FICO Diva show where we make money make sense and help you turn financial knowledge into real life decisions. Stay connected with NOW Media TV for more tools that help you move towards your goals.
[00:37:56] Let's bring everything together with a big dream. For many people, owning a home, your credit is one of the main doors that either opens the doors or or closes them when you apply for a mortgage.
[00:38:09] Things to consider when buying A home and your credit. Before talking to a lender, viewers should pull your credit reports from three bureaus. However, keep in mind that the algorithm that you're going to be pulling is very different than the algorithm that your lenders are going to be pulling.
[00:38:29] Check for errors, duplicates or or outdated negatives and dispute when appropriate. However, keep in mind that you sometimes don't need to dispute certain things and we're going to talk about that.
[00:38:45] Look at your balances, especially on your credit cards and recent payment history.
[00:38:51] So your lenders do focus on recent late payments.
[00:38:56] Actually being late recently can hold you back about a year sometimes on buying a home, unless you have a valid reason as to why you relate on that payment.
[00:39:07] So be careful with that.
[00:39:09] What lenders generally look at your credit score range. Okay, so let's discuss your credit scores when you buy a home. And I mentioned this in the previous segment, your lenders are pulling a FICO 2, FICO 4, FICO 5.
[00:39:26] They're not looking at any of the credit scores that you're looking at on your apps.
[00:39:32] Now when you buy a home, your highest credit score gets ignored, your lowest credit score gets ignored, and it's your middle credit score that determines an approval or a denial.
[00:39:46] Okay, so highest is ignored, lowest is ignored, your middle score determines an approval or a denial.
[00:39:55] So let's say you're looking at one of your free apps that is based on a Vantage score.
[00:40:01] Deduct about 45 points from those apps and that's approximately where you're going to be when you apply for a home.
[00:40:10] Let's say you're looking at one of the apps that your bank cards are issuing. You deduct about 30 points from that score and that's where you're going to be to qualify for a home. And keep in mind that's on average. Okay, now let's say you're telling me, well I have a cosigner and they have great credit.
[00:40:31] Guess what, your co signer can have amazing credit. However, it's the person with the lowest middle score that qualifies or gets denied for the loan, regardless if the other person has an amazing credit score or not.
[00:40:50] So I really want you to keep these things in mind.
[00:40:54] Also, first time home buyers, let's say that you've never purchased a home and you want to use down payment assistance or a VA loan. They're looking at a 620 to 640 credit score, which means that on your apps, the free one that shows you two bureaus, both of your scores need to be 665 or higher so that you have a chance of them pulling a middle 620 score. If it's 640 that they want, both of your credit scores need to be 685 or higher so that you have a higher chance of them pulling a 640 middle score.
[00:41:35] Keep that in mind. It's important.
[00:41:38] Okay. They look at your debt to income ratio. However, they're not focusing on your balances per se. Even though your balances can lower your scores. What they're focusing on is your income and how much are all of your minimum monthly payments combined. Okay, then that can either. If you have high minimum monthly payments, that can throw you off for your debt to income ratio. That's why it's super important to discuss these things with a mortgage lender, which I am not, so that you can see where your debt to income ratio stands.
[00:42:22] History with both revolving and installment debts is split, especially prior mortgages, auto loans, student loans.
[00:42:31] Practical moves before applying so when it comes to prior mortgages, let's say that you owned a home five years ago and you've been a renter for five years now. You sold your home. Life happened five years ago and now you no longer own a home.
[00:42:54] But now you want to buy a home.
[00:42:56] As long as you have not had a home in your name for the past three years, you now qualify as a first time home buyer again.
[00:43:08] So there's a lot of programs out there for you, so don't be afraid to look into them. Okay?
[00:43:14] They really want to look at your auto loans and how much your payments are. Because I've been seeing some auto loans at $1,200 on credit reports and imagine what that could do to someone's debt to income ratio.
[00:43:28] Student loans, let's say you're on deferment.
[00:43:31] So if you're on deferment, they're going to take your balances and depending on what bank they end up qualifying you with, some of them are going to take your balances and multiply it by half a percent and make that your minimum monthly payment against your debt to income ratio. And some of them are going to take 1% and calculate that based off your balance and make that your minimum monthly payment that goes against your debt to income ratio. Why do they do that? You're like, why are they doing that? I'm on deferment, I don't have a payment because eventually that deferment is going to come off and you're going to have to pay it.
[00:44:11] So they're already allocating that expense expense against your debt to income ratio. So keep that in mind.
[00:44:19] So, practical moves before applying lower your credit card utilization, aim to bring down your balances well below the limit. Okay.
[00:44:31] When it comes to this, sometimes people tell me, I have this car that has an annual fee. Now I want to get rid of it.
[00:44:40] Do not touch that card. If you touch that card right now, you're going to close that account and you're going to drop your scores 50 points.
[00:44:50] Okay? What I tell my clients is leave that card alone, apply for your home, get your keys, get your home, get approved, close on the house, and the day after you close on the house, then close that card and take that 50 point hit. But don't do it before because we want your scores to be as high as they can be.
[00:45:16] Now.
[00:45:17] When it comes to installment debt, there's a loophole in the system and I love loopholes.
[00:45:24] The loophole is let's say that you have a car that you're about to pay off, but.
[00:45:29] And you're like, I don't want to pay, I don't want to have this car payment. I'm going to pay off this car. So what happens? What did we discuss in the previous segment? Whenever you pay off an installment debt, it closes the account and it dings you 50 points.
[00:45:47] So what I tell my clients is pay down your vehicle to where you owe 10 payments or less.
[00:45:56] Now, your lender isn't going to count that car payment against your debt to income ratio.
[00:46:04] Buy your house and the day after the house is funded in your name, you got the keys, you get to take the nice pretty picture with the key with your realtor, then go pay off the car and take the 50 point hit because now you have your house and that's all that matters is getting keys to your home. Okay?
[00:46:26] Make every payment on time for at least 6 to 12 months leading up to the application. Actually, I don't agree with 6 to 12. I think that 12 to 18 months is better because I have seen underwriters sometimes say, oh well, they have all of these late payments.
[00:46:43] Yes, life happened. You can explain that.
[00:46:48] Be ready to explain past negatives with documentation and show a clear pattern of improvement.
[00:46:54] That's really, really important.
[00:46:57] Lenders want, especially underwriters, they want to see life happened. Here's consistency, here's my letter of explanation as to why life happened. And I'm not doing that anymore.
[00:47:10] When it comes to, let's say that life happened and you had a repossession on A vehicle or even a voluntary repossession.
[00:47:20] Those are a little bit different because they were attached to a secured property.
[00:47:27] Most lenders want you to pay those off.
[00:47:30] Never. Just pay them 100%. Call the creditor and negotiate a settlement and pay it off.
[00:47:39] You already have the negative account on your credit report because it became a charge off the minute that you surrendered it.
[00:47:48] And also when it comes to repossession, some of you think, well, they took back the car. Why do I owe this money? Let's talk about that.
[00:47:57] Whenever you return a vehicle, they do not put it back on the lot. It gets sold at auction.
[00:48:05] So if that vehicle gets sold for what you owe, you have a zero balance.
[00:48:10] If that vehicle gets sold for more than you owe, you get a refund check.
[00:48:15] If that vehicle gets sold for less than you owe, you have a deficiency balance that's still due. And yes, it has statute of limitations on how long they can sue you.
[00:48:27] But a lender is going to want that debt resolved.
[00:48:32] So be prepared to make a settlement offer.
[00:48:36] Deal with that debt.
[00:48:39] Focus on on time payments.
[00:48:42] Avoid big new debts right before during the approval process. So I'm actually going to tweak this one a little bit. When you're approved, the lender says you're pre approved. This is how much you qualify for. This is how much you're going to be able to purchase.
[00:48:59] You do not do anything new with your credit.
[00:49:03] That means no inquiries, no increasing your balances, no increasing your debts, no new credit, no nothing until the day after you close and fund the loan on your home.
[00:49:19] Because doing that can actually kill your deal.
[00:49:24] So protect your pre approval whenever you buy a home.
[00:49:30] And if you're thinking about doing something, call your lender first. Hey, this is what happened in my life. I'm now needing to do this, am I? Okay, you might have room in your debt to income ratio and they might say yes. You might be really tight and they might say no. So never take your pre approval as it's just a piece of paper. It's a very significant, important piece of paper.
[00:49:56] So keep that in mind.
[00:49:58] Good credit doesn't just help you get approved, it can significantly lower your interest rate and your monthly payment.
[00:50:05] If there's one thing I want you to take from today's episode is you're not stuck with a credit story you have today.
[00:50:13] Understand how credit works and who's keeping score. Use revolving and installment debt. Intentionally know your rights around old debt and negative remarks.
[00:50:24] Build the kind of credit profile that supports your goals, especially if home ownership is in them.
[00:50:29] Financial power starts with information, but it grows with consistent action.
[00:50:35] If you want to see my website, if you want to reach out to me, you can reach
[email protected] f I c o d I v a dot com.
[00:50:45] I'm Aldiva Rubelkava. This is the FICO Diva show where financial literacy becomes personal power. Thank you for watching and I'll see you next time. Have an amazing day.
