 Hey this is Michelle Getzinger with Berkshire Hathaway and today I'm here with Justin Conley from PA Capital Mortgage and we're going to talk a little bit about first steps of credit repair and getting ready to get your pre-approval to get out there to go house something. So Justin has first-hand experience with credit issues and that's kind of how he got into mentoring people about correcting their credit. So Justin can you tell us a little bit about like the beginning steps of how you identified or your experience with having bad credit? So I did have bad credit at one point and like I always say when I'm dealing with people to work on their credit I always tell them the first step the most important step is to actually check your credit because if you're anything like me I thought it was impossible to repair your credit I thought it was a long process it would take years to accomplish and at one point I had like a 520 score and I just avoided it for a long time. I'm sure there's other people out there that do the same things and yeah put your head in the sand and ignore it and it'll go away. Hopefully it gets better by itself but unfortunately it doesn't work like that so the first main important step is to be aware of what's going on with your credit and after you're aware of it taking the next steps isn't as bad and it doesn't take as long as what most people think. Okay so the first step is to identify that you have to take a look at your credit and then what's the next step who do you go to? Next step for me personally I use credit karma okay I use credit karma it's a good free app that will monitor your everything that's going on with your credit it'll tell you when new accounts are open it'll tell you your balances it'll tell you what if you have any collection accounts card loans it'll detail everything. They also give you a score on credit karma a lot of people think that the score is accurate on credit karma it's not on a lot of these free apps they're taking a best guess of what's going on with the three bureaus which is Experian, TransUnion and Equifax. So it's not exact so don't I get a lot of customers calling me like well credit karma or credit sesame one of those things are saying my score is a 620 I pull it it's a 550 and then they're like well why? So but it's a good tool to use to see round about where you're at on credit score but it really helps you monitor what's going on with your credit. Okay okay so you go on credit karma you get that initial score you start moving forward you know that you're going to get this fixed what goes into making your credit score? So there's five different items that go into making up a score okay the first one is credit payments okay so how you make your payments on all your items on your credit report okay counts for 35% of your score okay so that's a pretty big chunk of it it's a big chunk so step number one if you have missed payments in the past to get all past due payments current is going to be the first thing that you do very important all right now also when when we talk about dates on credit you can like for mortgages you can after 15 days late they give you a penalty a late payment penalty but it actually doesn't report to your credit the credit bureaus until 30 days or later okay so you do have a grace period there it's not like you miss it one day later the mortgage the mortgage nazi guy is going to come up because the house away doesn't work yeah it don't work like that so you do have 30 days to make that payment and then a lot of times a lot of people don't know on like installment loans like on your car loan if you call the bank and say hey this month was rough and you have here there's some hoops to jump through but they'll actually move that payment to the back of your loan which isn't the best situation but it's better than getting a 30 day late okay so if they move it to the back of the loan is they just add on another extra month payment another extra month on the end of the loan okay so in that way instead of missing and having a 30 day late on your credit they'll work with you to move that payment to the back okay and then there's your I'm assuming penalties and uh there are some penalties on it I'm not sure it's going to differ between each company but that's something you can talk to your lender about who's holding your loan okay so to recap the first thing that we're going to do is take a look at how our payments are and how behind we are correct all right and how what do you mean by how you pay things like so you're behind on okay so we're using auto loan as an example that you're late late on and you miss a couple payments that you have to bring up current but you don't have the money to do it that's why you missed him in the first place so is there a way that you can get on a payment plan to start bringing those past due accounts up to speed like how do you do that because you don't normally able to you know pull all those missed back payments out of your back pocket or you would already done it right well at the end that was the one of the things by moving a payment to the back of the loan but you gotta make sure not to be late okay before you do that okay um the that's the only way I know for for a car loan to get I mean that and part of the but even a credit card say you were behind on your credit card payments are you able to call them and negotiate to get caught up I've never done it personally with a credit card I'm sure if you called and said there was like a situation that that you were going through that like hard times falling upon that they don't want you to be late they want to make sure you make your payments they don't want to have to they don't want to send your loan to a collection agency like they want to work with you to make sure that you make your payments and they're going to most lenders work with you to through like a difficult time to a lot of people don't know that to make that call to ask to see what they can do I can't speak for every lender but I've done it personally with an auto loan before where I said I couldn't I was struggling I lost my job and I called them and said I'm starting a new job can we do something and they moved it to the back so I wasn't late my credit stayed in shape at that point and then the terms of it's going to differ from place to place once we established payment history then what's the next step what's step number two the next step is noticing what types of loans you have on your credit and knowing what the balances are so there's two different types there's installment loans which is your personal loans student loans car loans there's considered installment you have a balance on it the balances the max line is fixed the balance will go down and you have a payment on it the other type is revolving debt which is your credit cards and your home equity lines are credit whereas you pay down your credit card balance you could easily run it back up and it's so it's revolving it's not it's not going to stay the same okay now what a lot of people don't understand is that this is a big part this counts for 30% okay of your credit score and so a lot of people come to me and they have a low score they've never missed the payment everything looks good no collection accounts but their scores are down in like the low 600s let's say and I take a look at their credit and all it is is that they have a credit card let's say for example a thousand dollar max line on that credit card okay if you're carrying a balance of let's say 900 that's going to drag your score way down the ideal situation is for all revolving debt to be low to be below 30% of the max line okay so if you're carrying if you have a max line of a thousand dollars you never want to carry a balance of more than 300 dollars okay now you can use more throughout the month and then before your statement hits you want to pay it down at least to below the 30% to keep your score okay and that's a quick fix a lot of people come to me with that and they didn't know that carrying a high balance is going to affect their score um they pay it down and then they wait but it takes like a month or two to adjust credit okay because each they have to report to all three they have to report to trans union aquifax and experience and the timing of it takes them so it could take like a month or two to change but it's short and it will definitely improve okay so what about if you know I somebody like me would think I'm just going to go in and just I'll just pay off that credit card completely and I'll cancel it why tell me what that goes into one of our next items coming up length of credit history okay and I always unless you if you have really good scores if you're above 760 then you don't have to worry about that as much closing credit cards and stuff but they want the magic number is seven years they want to see seven years of credit history okay that's that's determined like good credit history seven or more years so let's say you have that credit card you never you don't use the credit card anymore you don't want to use a credit card it has a high interest rate you're just going to cancel it but let's say you only have one other item on there a card loan that's been open for four years and this credit card was open for seven years you close that credit card now your credit history went from seven years to four years which could really hurt your your score by doing nothing it's good to have it then yeah it's better to have it than not have it I actually recommend keeping credit cards open I I've learned this trick not too long ago where I don't use this one particular credit card but I subscribe to Netflix which a lot of people us have Hulu Netflix stuff like that so that's the only thing that gets put on this card Netflix every single month I have it on auto payment and gets billed $14 every month auto paid for 14 because if you don't use a credit card for a long period of time they'll automatically shut it off so you might not even want to close it but one day six months I don't know what the time frame is it's gonna differ between each credit card company that will just shut you down okay closed by uh closed by the account all right so let's recap um what are the first three that we just give us the highlights again so the first three we got payment history that accounts for 35 percent of your score we got amount owed which count for 30 percent keeping your bounce is low on the revolving debt and then the length of your credit history you want to keep it to seven years or longer okay so those are the three already so this is number four number four would be mix of credit so if you have only one item on your credit and it's just an installment loan a car loan let's say and you have nothing else on your credit this is going to affect 10 percent of your credit score okay so you want to make sure to have and that goes back to closing a credit card like if you had that credit card and you for seven years and you close it now you're down to just an installment loan for four years and now you're only have one type of so if you have a mortgage a car loan and a couple credit cards you have a good mix okay so you want to have a diverse and a diverse a diverse mix of debt yes all right so now that we've touched one through four number five is number five is going to be inquiries on your credit so anytime you apply for for a new type of credit it's going to have a hard inquiry on your credit okay does that lower your score a hard inquiry is that what they call pulling your credit pulling your credit there's two different times like two different kinds one's a hard inquiry one's a soft inquiry when you go shopping for car insurance home insurance they do a soft credit pull okay so no one's going to know that they pulled your credit but they are pulling your credit to check your credit history your credit rating but it's not going to report when you get a credit card personal loan car loan mortgage those are going to be hard inquiries which are going to report for the past 120 days on your credit report now does that load does that lower your credit when they do a hard inquiry so my suggestion is if you're shopping for a credit card and your score is low and you get denied you should stop right away don't apply again okay the more inquiries for like revolving that is going to hurt your score okay now if you have a higher credit score it's not going to affect as much and also when you're so each time your credits pulled each person pulling the credit has a different code so if you're shopping for a mortgage it's going to be financing so if so if i pull your credit if a couple other banks pull your credit it's all going to say finance now the credit bureaus know that you might be shopping for a mortgage so you have i'd like to say some people say longer i always say 15 days within 15 days from your first credit pull for to get approved for a mortgage you can have your credit pulled five six seven eight times and they'll count as one okay but if you're jumping around if you're shopping for a mortgage and a car then those are going to be different ones or if you're opening a credit card stuff along those lines so if it's in the same field it'll be counted as one we went through all five recommendations from justin of what to do during this process so we're going to dive a little bit deeper into what to do if you pull your credit and it's a hard pull and you get denied so what should you do there so if your score is low enough where you try to go to it's called an unsecured credit card so whenever you go to your favorite department store gas station they have credit cards those are considered unsecured because they're you're going to get the credit card you're going to swipe it in you're using their money and then you have to pay it back okay if your credit score is too low where you don't get approved stop having your credit pulled at that point don't apply for any more and you're want to get us what's called a secured credit card that was my first step when i i was sitting there with a 520 score wasn't sure what to do i tried to get approved and you know i went to best bottom one time and they always ask you like apply for a credit card i'm like nope not going to get approved so okay so any time you go to a store a gas station macy's anything like that is considered an unsecured credit card right correct you want to get a secured credit card so what are some examples of a secured credit card secured credit card i use pnc bank okay uh so i walked into pnc and i said i want a secured credit card now there they are going to pull a hard inquiry because they have to but i've never i've heard of people not getting approved for a secure credit card but the chances are very very slim like i said i had a 520 score i didn't think i was gonna get approved but someone said that you know i read about and they said that's the best way to start so what i did was i handed them $250 they took an application i got approved seven days later i get a credit card and the and and my mail now there's a $250 line on that credit so you can't get real crazy yeah it's not like you're i was approved for like $5,000 i can get that hand real quick so the max line is $250 it's my own money though i handed them the $250 for this credit card but it works the same as a credit card so i go to the gas station i fill my tank and i swipe it in it's $30 on it when i get i'll get a bill the next month a statement and i have to make that minimum payment so even though it's my own money i still have to replenish it every and if you spend like the minimum payment is $25 no matter what i put on it so if i put $75 on it i owe 25 okay minimum minimum what's the interest rate usually on a secure credit card uh depending on where your credit when you get it i would say anywhere from like 16 to 24 percent okay all right but that's on 16 percent 24 percent on $75 isn't going to be we're not talking large amounts of of money this is just primarily to rebuild your yeah um and it's secured because you spend all $250 and you decide not to pay them pnc already has your money so they're they lost nothing uh but it will hurt you because they're going to report it as late payments so it's a way to rebuild or establish credit okay and that's my longest like i had credit had credit and then everything was closed i paid it badly that what that's why my score was down everything was closed five years later i opened the secure credit card so now that's the start of my credit history now do all secured credit cards do you have to put your own money in yes all of them do so what would like a normal visa or discover card be unsecured yes okay so a secured credit card is when you go to a bank and you put your money in and you're basically paying pnc to use your money to establish a credit okay i don't know too much about this because it just started coming out and i've never done it personally but now they have secured installment loans and that's pretty much a secured installment loan see to me i can't quite rip my mind around he's secured because you're putting your money in and you're basically paying them interest on using your own money yeah am i am understanding that correctly that's kind of blows my mind but i guess you're right because the whole thing you have to do is to establish it to show you that you have the discipline to pay off your own line of credit if you're not willing to pay off your own money then why would they give you money yeah okay and most people like if you have no credit or zero like if you've never you can get approved for stuff if you have a complete blank slate like someone's gonna give you a shot one of these department stores are usually your best yeah but whenever you have like my credit history before i started rebuilding and getting to the score i have now i didn't pay anybody anything yeah so no one's gonna take a shot at me they're gonna look and see 30 days late 60 days late collection accounts collection accounts are after let's say you i had a loan this is say i had a credit card through discover and i never paid them but i ran up it was unsecured and they gave me a thousand dollar line i ran it up but i never paid them after after a certain period of time and it's different for each lenders they're gonna turn that over to a collection agency and then the collection agency is gonna try to collect the money and from what i heard how collection agencies work is they buy let's they buy a a greater sum of they take let's say a hundred accounts that are all in collections and then they buy those up usually pennies on the dollar of what's owed okay so then they have all these accounts and then that's when you're gonna start getting calls from the collection agencies to and then when you pay the collection agency off they're actually not paying jc penny they're they've already purchased the debt they've already purchased the debt so does that make them more likely to negotiate exactly that's my next point is that i've never i've had some collections accounts and i've never paid the full amount the full amount isn't what i actually borrowed anyways the full amount was a thousand and then interest and late payments penalties that can inflate easily a thousand fifteen hundred more than what you actually borrowed right so a lot of times when i call collection accounts i try to negotiate the best i can to to get that down uh but i know one thing for sure is like if you're gonna negotiate you have to make the payment that day they're not gonna get into a payment plan not some all if i owed a thousand dollars to this collection agency and they called me and said and i said i can make the payment i can make it today but i have three hundred dollars available right now i'll make the payment we'll call it settled but you have to make the payment okay if you want on a payment plan i'll also do a payment plan but they're gonna want the full amount yeah okay so i always suggest when you're trying to pay off collections to have a chunk of money ready to and attack the small ones first you know i mean i had collection accounts that were like a hundred dollars right and i called and i offered them 25 they came back with like 40 i made the payment uh now one thing to know is that just because you paid off a collection account doesn't mean your crats gonna raise how long does that take to usually repair depending on when they report you know it's gonna you know differ do they normally report like quarterly or monthly is usually yeah but depends on you know when you paid it when they report so it might take some time and actually the crazy part is that when you pay off a collection account depending on how old it is it's actually gonna hurt your score at first okay your score is gonna go down that makes no sense to me well you're taking an old debt uh-huh that's still hurting your score but you're pulling it back to current okay so now it's gonna it's gonna hurt your score first i've had a lot of a lot of customers say i paid off collections and it actually dropped the score but it will come back up it's just gonna take a little bit of time okay so don't get nervous when it drops with some people will say to you i'm sure is i pay my electric bill on time i pay my cable bill on time my cell phone bill on time why doesn't that affect your credit why don't they look at you know so the crazy part is about that is like you pay your cell phone bill you pay your cable bill to comcast or Verizon you get nothing no rewards for that well you get to keep your service and not have late fees but and it doesn't get shut off on you but as far as making the payments doesn't affect your credit score what will affect your credit score those if you don't pay your cable bill because it will show up as a collection account okay so if you pay them on time you don't get rewarded if you don't pay them at all you get penalized correct so so you want to make sure to make those payments on time don't let them go to a collection account but you still have to do other things the items that report to your credit are car loans mortgages personal loans home equity lines of credit credit cards those items report to the carite bureaus okay car insurance doesn't electric bill cable bill none of those report unless you do something bad then they'll actually come after you with collections so what about student debt and medical bills how do those fall into your whole credit profile you can make if you have a medical bill you pay it on time same thing they don't there's no recognition that you have that bill so but if you don't pay it and a lot of people have medical bills and that's me in particular because sometimes you have to wait to pay the bill to see if your insurance company is going to pay it or you know covered or whatnot yeah i see the medical bills a lot um in the mortgage world i can't speak for like the credit cards and stuff like that we really don't care about medical bills in collections if you have somebody in collections for that it's usually like a dispute really won't affect us being able to lend on it um it'll affect your score though which you want to but if your score is all right we really don't care about medical collections so what is considered to be a good score so the scores are broken down a lot of people you see all the times like 800 score that's their goal 800 score 800 score um you don't need an 800 score anything above 760 is considered a perfect score okay great um all across the board i've never heard anything different credit card 760 or above car loans mortgages so what's the um what's the minimum that you can get a mortgage so minimum i can go down to 580 score okay um it's a case by case scenario there are a lot harder loans to to get approved they're going to want a lot more documentation there's going to be a lot more questions asked it's going to be i mean if you're borrowing a hundred thousand dollars and your scores of 580 they're going to have questions before they just give you a hundred thousand dollars to buy a house so um and you're in your interest rate might not might not be as good right it's going to be a little worse yes um with a score that low i would go fha has a good program uh under 620 to 580 it will affect your interest rate but it won't be as much as if you're going conventional okay so there are programs out there for the lower scores where it will affect it now with other uh in the credit cards and card loans i know from experience i had like a five mid 500 score i went to buy a car my interest rate was going to be 17.99 percent which is super high through the roof yeah um and that's that's when i actually was like i have to do something about my credit score yeah because now you're getting penalized yes yeah the the amount of payments and amount of interest on that loan i did the calculations was just going to be ridiculous yeah and then i had to ask my dad to co-sign for me which he was willing to at that point and that uh i ended up getting a four percent interest rate that's a huge difference but the very next car i bought after i did the work to my credit and i went to the dealership and they were offering zero percent financing and i was like i don't know if i can even qualify for that and like it was an exciting time like they came back and was like you qualify so i have a zero percent interest loan on a car that's great so i went from 17.99 to zero within a short period of time so now that we've talked about the secured credit card there's also another way um that you can improve your credit score can you tell us a little bit about that so right now um and in the credit bureaus are actually trying to get rid of this um they don't want you to be able to do this but uh kind of a credit hack is to if you have someone in your family or someone close to you that's has a long-standing credit card okay um so i'm brand new in credit like uh so i have a 520 score i have no established credit at this point um i just signed up for a secure credit card so my credit history is going to be a one month old yeah um and we talked about the different ways to build your credit so uh again if i have a family let's say my dad had a credit card that was opened in 2000 with a five thousand dollar limit never missed the payment and a zero balance you can actually add me as an authorized user onto that credit card so you would get your own credit card with your name on it that's attached to your dad's account okay so i'm actually doing that for my daughter right now she's in college and i know she has no credit other than the student debt that she has but she's had a authorized user credit card on a credit card that we've had for 14 years so she actually gets the piggyback on the length of our credit right right right she piggybacked so now if she had no credit now she has a 14-year history wow which is unheard of yeah which is unheard of and the credit bureaus don't want this and it's like a loop over and there's been talk about like them trying to like get rid of that but as of right now as of what i've known uh it's still available so if you have someone unfortunately for me though if i went to like my brother or like anyone like that and asked for that where at the position i was at my life when i was rebuilding no one would help no one would have done that so if you do are lucky enough to have someone willing to trust you to do this it's a great way to well let me be the devil's advocate what happens if that credit card that you're associated with isn't being paid is that negative oh yeah so it works both ways yeah and if i get that credit card a lot of times like i know a lot of like customers i've helped they get that credit card then they just hand it back because it's actually not theirs to use they're just using the the time frame and what also it helps it is that let's say you do have a credit card and your balance is a thousand and you're at like 500 limit on that you're at 50% at the you know a thousand dollar limit 50% would be 500 you're at 50% use of your credit cards and you want to keep it at 30% you want to keep it at 30% well now you add a credit card with $5,000 balance with zero amount now you're under the 30% because we're going to look at it the total okay so $6,000 max line in uo 500 so it's going to help all around yeah but you don't want to add if the if you were adding a credit card to your daughter and you opened it a year ago or six months ago and it has a thousand dollar limit and it has a balance of 900 it doesn't help don't help yeah don't add at that point or if there's missed payments on it because whatever you have on it is going to transfer to theirs i got you so be careful it's a risk for both sides to do that but it's definitely a loophole that you can access and when i have kids uh i would definitely add them as soon as possible as an authorized user that way their credit history is going to build up and then i wouldn't even give them the credit card yeah now they can you know find ways to get there because they are an authorized user so if they call the company and request one they can do that so don't give my email out to any family members who Justin thank you so much for your help today um in closing give us that last bit of nugget of advice for the listeners out there my last bit of advice would be never stop like it's worth the the fight the challenge it's it's not going to be easy it's easier than what i thought it was going to be once i started taking the steps my hardest part was just that beginning part that fear of unknown the fear of that it will never get better and and that's just not the case and your life's long so you might as well start aggressively um working on it as soon as possible because it's never never gonna um leave you it's gonna haunt you for the rest of your life so just buck up and deal with it um give Justin a call if you have any questions i'm gonna put all of his information down below he'll walk you through the process especially if you're looking for a home he's gonna guide you down the right path thank you again for your time today and i can't wait to have you again absolutely have a great day