 Hi, I'm Realtor's Sarah Morrow with Cell State Peak Realty. My guest on today's eighth episode of Proper Tea Time is Karen Dillon, Chief Operating Officer at Credit Nerds. I'm Realtor's Sarah Morrow with Cell State Peak Realty. My guest on today's eighth episode of Proper Tea Time is Karen Dillon, Chief Operating Officer at Credit Nerds, an awesome company that specializes in credit repair. Credit Nerds has done so well that they've managed to find a way to offer this desperately needed service for free. Karen has been a credit nerd for nine years now and it's her goal and their goal to create a more educated and informed population and to give those struggling with their credit and finances a second chance at creating a strong financial future. Karen grew up in San Diego but makes her home now in Arkansas. She joins us from there today and she, like many of my Proper Tea Time guests, loves getting to take part in people's dreams coming true. Small or large, she believes that every goal that revolves around credit is important and deeply personal. When she started at Credit Nerds, she had terrible credit herself but she's worked her way up and transformed her own credit and entire financial future. She's not only been there herself and passed what she's learned onto three children and 10 grandchildren, but she's helping countless clients like you improve their credit and their lives. Sarah, thank you for that introduction. Thank you for being here. Thank you so much for taking the time to discuss this important topic with us today. My pleasure. So let's dive right in. I have had some training from your awesome organization, Credit Nerds, and I've heard some folks from your firm say that our credit scores are tools. They're not trophies. They explained that this means that we simply want the benefits of being approved at low rates with good terms. We don't want the bragging rights of a number. Like it's a test score. Would you speak a little bit to this and talk a little bit too about how maybe credit score isn't as big of a part of approval as we think? Benefit. Right. So that really is the biggest thing. I think so many people really focus on credit score and like what their score is. And you talked to your friends about their score. What credit score is. What credit score is is a computing of your credit information in that moment. So there's hundreds of different scoring models. And what's important to realize is they're all scoring the same information. So if you concentrate on having a positive healthy credit profile, you're going to have a healthy score. So it's more important to. Concentrate on what's on your profile. And the things that go into making a score, then it is to really concentrate on that score because all a score is, is. A computation of how likely you are to pay late. Over the next period of time. So it used to really be like how likely you were to file bankruptcy over a certain period of time. So score is just not as important as what your credit profile overall is. Okay. Got it. I'm going to come back to that in a second. Would you first explain the difference between. Pre-approval. Pre-qualification. Pre-approved for mortgages, pre-approval for cards. Like these are words that I admit I've used very interchangeably. And I'm pretty sure they're not the same thing. So they aren't the same thing, but just like you, many lenders also use those interchangeably, but you have to be careful because if you don't know the differences and you're dealing with a lender who is not using that interchangeably, it is different. So the first level of that is a pre-qualification. So now these can be different when you're looking at things like a car loan, credit cards, or mortgages, but I'm just going to give the overall. So a pre-qualification basically means that yes, they have seen a picture of your credit, a very minor picture of your credit, and they believe that you may be eligible to get a line for these terms, whatever those said terms are. A pre-approval typically means that they've seen a deeper look into your finances and also your credit. So when you're looking at pre-approval like say for a mortgage, like a pre-qualification may be like, yes, we think you might be able to get a mortgage at this rate. A pre-approval is more like we looked at this, and as long as nothing really strange pops up, we're going to give you a narrower view of what you could be approved for. And then of course there's an approval where they've actually gone through your entire credit report, your finances, debt taken ratio, that kind of thing, and actually given your approval. You will see this most often with credit cards because what people receive in the mail, they'll say, they'll call me and say, well, I already got this in the mail that I'm pre-approved. Well, they purchased your data from a mass data reporter that said that you're making, you fall into this group. You see what I'm saying? And so that doesn't mean that you're really pre-approved, but it's not really a problem if they're using those terms interchangeably or not. Gotcha. So something else I've heard said a lot in your industry is, dig your well before you're thirsty. And there's this joke that the banks only lend to people who really don't need them to. Right? Like, can you speak a bit about sort of creating win-win, maybe a little bit about utilization ratios to actually, like, if I need money, how do I not look desperate? How do I not look like, how do I still look kind of, you know, like an ideal candidate to a lender? And also what's important is exactly what you said, to dig your well before you're thirsty. You need to be aware of what your credit profile is and what it looks like before you want to purchase something. So I often hear people say, like, why just pay cash for everything? And there's nothing wrong with that. It's okay to be financially sound and pay cash for everything. The issue arises when something comes up and you need it. So you want to purchase a home. There's an emergency in your family. Your car dies out of nowhere and you don't have those resources. Having your credit ready for something like that before those things happen is how you control how your financial outlook is. It's important to keep your utilization low, but also to create a win-win. If you're not paying the company anything, they're not as likely to give it to you because while they want you to be financially stable, they also want to make a profit. So that's important to know what's going on with your credit before these issues arise. So that's a great insight. Great insight. Can we go back to that point that I said I'd go back to? So you mentioned that a credit report is just a bunch of data. And a credit score, it sounds like it's just like a snapshot of one day of that data. Yes. Not even one day, just one moment. Because I could have a credit report that the score says is right this moment. And in an hour they could pull another one and something could have changed in that hour and it could be different. Because it's just what's going on with that credit in that moment. That's why paying attention to score is not important because also you could go, I could pull my credit report five times online today with five different companies and get five different scores because they're all using different scoring models. And so scoring models are making that score. It's just computing data. It doesn't know you. It doesn't know what your situation is. It's only taking a picture of what your credit looks like in that moment and giving you an outcome. Now, when you say credit scoring model, can you give us a couple examples of what that is? Of course. So there's two major scoring models that you'll hear out there. The big one is FICO and you will hear people say, my FICO score is the issue with that is there's many different FICO models inside of FICO scores. So typically what you see online, if you pull your own credit report is a FICO eight, but most big lenders are still using FICO four or five. So even the picture of what you're looking at on your credit is not what lenders are looking at. And then the other big one that you'll hear is Vantage, but there's also several different Vantage models. So that's why it's so important to concentrate on score because those models are just like I said, computing what your credit file looks like. And similarly, we've talked a little bit about this, because I get something in the mail for a car loan or a new line of credit or a credit card. I can't really assume that's going to help me buy a house or a second home or some other larger purchase, right? Right. That's right. I will hear about a lot as well. Well, I just bought a car, but they said I couldn't get a house. Well, those reports, even when they're using the same model are weighted differently. You may have a mortgage weighted report where they're looking at, if you've ever bought a home before, what that loan looks like. Same with cars. The reason that people can get cars easier is because the interest rates are all over the place. So you can have a much higher interest rate. And it's easier to get a car because people have typically had car loans before. So you have an auto weighted score that looks at your previous car loans. So again, I'll say it a hundred times over. I'm so sorry is you have to look at your overall credit profile because those scores are not reliable. Gotcha. Awesome. This is great info. This is a similar question, but something else I've heard is that sound financial decisions are not necessarily sound credit decisions. And you kind of have to know what your goal is. Now, if I want to qualify, say for a mortgage to buy a house, how do I make the right financial decisions and also still make some good credit decisions. So I counsel people all the time that often those decisions do not line up together. So it is important to have your goal in mind. I'll just give you an example. When you, if you have a collection on your file and you want to buy a home, typically the mortgage company is going to say that collection has to be paid. It can't be an outstanding debt. The problem with that is if you pay that collection, it could in fact lower your credit score because collections are scored off data. So it's things like that that they just don't match up just like paying off alone is a good financial decision because you're paying off it. You're paying off a loan that's charging you interest, but credit wise that doesn't help you because part of your credit is your payment history. So they want you to keep things open for a long time. So it's important when you're making those decisions is to have. First of all, people in your life that are giving you sound advice, like your mortgage broker, your real estate agent, your credit repair injury, people that are giving you advice that are for you because these decisions you do something on one end and it can completely backfire on the other. So this is one of those things where, you know, there is no real win-win. I need to decide, do I care more right now in this moment of my life or in this decision about my credit score or do I care more about using free money or the zero percent or the zero percent interest or some sort of like a win financially for me, the banks then will lose and vice versa. Yes. What's important is if you have a goal in mind, you know what you want to do. There can be win-wins. It's just a matter of making careful decisions. So you can keep a balance on a credit card and still have a great credit score. That's a possibility. So the company can still make money off you while you being financially responsible. The people with the best credit in this country have a 1% utilization ratio. So it is possible to do those things. And they may have a massive credit lines, but you can do that on a smaller scale. So there are ways for it to be a win-win. I don't mean it to sound all doom and gloom. There are ways. It's just something that you have to be careful with because you being financially sound is very important, but having a good credit profile is also very important. That's why you have to know both sides of the coin and really walk that fine line. Love it. That makes perfect sense. And I so appreciate you putting it in that way because we sort of think, I've been good financially. Why aren't I being rewarded with credit, right? So without getting too deep into the weeds, what's being factored in to a credit score? We talked about how it's just a snapshot, but I notice like five or six different variables. Can you tell me what they're looking for when they're giving me a score? They, the bureaus and also how, how much are each of those variables weighing in? Right. So I'll try to give you just a quick overview because it can get kind of in depth. And once you get me started, the biggest is and remember for people who do know a little bit about this, because there'll be people watching who do need to know a little bit. Some score, this isn't exact numbers for every single scoring model. This is overall. Okay. So the biggest one is payment history. Payment history is 35% of your score. That's why you'll often hear people say, paying on time is everything. It's not everything, but it's a whole lot. They measure how long you've been paying on time. And that's a big factor in your credit score. How long? So the history. Yeah. Of paying on time. Yes. Not just. Well, I've been paying on time for a few months. They want to see a long history. As long as possible. That's why it goes back to those credit and financial decisions that when you start paying off accounts, you're losing payment history because. Closed accounts matter. See, I'm going to get off in the weeds. Pay on time. Well, that's your longest situation is you want to pay on time for as long as possible. Pay on time. Pay on time. So the second one. And it's big too is 30% of your credit scores based on credit utilization, which is open revolving accounts. So those are credit cards, store cards, anything, a line of credit. Sometimes we'll also factor in there. How much of your credit you're using. That's also the quickest way to bump a score up. You're going to see a drop in score. Once you pay those cards off, it's typically a pretty relative bump back up because it is just based on the overall utilization ratio. After those two big ones, you see a pretty significant drop. So the next highest is 15%. And that's your average age of accounts. Basically, they just take. How long you've had credit and they average it. A huge emphasis on inquiries and it's only 10% of your credit score. Now it affects you, of course, but as inquiries age and they're only on your credit report for two years, but the older they are, the less they're affecting you. What happens is when you get a new line of credit, people will say, well, I got a new inquiry in a drop my score, but that's not necessarily what happened. It also dropped your average age of accounts. So when you add those two things together, that's 25%. So you will see a drop. But then as that line ages and you use it properly, the score comes back up. So. The final one is mix of credit. Mix of credit is 10% of your credit score. And it, while it's not a big percentage, it does matter. Basically, the banks want to see you using multiple types of credit. So that's what happens. For instance, a mortgage is a big one. Or then two to three installment accounts. So if you don't have a mortgage, they want to say a car loan or some kind of loan that you're paying for a specific term. Then. Three to four revolving lines. And they want you, of course, to see inquiries kept low utilization ratio kept low. But that you're managing those types of lines. Properly. And really, so what all that means is basically. Focus on what you can control. You can control what types of lines you have. You can control your utilization ratio. You can make sure that you don't have too many recent inquiries. You're getting an inquiry is to open a line. Those are things that you can control the models. Scoring that type of thing. It is outside of your control. So you just need to focus on what you are in charge of. That's such a great life lesson too, isn't it? Yes. I noticed myself. Teaching my, my buyers that not even just from a lending standpoint and a credit repair standpoint, but think we put the offer out there. And we're going to get a little bit more into the future. And I want to make sure that the universe takes care of the rest, right? Maybe she can take a little bit, maybe to that. And also to preparation. When I say buyers, often it is a buyer and often is a newer buyer. That needs to repair their credit. But I also don't want to make the impression that. The credit repair is just for the newcomers or just like for the young people or the. First timers. about not only like I said, preparation and sort of those of us that are down the road a little ways, but can you also speak to just how much how how this whole seven years it stays on my conscience. Can you speak to like how this works. Like if I really need to repair my credit my looking at like 10 years rice and beans and my looking at like potentially approving for a mortgage next summer 90, like 18. 18 months What is it. Yes. So every person's different just like every person's situation how they got in with banked up credit is different repairing it is different for instance when I started here which was going on nine years ago. I had had an illness and my credit was terrible and I knew nothing about credit. So, since working here, I've repaired my own credit fix my own financial future. And now for the last few years have been financially stable and able to have credit I can, you know, buy what I need that kind of thing. Anyone can do that. Yes. When you get a negative item on your credit report for the most part, it's on your credit for seven years. And it stays there. What we do in credit repair is try to find outdated or unverifiable information that is reporting to that credit report to help you get it removed because the law that they have to report everything completely correctly. I have looked at hundreds if not thousands of people's credit reports and I have never seen a credit report that was 100% correct. So that's how we're able to help you get those items removed it's not about whether something's really yours it's not about whether the thing happened to you. It's about the laws that these companies have to follow and us using those laws to help you get your credit repair. That makes sense. Cool. Yeah, I didn't realize that. You've just been so helpful and I feel like we could go on and on. Like what I just said, are there any pro tips you can provide to those of us. Like I said we all know, you know, we all know. Okay, my credit score is important I pay on time. I'm fine. What are some things that like are pretty lesser known in this industry for those of us, even who are investors purchased a few homes purchased a few cars we finance what we can we think we're doing great just because we've gotten the 700s. Like, there's got to be more to learn that you clearly know that like it's me the expert doesn't know like what can you what can you share with those of us who think we know it all. There's probably two things one is on the easier side is you need to use your credit. So there's plenty of people out there who can say, I have a 780 credit score I'm an 800 credit score my scores 820 banks aren't necessarily eager to give you what you want. They would rather see somebody that's been actively using their credit that they're going to financially benefit off of now that does not mean that you're paying a bunch of interest you don't want to pay. But what it means is that you're using your credit for your financial benefit and the benefit of the bank. And there is ways to do that and I see a whole lot of people with great credit who don't use it to purchase homes to purchase real estate to invest in their future using their credit because that is possible. And on that note, I would tell people who really like are pretty good at this to be checking out FinTech companies. So basically what that means is there are companies out there who are now mixing finances and technology with credit and giving you the opportunity to use your finances and credit to invest and to better your credit profile and your finances at the same time which is opposite of what we've been talking about this whole time so it's pretty new, but it is something to be on the look for and just so that you just look up FinTech and it's like technology and you might find some interesting stuff out there that you haven't heard about yet. Oh, cutting edge pro tips. I love it, especially since I especially love it because, you know, I hear something like use your credit as a tool not a trophy. And I love the concept of that. But, you know, okay, I'll go do that now what what do I go by tell me what to buy tell me which card to use tell me. So I think that's a really cool concept, you know, just, I've got a good credit score what can I teach me what to do with this how can I help maybe somebody who doesn't partner with someone I'm all about the creative acquisitions and it sounds like you guys are to now before we break up I just want to quickly ask you since we didn't get a chance to talk about it can you tell me just a little bit about credit nerds, what you do what you offer for people. So what you can provide you know if someone's listening to this that needs credit repair or wants to purchase a home in the next couple of years but they they're not sure how to start the quality good credit reporting habits. Well, how do we reach you and what do you guys even do. If you don't need credit repair, we're a company that you can come to because we actually do a whole lot of our services for free. The owner of our company. It's very important to him that we're able to provide this information to anyone who needs it. And it can be cost effective so like we do credit repair for free you do have to pay for a monitoring service but it's like 3995 month where and then everything else is free we provide education, we provide letters for you if you need to dispute something that all of that's free. If you don't need credit repair and you know that but you just want to maybe get help finding some funding. So what credit cards to apply to, we have that service as well, and will do an assessment for free we'll take a look at your credit will assess it for you will let you know if we have any programs available. And all of that can be done from our website at credit nerds.com to so anytime you call and talk to us, we can do most things for you for free and then we can direct you to where we need, you know, where is best for you and your particular situation right now. So if I if I'm left to my own devices you're saying I'm likely to potentially dig a deeper hole and you at little to no cost will tell me the first steps that will get me in a better situation faster than kind of making a couple more mistakes they could There's just so much not great information out there that people, you know your friend your co worker says well just do this it helps me, but every single person's situation is different. And the thing that I did to make mine better may not be what's best for you which is why we do free consultations to just take a look and say yes you need credit repair, or no you just need to get a better mix of credit or you just not had your credit very long. And those are things that it's best to go to a professional especially with me. Why wouldn't you when we're not charging you to help you guide you to where you need to go because something we asked a lot is yes can you do it yourself Yes, but should you, there's a whole lot of things out there that you could do yourself, but should you. And so we're just here to help out and try to put people in the right direction. I love it. Last question for real. You mentioned that you came in in a pretty terrible credit situation. And clearly now you're out of it. Can you just tell like a quick story or an anecdote or a couple tips or just a little bit about how long that took and can you give us a sense of what lines of credit maybe you have or what, what particular 345 things I know you said it's very different per person it's individual but can you give us a little more of your back story. Yeah, so the biggest thing that I learned through this whole process is to pay things when I get that. Like, I have credit cards. I definitely have some high limit credit cards that I've when I first got them say the limit was $1,000 and they built up and built up and now they're 20,000 plus. So you can hear me using it and paying it off and having a good relationship with the bank and you can get these credit cards that have not great interest at first, and then as you build relationships with them they will change those things now it took me a few years before I just started doing was first of all you have to change your mindset. It's important that you understand that paying bills gets you where you need to be. And sometimes that's hard for us, because when you get overwhelmed you want to stick your head in the sand and that's the kind of person I was. Now I just know like, if I have the money needs to be paid, and I pay it when I get the bill, rather than waiting to pay it. And I think I've gotten a little off track. When talking about myself. But you now clearly have high limits is what you're saying. Do you have it of paying things off. You went from a low score with very low limits if any credit limits at all to trustworthy and less risky. Yes, absolutely. And what I've been able to do is then a big thing and we did not talk about this earlier but a big tip for people who are trying to rebuild their credit is becoming an authorized user on someone else's credit cards. So, you don't actually have to have access to those cards so now what I do is add people as authorized users on my cards. I mean, people who need people who I care about, who need help with their credit or like my 17 year old he's authorized user on my part so that he'll have a credit score when he becomes 18. And that's how I started off, somebody added me as an authorized user, it boosted me up. So it's important to have relationships, not just with banks with people around you to get you in a better financial situation and that's how you learn to become financially responsible and thereby more credit responsible. Sure, so similar to like co signing a mortgage. Anyone else who takes a risk on you sort of vets the risk or. Yes, so the authorize user program is that you know it's not even that much of a risk because like, you can add the person as an authorized user, say your child or your brother or whoever. You can add them as an authorized user and the card gets sent to you so while they're authorized users they don't even have to have access to that. It get access to is your payment history, and it will show up on their credit report, what your history is, which gives them a boost and can help them get to a situation where they can get their own. Very cool. Karen, I could go on and on your tips are so useful. Thank you so very much for being here today. I appreciate it. I will catch you all later. And that's the property.