Your FICO credit score somehow predicts your likelihood to pay debts and represents your overall creditworthiness. Anyone can go online right now and visit a website that can calculate this for you. But doing so will reveal a slight dilemma: why does your score vary from one website to another? Which one is the most accurate? How can you tell if your score is good for you or not? Rondi Lambeth explains on a recent Facebook live how FICO credit scores are created. He dives deep into the five areas of the FICO pie chart, discussing how to properly manage your credit cards and deal with your negative payment history.
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How Your FICO Credit Score Is Created
This is going to be a fun show. I’m going to be talking about how the FICO credit score is created and calculated. This is something where a lot of people get confused. There’s a lot of confusion on credit scores. Part of it is because there are a lot of different credit scores. There are Vantage credit scores, TransRisk credit scores, by bill credit scores. In FICO, you have FICO Model 1, 2, 3, all the way up to FICO Model 10. On top of that, you have scorecards inside the different models. There are over 4,000 different models with the scorecards. No wonder it’s confusing. On top of that, if you go to FreeCreditReport.com, it gives you one score. If you go to MyFICO.com, it gives you another credit score. If you go to CreditCheckTotal.com, if you go to my website, Credit Mojo or if you go to Credit Karma, you get different scores. It’s because there are different models in software, just like iOS versus Android. There are different types of those software in there.
We’re going to talk about the five things that make up your credit score and how you can improve your credit score. I’m going to go over those five areas, then after each area, I’ll open up for questions and I’ll answer those questions based on the area that I was talking about. The first thing I’m going to talk about is payment history, which is 35% of your credit score. If you have a question regarding payment history, we’ll put it in there and I’ll answer it. If I’m talking about payment history and you ask a question about inquiries, I’m going to have to ignore it so I can get through all five categories. If you ask me any other question regarding credit repair, I’m going to have to ignore it until I get to the end. Once I’m all done talking about FICO, I’ll go back through it and I’ll answer those questions. I want to make sure that I get through how the FICO score is created.
With that being said, if there’s any time that you need help with your credit, your finances, your taxes, your retirement accounts or your insurance policies, give my office a call. It’s 1 (800)-475-7267. You can also go to my website RondiLambeth.com and sign up for a free consultation. Let’s get started with the FICO pie chart with five areas. FICO, what is it? It’s a company created by Bill Fair and Earl Isaac a long time ago. One was a mathematician and the other was an engineer. They created this algorithm that predicts the future. It’s extremely accurate. It is so accurate at predicting the future of whether or not you’re going to be late in the next two years that 90% of the world’s banks rely on and trust FICO. It has created billions of credit scores. FICO scores are not free. Anywhere you go and get it, it’s not free. If you go to Credit Karma and you get a credit score for free, it’s not free. Credit Karma’s paying Experian for that score. If you get a FICO credit score somewhere from a mortgage broker, it’s not free. They paid for that score.
What is the score? The score range is 300 to 850. There’s a 550 point difference. The worst credit score you could have would be a 300. The highest would be an 850. The lowest credit score I’ve ever seen out of thousands of credit reports, when I say thousands, I’m not exaggerating at all. My company pulls out 5,000 reports a month. We’ve been in business for several years. That’s 60,000 reports a year or 750,000 reports we’ve looked at. It’s almost one million credit reports. When I say that the lowest credit score I’ve ever seen is a 400, there’s a little experience there. If we figured the lowest credit score is 400. The highest credit score that we generally see is around 800. You can have a high credit score of 805 or 820. Mine right now is 809. The moment I use my credit cards a little bit, it’ll drop below 800.
That doesn’t mean you can’t have an 850. It’s just extremely rare and you’re not going to have it for very long. I was in a Clubhouse and this lady who’s very popular in Clubhouse kept saying she’s had an 850 credit score for ten years, which is ridiculous. The moment you don’t use that credit card, you go over a 1% utilization rate and your score is going to drop. The moment you get an inquiry, it’s going to drop. The moment you get a new car loan. It is possible, but for sake of argument, let’s figure 400 to 800. That’s your spread.
I want to go over what that means to a bank. If you go in and you apply for a loan, they look at your credit score and it’s a 660, what does that mean to the bank? Does that mean you’re somebody of your word, that you pay your bills on time, that if you say you’re going to pay, you’re going to do it? Does that mean you’re a bad person because you’re not an 850? What does that 660 mean? I want you to write down 300 and then write down 850, put periods between two zeros. It should look like 30.0 and 85.0. I want you to look at the FICO score that way, 30.0 to 85.0. Put a percentage sign behind the 300 and put a percentage sign behind the 850. It should read 30% to 85%.
This is what it means relatively. That’s not an exact science. I’m a certified FICO credit professional. FICO will not tell you this. You’re not going to see or read this anywhere else unless they are reading this and they’re telling you. Your 300 to 850 score represents a 30% to 85% likelihood of you paying your bills on time. That’s all it means, 30% to 85% chance. If you have a 660, there’s a 66% chance or likelihood that you will pay your bills on time over the next two years. The more you pay your bills on time, the better you manage your credit cards, the less inquiries you get, the longer you keep your loans open, the higher the credit score, which represents a higher likelihood of you paying your bills on time.
Why doesn’t it go over 850? Some credit scores do. Some credit scores are 999. If you look at it this way, the best-case scenario is an 85% chance you’ll pay your bills on time. That’s not an exact science. It is a rule of thumb, so you can understand what that score looks like. If you’re a bank and you’re looking on paper, or if you’re using your automated underwriting system, they’ll reject you based on the score. You will never get approved for a loan because of your credit score. You will only be denied a loan based on your credit score.
If you’re like this woman on Clubhouse who goes around giving out advice about credit, and you’ve had an 850 credit score for the last ten years. You go into the bank and you’re like, “I got an 850 credit score. I want a $5 million house.” “Let’s see your tax returns.” “I didn’t file taxes. I don’t make any money.” “Let’s see your pay stubs.” “I don’t have a job.” “Let’s see your retirement.” “I don’t have any retirement.” “How about a down payment?” “I don’t have any money. I got an 850 credit score, though. I want that $5 million house.”
Bank’s going to say, “Sorry, but no.” You have no way to pay the loan back. “I’m good for it. I got an 850 credit score. Give me the house. Give me the money so I can buy this $5 million house. I want it. I watched the movie, The Secret. I’m visualizing me living in the house. I’d write down my goals in the morning and the afternoon. I read it. I’m manifesting that house. I got an 850 credit score.” You’re not going to get the loan. I know that’s an extreme example but it’s true. You will never get approved for a loan based on your credit score. You only get denied.
Let me back up a little bit. I got $2 million in the bank, $1 million in the 401(k), a great driving record, great job, but I want to buy a $5 million house. Even though I got $2 million in the bank, that’s going to be a $3 million loan, but I’m only making $100,000 a year. I won’t get the loan because I don’t qualify. Let’s say that I got the down payment. I make $1 million a year, but I got a 639 credit score and the minimum is a 640. I’m going to get denied because I need a minimum of 640 credit score. That’s what I mean by you’ll never get approved based on your credit score, you’ll only get denied. That is the FICO range, 300 to 850, 30% to 85% likelihood of you paying your bills on time.
35% Payment History
Let’s get into the very first part of the five FICO pie chart or areas. Number one is payment history. It’s 35% of your credit score or roughly 192 points based on the 550 points available. If you only got 400 points available, it’s going to be a little bit less than that, but let’s run with 192 points. This is all of your payment history from the moment when you first get a credit report at age eighteen or so. You can have a credit report prior to that, but let’s say 18 until 48. Maybe you’ve had a credit now for 30 years. It’s your payment history over that time. What happens in your payment history is accounts generally fall off after about ten years without making payments on it. If you had an account that was open, you paid off the car loan, paid off your student loan, closed the credit card. It’s going to stay on there for about ten years and then they fall off.
Negative payment history will stay on for a maximum of seven years that it can report. It doesn’t mean that it has to be on there for seven years. When I go and do these live seminars, speaking engagements, I always get the question about, “I thought it had to stay on there for seven years.” The losses can stay on for seven years. It doesn’t say it has to stay on there for seven years. Negative payment history will report for up to seven years. Positive payment history generally reports from 10 to 20 years after the account was closed.
Payment history is 35% of your score. That’s the positive payment history and the negative payment history. There’s not a lot you can do to change your positive payment history. There’s one thing that you can do. It’s to change the positive payment history. Negative payment history is what I built an entire business around, fixing people’s credit or removing late payments, charge-offs, collections, short sells, judgments, foreclosures, repossessions. Remember I said the law says it can be reported for up to seven years. It doesn’t say it has to be reported for seven years.
That means let’s say you had a late payment on a car loan two years ago. Maybe you went 90 days past due, they repoed the car and you reached out to me. You called the 1(800) number. You’re like, “I got to get my credit fixed. I got this repo on there. I got to get cleaned up.” What you’ll find is we’re not going to ask you, “Were you late?” We’re not going to ask you, “Did you make your payments on time? Did you repo it? What was the story? Did you split up with your wife? Was it your boyfriend? Whose fault was it? Did you lose your job? Did they not send you the payment?” We’re not going to ask you any of these questions because it doesn’t matter at all.
The reason it doesn’t matter is unless you are a victim of identity theft and you have proof or you’re willing to file a police report, why the late payments are there doesn’t matter? What I’m going to do is we’re going to look at your credit report. If you bought that car at a car dealership and you financed it at the dealership, it is almost 100% likely that it’s going to be reported as an auto loan. You went into the car dealer, bought the car, financed it with the bank that the car dealership recommended. I’m going to say that 99.99%, I’ve never seen it reported correctly, but there’s a chance they might report it correctly. They’re going to report it as an auto loan. Whether you went 1, 2, 3 years, and then you missed a payment, I don’t care why you missed a payment because they report it as an auto loan.
You might be thinking, “That’s what it is. I got a loan for an automobile. I bought it at the dealership. Why are you even talking about this? It’s an auto loan.” It’s not, because you got to add a dealership. The dealership sold the retail installment contract that you signed with the dealership to the bank. The bank issued you the auto loan based on a retail installment contract. What’s a retail installment contract? It is a contract or a promise to pay to a retailer. The car dealership is a retailer. When you do that loan paperwork, have you ever noticed it, it doesn’t say Bank of America, Wells Fargo, Chase, General Motors or Chrysler. It says the dealership’s name because it’s a retail installment contract with the dealership.
The reason they pull your credit so much is they’re trying to find the best bidder for that loan. The dealership was the original creditor and the owner of that contract, and then they sell it to the bank. If you read the Fair Credit Reporting Act, it states that the information reported must be accurate. The fact that it’s being reported as an auto loan when it’s a retail installment contract violates federal and state law. That is how I would go after getting that repossession or the late payments. It has nothing to do with the late payments. The bank is reporting it illegally and it’s inaccurate. Thirty-five percent of your credit score is based on payment history. That’s an example of some payment history. That is an example of how we can get negative payment history, whether it’s a late payment, charge-off, collection, short sell, repossession, foreclosure or whatever else is on there.
Jenny says, “How do I get a charge-off taken off my credit report?” It’s the same way. A charge-off is a negative item that’s generally when you go six months without making a payment. The bank will then charge it off. That doesn’t mean you don’t owe it. The misconception is that a charge-off means you don’t owe it. That means the bank wrote it off so they don’t have to pay taxes on that, but you still owe that money for the rest of your life because there is no statute of limitations. How do you get a charge- off removed? It’s the same way. We’re going to go in there, look and see. If it’s charge-off on a credit card, I’m going to go and dispute the inaccurate account number.
How many numbers are in your Visa account number, your Visa credit card? I know it starts with a four because it’s Visa. If it was a MasterCard, it starts with five. That’s how you know. How many numbers are there? There are four sets of four numbers. There are sixteen digits. If you looked at your credit report, how many digits are they reporting on the account number? The Fair Credit Report Act states that, “If they report.” There’s no law that says these banks have to report anything. It says, “If you report, the information reported must be 100% accurate.” If it’s a sixteen-digit account number and there are only four digits reported, is that accurate? No. That’s how you get it removed. You dispute the validity or inaccuracy of the account number.
Here’s another one, “How long does it take to remove negative payment history?” Payment history can show up for seven years. How long does it take? It depends. I’ve deleted bankruptcies as little as 21 days. I’ve deleted late payments in as little as 15 to 20 minutes. It depends on the case and scenario. On average though, because most people that hire me want to buy homes, 50% of the people that hire me can buy a house within 90 days or less, 90% of the clients within six months or less. What takes your average credit repair company 22 to 27 months to do it? It’s their numbers, not mine. It’s on their website. The largest credit repair company in America has got it right smack on their website, 22 to 27 months at $110 a month. You do the math. For us, on average 90% of the time, it takes less than six months.
What else do we get for a question? “After two years of excellent payment history, does your FICO score jump up?” It does increase, but the way you asked the question is a great question, Greg. He’s got, “Jumped up in capital” as in jump up a lot. It doesn’t jump up. It does increase though. Generally, it’s four years or 49 months that it jumps up that you see a significant increase in your credit score at the 49th month. Twenty-four months is the break-even point. What I mean by that is 90% of all late payments happen within the first two years. When you first opened that account, you start out negative. Every month that you make a payment, your score comes up a little bit.
At the end of that 24-month, your score has come back up to where it was prior to opening the account. It’s different for everybody because everybody is on different scorecards. On average, about 25 months is when you break even. Twenty-four months when you break even, at 25th month that go up, and then it goes up generally every month after that, which is why it’s important not to pay off car loans early or student loans earlier or any loan early. I’ll get into that when we talk about the length of credit history.
Matthew says, “Thank you for all the game you give us.” I appreciate that. “Is there any way other than authorizing your accounts to boost your payment history?” No. That was the way that I was referencing or insinuating earlier that there’s only one way to edit the payment history that you guys can control without removing negative payment history. That is adding authorized user accounts to your credit. An authorized user is this. If someone adds you to their credit card as an authorized user, you’re not a co-signer. What that does for you is their payment history will then show up on your credit report as a positive tradeline.
If they’ve had a credit card open for ten years and it’s still open, and they add you as an authorized user, that credit card will show up now on your credit report with ten years of history. It makes it look like it’s been open for ten years. I’ve done this with my grandson and for thousands of people where we added them to our credit cards. It’s one of the services that I offer a lot of my VIP clients and celebrities, where we put them on my credit cards, and then they get my history. Once their score goes up, we get them their own credit cards and I take them off of mine.
Christy says, “If you can’t get multiple late payments corrected on close to a loan, what hurts your credit score more, late payments sitting there or removing it and losing that history?” That depends. You’re going to find me say that a lot because there’s no specific answer without seeing everything. If I had your credit report in front of me, I could look at everything, put it in the algorithm and mess around with the scorecards, I could give you a specific answer. I know how to do that. I can log into FICO’s website and put your information in and manipulate it. It gives you a plus or minus five points credit score.
I know how to create the algorithm and the scorecards to do that, but without seeing, I’m going to guess here. It depends on how many other positive tradelines you have. If the student loan is your oldest and only tradeline, and you’ve been positive on it for the last four years, and you got late payments from four years ago. Removing the account will have a substantial impact on your credit score. Other scenario, you got tons of good credit, nothing else is late, credit cards are not maxed out. You got this old student loan. You were late last year. We delete the whole student loan. You’re not going to see a hiccup in your credit score at all. It would probably go up.
30% Credit Type
We’re going to go to 30% of your credit score. It is based on what types of credit you have. Thirty percent of that 550 points, that’s 165 points. Thirty percent of your credit score is based on what types of accounts you have. Here’s what FICO wants to see. They want to see a mortgage, a car loan or an installment loan, and three credit cards. Car loan, installment loan, motorcycle loans, student loans, it doesn’t matter, loans that are stumbling in the mortgage. They want to see those five things on your credit. Does that mean if you don’t have a mortgage, you can’t have great credit? No. It’s just the best as what FICO wants to see.
I’ll give you an example. On December 1, 2012, I bought a house in Lake Tahoe. My credit was good. It was 760 or so. The following month, in January of 2013, I got a loan from Wells Fargo. They then reported that I had a mortgage. My credit score increased by 25 points because of the mortgage. If I would have got a car loan, my score would probably gone down 25 points. If I got a new credit card, it would probably go down 25 points, but because I got a mortgage and FICO wants to see a mortgage on there, the score went up 25 points.
Why would FICO want to see a mortgage on your credit report? What is FICO trying to do? They’re trying to predict the future of you missing a payment over the next two years. What is the likelihood of Christy missing a payment over the next two years? If she has a mortgage, because we’ve looked at hundreds of millions of credit reports and we created billions of scores, we know people with mortgages are less likely to miss a payment than people that don’t have mortgages. Therefore, if there’s a mortgage on their credit report, put them in this bucket or scorecard, which then inflates their credit score 25 points.
They want to see a mortgage, an installment loan and three credit cards. That’s what they want to see on your credit. What if you have four credit cards? That’s fine. Five credit cards? That’s fine. What if you have ten credit cards? It’s all different depending on the scorecard you’re in, but around ten, there is a FICO code that says too many revolving accounts is generally caused when you have a bunch of credit cards that are open that you’re not using. I’ve never seen a negative impact on a credit score for too many credit cards if the credit cards are all being properly used. If they’re not carrying balances, as in you’re not using them at all and there’s inactivity, that will have a negative impact on your credit score.
If you’re going over that 10% utilization rate, it will have a negative impact on your credit score, but they want to see at least three credit cards. What if you only have two credit cards? FICO wants to see three. I get this question all the time when I’m doing these speaking engagements, “What if I only have one credit card? What if I don’t have any credit cards? What if I got five?” That’s cool but FICO wants to see three. If you don’t have at least three, get three. If you don’t know where to go and you have bad credit, go to my website RondiLambeth.com. Click on credit cards. We got 5 or 6 banks. It’s a live feed. They don’t even care what your credit score is. They’re going to give you a credit card as long as you’re not currently in bankruptcy.
They want at least three credit cards. They don’t care if they are secured credit cards or if they’re retail cards like Kohl’s, JCPenny’s, Victoria’s Secrets, Gap, Old Navy or Bass Pro Shops. They don’t care who owns the credit card or who’s providing the credit card. They just care that you have a credit card, at least three. The reason why is FICO has figured out over the last many years. They were created in 1956. It’s many years they’ve been in business. The first score model was created in the 1990s. The second one, which is what all mortgage companies use which is FICO Model 2, which was developed in 1996.
In 1992 that the government said they have to use FICO when they issue mortgages. FICO has figured it out after creating billions of scores that people with three credit cards with less than 10% utilization rate have a much lower likelihood of missing a payment. That’s all this game is about. What is the likelihood of you missing a payment over the next two years? You got a mortgage that’s going to go down. If you got three credit cards under a 10% utilization rate, it’s less likelihood that you’re going to miss your payments. The score goes up.
Credit cards are the most important thing on your credit score. It’s the absolute most important. I said that payment history is 35%, and the types of credit are only 30%. If you like 35% more than 30%. Your payment history is also based on your credit card payment history. Your utilization rate is credit cards. How many credit cards? All of that. Credit cards are the number one thing on your credit report for your scores because FICO figured out that people who know how to manage their credit cards properly are better clients to loan money to because they’re more apt to pay their bills on time.
Whether you like credit cards or not, it’s irrelevant. FICO doesn’t care if you like credit cards or not. FICO doesn’t care what you think about credit. The score is the score. It’s like gravity. Regardless of what you think, if you jump off the building, you are going to fall. You can either complain about gravity or get onboard with it and learn to work with it. Kelly says, “Is a line of credit on your bank account considered a credit card?” It is a line of credit. It doesn’t show up on a credit report as a credit card. It shows up as a revolving line of credit. If the line of credit on your checking account like an overdraft line of credit reports to your credit report, that would be a credit card, a revolving line of credit. Most home equity lines of credit will show up as revolving credit cards or revolving lines of credit cards, otherwise known as a credit card. A line of credit on your checking account like overdraft protection, if it was reported on your credit report, it would most likely show as a revolving, that would be the same as a credit card. You want to treat it like a credit card.
AH says, “With that being said, how long will it take for your FICO score to be restored and start bumping as a result of the inquiry for applying for that third credit card?” A couple of questions in there. If you only have two credit cards, you go in and apply for a third credit card, you get approved and then it reports, the points that you may have lost due to the new hard inquiry will be replaced by having a third credit card. I’m going to make this up. Let’s say it’s 100 points. In order to get a 100-point maximum score, you need three credit cards. It’s 33 points per card. You got two so that’s 66 points. You get a third credit card that pushes you up 33 points, but you lost 20 because of the inquiry, you still gain 13. I just made those numbers. Those are not the exact numbers, but that’s how it works.
The inquiry will impact you. I’ll explain why later. The fact that you have three credit cards now will boost your score. How long about 30 days for that card to report potentially. It could report the following day. Why did I say 30 days if it could work the next day? A furnisher is a bank, collection company, car dealership or any other type of business that furnishes data to the credit reporting agency, otherwise known as a Credit Bureau. A furnisher can be a bank. If you are with Capital One Bank and you got a credit card. You applied for the credit card on March 17th and they approved you. They give you a $5,000 credit limit. You’ve never used the card because you’ve just got approved on the 17th.
On the 18th is when they report to the Credit Bureaus. The 18th of every month is when Capital One reports. I don’t know when they report. I’m just making that up for illustration here. You applied for it on the 17th. You got approved for a $5,000 credit line. On the 18th, they do their batch. They upload their tape to e-OSCAR, then furnishes it to the Credit Bureau, and they put it on your credit report on the 18th. You applied for the credit card at 11:59 PM. At 12:00 midnight is when Capital One reports. It took one minute. What happens if they report at midnight, the 18th, and you applied for the credit card at 8:00 AM on the 18th? They already reported, so now you’ve got to wait 30 days because they generally report once a month. Some of them report more than once a month, but most furnishers furnish data once a month. To answer your question, how long will it take? It depends on how long it takes for them to report it.
Christy says, “If you keep it under 10% and pay in full each month on the ten cards, will that help build your payment history by adding more payments than just three cards?” Absolutely because it’s more payment history. The more payment history you have, the higher your score will be. Think of it this way. The credit reporting is like your driving record. The longer you’ve been driving with no accidents, no tickets, the lower your car insurance. Think of a ticket as a late payment. Think of a total vehicle as a charge-off. A DUI is like a collection. The longer you go with positive payment history, the longer you go without having an accident or speeding tickets, the lower it’s going to cost you. There are scores based on your driving record. The insurance companies will pull your credit twice a year, and they determine how much you pay in car insurance based on your credit score.
Why would an insurance company based how much you pay on your credit score? It’s because people with bad credit are more likely to commit insurance fraud than someone with good credit. It’s a fact. People with bad credit are more likely to be in a car accident than people with good credit. I witnessed somebody commit insurance fraud because he was short on cash. Somebody that claims to be a devout Catholic that’s got tattoos of his religion. I witnessed him committing fraud and lying because he needed the cash. Insurance companies know this. This is why they check your credit twice a year and they determine how much you and I pay based on credit scores.
Christopher says, “Where do I get the credit cards?” It’s RondiLambeth.com. Anybody who hires us to fix their credit or hires us for Fortress University, we do report up to $25,000 loan. It shows up as an installment loan on all three Credit Bureaus. If you live in Texas, that shows up on the Fourth Bureau. We do provide the tradelines if you’re a client of ours, whether it’s Fortress University, business credit, personal credit or coaching.
15% Credit History
The next area that I want to talk about would be 15% of your credit score is based on the length of credit history. How long you’ve had credit? Think of it as the driving record. The longer you drive with no accidents, no tickets, the higher your driving score. The length of credit history is 15%. How can you change that? There are a couple of things you can do. Number one, you can add authorized user accounts to your file, which by doing authorized user accounts, someone else’s credit will show up.
Number two, don’t pay off your installment loans early. What I mean by that is if you got a car loan, it’s a five-year car loan, and you’re paying extra because you want to get out of debt to save money, which I highly recommend. If you pay off that car loan early, that is going to adjust or impact your credit score and it’s going to lower it. It’s going to impact it in a negative way because you paid off the account. You lowered or shortened the payment history. You want to go as long as possible and extend that out.
How do you do that without paying a lot of interest? It’s simple. You pay extra but you don’t pay it off. What does that mean? If your payment is $500 a month, pay $1,000. You’ll have the loan paid down or paid off in half the time, but instead of paying it completely off, leave a few dollars on there or a couple of $100, and then you pay $2 or $3 a month until the loan matures. Think of it as like a pregnancy. Usually, you’re pregnant for nine months. The longer you go, the better. If you had a baby at four months, the baby is not healthy for the mother and the baby. It needs to lay in there and sit in there like the bun in the oven. It needs to sit there and grow.
Think of that as a car loan. You want to go full-term, pay it down as low as possible, and then pay $1 or $2 a month until it’s paid off. That’s payment history, 15%. There’s not a lot you can do on that other than not pay it off early. I screwed up earlier. I said 30% of your credit score is based on the types of accounts, it’s not. It’s 30% of your credit scores based on how much you owe. The 10% of your credit score is based on the types of credits, the mortgage, car loans and credit cards. The 30% is based on how much you owe on all of your credit cards and all of your loans with exceptions for the mortgages. If you’ve got $500,000 mortgage and you’re 100% financed, FICO doesn’t care. If you got a $5,000 credit card and you max it out, FICO cares. You want to keep your balances low as possible. In your credit card, you want to keep it below 10%. The 30% of your credit score is based on how much debt you have, balances owed.
10% Credit Type
The last 10% is inquiries or new credit. Ninety percent of all late payments happen in the first two years. They punish you with new credit. Ten percent of the credit score is based on new credit. You need to lower the amount of inquiries. The less inquiries you have on your credit, the less new accounts you have, the higher the credit score. That is the FICO pie chart. The 35% is based on payment history, 30% is based on how much you owe, 10% is based on types of credit, 15% on the length of credit history, and 10% is based on how new the credit is.
10% New Credit
“I pay my child support payments on time every month in New York State. I have a huge account or an accrued balance from a few years ago. I simply can’t afford to knock it out at this time. New York State report in the outstanding amount on my credit every single month as a closed collection. My scores are hovering from the low to mid-700s. How is the negative reporting affecting my credit score? Is there a way to dispute this even though it is reporting every single month?” That’s a tough one, Joe. I’m going to dive into this a little bit. You’re making your child support payments on time, but you have a past due balance from a few years ago that you simply can’t afford to pay it in full.
Unfortunately, there’s not a lot you can do with that. Child support things are something we generally don’t work on unless you can provide us proof that they’re paid in full. Even if I did fix this and I fixed this many times, what’s going to happen is we’re going to get it removed, and then the following month, it’s going to come back. Unfortunately, there’s not a lot you can do with that except pay it off. My recommendation is to pick up some extra work, sell something, get a loan, put it on a credit card, start a home-based business. You got to do something to start throwing some extra money at that. I could go and wave my magic wand, get it deleted and it’s right back the following month. If I deleted on the 17th of the month, they report on the 18th, it’s going to be back on the 18th because they’re going to report that constantly. Unfortunately, there’s not a lot you can do.
Sean says, “What do you think about trying to get a handle on gambling addiction?” I don’t know how to answer that. What do I think about getting a handle on it? Get a handle on it. I do know a little bit about addiction. It’s a huge dopian boosts like Instagram, Facebook, YouTube, Snapchat and all the other social media. It’s no different from gambling for the most part. What I recommend is call the 1(800) number and do whatever they tell you to do. I have a very good friend that had an addiction to slot machines. I remember one time she called me. She got paid and spent her entire paycheck. She didn’t even make it home. She dumped her whole paycheck into the slot machine. It’s sad. It’s like with any addiction, you’ve got to get help and get it fixed.
Melissa says, “If I have medical bills on credit, should I pay it?” If you owe it, I would say pay it. If they can prove that they own the debt, then I would pay them 30% to 50% of what they’re asking for. If you’d like us to do it for you, we can do it for you. It’s something you can do on your own. If you don’t have 4 to 10 hours to sit around on hold and try to negotiate with these guys, we’ll do it for you. You’re going to end up paying them about what you would pay us in them. We charge 20% of what we save you, and we’re going to get it down to 5% to 30% of what you owe. When it’s all said and done, you might pay 30% to 50%. If you pay them directly, you’re going to pay 30% to 50%, and then we do all the work. Reach out to us.
Somebody says, “How’s it going, Rondi? What’s the best and most efficient way to get a business line of credit?” The best and most efficient way to get a business line of credit depends on what you want, to purchase new equipment. For example, if you bought something from me, that’s an easy way. I’ll give you a $25,000 loan right now, $25,000 in coaching. I’ll give you a loan right now. I got a finance company lined up, no credit check, a small down payment. You start making monthly payments next month. There are companies out there that deal with equipment loans. I have friends that are in that business. One of my friends strictly deals with semis. That’s all he loans money on, semis. The guy that loaned me the money for my office equipment in 2020, I bought $190,000 worth of office equipment, copiers, high-speed printers, folder inserters, envelope printers. He loans money on equipment all day long. Why did I borrow money and not pay cash? I like using other people’s money. I can borrow money for less than what I make with my investments.
Devin says, “I just started business in 2020. I got my first personal credit card. How do I build business credit the fastest? From what I’ve been told, your business credit is based on your personal credit.” I’m sure you were told that, but that’s not correct. Business credit has nothing to do with personal credit. Think of it this way. Devin, if you go out and get married, does your wife’s credit now show up on your credit because you guys got married? No. Does your credit base on if you’re married or not? No. It’s the same thing with business credit.
It has nothing to do with personal credit. It’s two separate entities. One is personal. One is business. One has a Social Security number. One has an employer identification number. Do they get co-mingled? All the time because people don’t know what they’re doing and they go into a bank, and the bank says, “Would you like a business credit card?” “Yes, I would love it. It’s a personal credit card, a personal guarantee.” When you do it properly, there is no Social Security number on the application. It’s not attached to you personally.
Gino says, “Will a request a credit limit impact one’s credit score?” Potentially but generally no. I recommend that you request the credit card companies to increase your credit score every six months. Every six months or so, call the company and ask them to increase your credit score. Generally speaking, it does not impact your credit score because they have access to your credit and they pull it. It’s soft inquiry at that point. Ken says, “Follow his advice. I did. It works. I did it many years ago. I haven’t looked back.” He has now over 800 credit score and just bought an Alexis. That is awesome.
Gregory says, “Is it possible to hit 760 without a mortgage?” Yes, it is. I’m in the 800s and I have no mortgage. Why do I have an 809? Because I have a bunch of credit cards, car loans and thick credit files, a lot of payment history, a lot of loan accounts. Melissa says, “What about pay-per-delete?” We do have a pay-per-delete model. My credit repair company gets paid based on performance. It’s a $325 enrollment fee and $125 per account per bureau that we removed. If it’s a collection of bankruptcy, short-sale, foreclosure or whatever, it’s $125 upon deletion, not a monthly fee to try. It’s a 100% pay-per-delete. Hopefully, that’s what you meant.
Kelly says, “Do you make mortgage loans?” I can tell you that we do have a mortgage division. I am a licensed mortgage banker. I can refer you to someone who can help you. Send me a DM and I will get you introduced to Angelo and he will get you a mortgage. Whatever the rates are because they change constantly. We don’t charge any more than Bank of America or US Bank. It’s all the same. If you have a 40% loan to value, that’s going to be easy as long as you have a good credit score and a way to pay back the loan. Even if you got 850 and no way to pay back the loan, it’s going to be difficult to get the loan, if not impossible. If you have a way to pay it back and you have a decent credit score, we can get you a loan.
Melissa says, “How long will it take to delete a medical bill with my company?” It depends. I could make one phone call and probably have it deleted. If you go through our debt settlement division, we have contracts with most collection companies. When you’re messing around, trying to figure out who to talk to, we simply can send a text message. Let’s say you have $300, “We’ll give you a $100. I’ll wire it right now. You delete it. The client’s name is Melissa Johnson. Here’s her Social.” They text back, “You bet, done.” That’s how long it takes for us a lot of times because we have contracts. It depends on them.
Devin says, “Let’s do this. I’m buying the course on this soon. Cashflow is king.” Gregory says, “If I enroll in university, do you handle business credit or personal credit pre-approved?” Yes, we have all of that. What is Fortress University? It is my online financial education platform. It teaches you all about credit, taxes, starting your own business, what to look for, what to watch out for, how to hire people. It teaches you business credit, how to establish business credit, the fastest way to get business credit, the most efficient way to get business credit, how to get funding for your business, how to get equipment loans, how to get a credit card with no Social Security number. It does have coaching in there. If you want, you can buy time with me. It has how to pay off a mortgage in 7 to 10 years without changing your lifestyle, how to buy exotic cars or luxury cars for the cost of a Honda Accord. All of these are included and a whole bunch more. Thank you for that question. That’s a wrap. I hope you have an amazing day.