How to Improve Your Credit Score
Jenelle Ferrer: [00:00:02] Hey everybody, this is Jenelle with Waypointe Realty and I have a very special guest today that you may recognize from past videos. I have Rayce Robinson from Mid-Florida Mortgages with me. So hey, Rayce. Thanks so much for joining.
Rayce Robinson: [00:00:15] My pleasure.
Jenelle Ferrer: [00:00:16] So on this webisode of our series, “Real Answers to Real Questions in Real Estate by Experts,” we’re going to be discussing how to improve your credit score.
Jenelle Ferrer: [00:00:30] So, your credit score is one of the main factors for purchasing a home. I can’t tell you how many requests I’ve had recently for people interested in purchasing, but they have a credit score below 600. So, how do we get this credit score up? We’re going to be doing a few questions that we’ve been asked and presenting this over to Rayce, who is a mortgage expert, to make sure that we can get the right answers to your questions. So Rayce, when people are looking to purchase a home, they start realizing what an important role credit plays in getting pre-approved. So, when they do have low credit scores, what is one way they can start getting those scores up? Because we know that not all of them will qualify below a 600 credit score. So, what are things that you recommend to start them on the path and trajectory towards getting that credit score up?
Rayce Robinson: [00:01:21] So, that’s obviously the most asked question. And usually, as you know, people often wait to the last minute. They see a house they love, then they’re like, ‘hey, let’s go get pre-approved for a mortgage.’ So unfortunately, with credit it takes time. You know, there are some things we’re going to talk about in this video that are quicker than others, but really it does take time. If you look at the way that credit breaks down, the way that credit bureaus look for credit, they look at payment history, that’s 35 percent of your credit score. Really, that is not anything that you can do except have the payment history over time. So, that’s one, but it’s a big chunk.
Rayce Robinson: [00:01:59] Credit utilization, which is the one that we’ll talk about where we do manipulate, especially often during the loan process and stuff like that, and that’s their available credit. And those kinds of things, length of credit history, meaning if someone’s 18 years old, they’re not going to probably have the same credit as someone that’s 50, and there’s little things like new credit and credit mix.
Rayce Robinson: [00:02:19] So, credit utilization and not being maxed out are probably the big ones that I see that people can manipulate. A lot of times when referred to me or an agent sends me someone, I’m looking at their credit. Usually the first thing I’m looking at is overall credit utilization. And are they maxed out, meaning on any given card, if they owe more than 50% of the available balance, they’re starting to get a negative rating, because if you’re maxed out on the card, they roll that interest on top of that payment. So if you have a $5000 balance now, it’s $5,050. Right? And you’re paying that $50. So paying credit cards down is probably the easiest and the best way to get someone’s score up if they have a lot of time to do that.
Jenelle Ferrer: [00:03:15] So you mentioned something that I heard recommended as well from our buyers: ‘I have to wait to pay off my car’ or ‘I have to wait, I’m going to try and sell my car so I can pay it off.’ It’s interesting that you’re talking about your revolving credit and capping out on your credit score, because that actually also affects the mortgage or the debt-to-income ratio. So, they kind of work hand-in-hand, right?
Rayce Robinson: [00:03:38] Yeah. And it is a dance with most people because they have a limited amount of money. Most people are normal people and they’re working with X amount of cash. So I’m trying to figure out how to leave them enough cash to buy a house and then pay the credit card down. And then, of course, the debt ratio or sometimes they may have to pay something off, which is different than maybe the credit report. But it’s all part of that pre-approval process. So, yes, it’s all one giant conversation on what someone needs to do.
Jenelle Ferrer: [00:04:06] Absolutely. So I know that you’ve worked wonders because typically we tell people 640 is a safer place to be because of FHA and all of those other loans that qualify, at least for a 640. But you’ve closed as low as a 580 credit score.
Rayce Robinson: [00:04:22] 560, really. So it’s possible. What I tell people with lending is think of it as a box. So, there’s a box that most banks lend in and it doesn’t really matter whether you’re talking to me or any other bank. You know, Fannie Mae, Freddie Mac, FHA, they’ve all got their guidelines of what they’re looking for.
Rayce Robinson: [00:04:43] You get outside of that box, meaning lower credit score, or maybe they haven’t been self-employed long enough, or things that aren’t normal. But in this case, let’s talk about score. Then there’s going to be other factors that are going to come into play. Meaning if you have a 570 credit score, it’s going to be difficult to do. Now you need a lot of reserves or now you can’t be getting gift funds, a lot of the things that you can do on a normal transaction. Those are gonna be wiped out. So, I say that we do, and I see people advertising it online. I would say it’s more of a loss, because 1 out of 30 or 40 people meet those guidelines where they can do a really low score like that. So I really try to get people 620 and higher. To me, that’s kind of a target.
Jenelle Ferrer: [00:05:31] So, I mean, that’s a great point because really if you have a low credit score because something happened in your life, but you have the funds to be able to purchase a home, you can still potentially get a loan. So, that’s when I think the 580 is 560 credit score is more appropriate. Is that right? They have to have at least the money to be able to put down.
Rayce Robinson: [00:05:46] Yeah. And they’re really looking at the last 12 or 24 months. So, you know, people went through a bad time economically, which happens, like right now. But if you straighten up your credit for 12 or 24 months. So this particular person that I’m thinking of, how to score closer to 560ish. But the last 24 months, they had no late payments. And so we could kind of hang our hat on: here’s what happened here, because we’re really building a story for someone with lower credit on, ‘Why is this person with lower credit financeable? They got assets and all these things that we’re looking at.’
Jenelle Ferrer: [00:06:25] It’s interesting you say that because really your credit score actually paints a picture of who you are or the decisions you’ve made or responsibility, etc. And even things that have happened in your life truly affect your credit score story, so to speak, because you guys basically can paint a picture of the type of buyer. The reason why the credit score is so important is because it really shows how risky this buyer potentially is. Is that right?
Rayce Robinson: [00:06:52] Yeah. I mean, think about it. Credit, down payment, debt ratios are the big three. And then credit being the big one determining so many of those factors. How high of a debt ratio will the lender go? What kind of rate are you going to get with those kinds of ratios? It’s the big one of the three, for sure.
Jenelle Ferrer: [00:07:08] Absolutely. So bankruptcy, short sale, foreclosure, if people have experienced these, which has happened in the past, how long before a bankruptcy comes off? I know it’s seven years or even 50, depending on the bankruptcy filed before it comes off. But how is that going to affect their credit to be able to purchase a home? And how long would they have to wait after a short sale or bankruptcy or foreclosure?
Rayce Robinson: [00:07:32] That’s a great question. It does get complicated. I did a video on that once because FHA has a different guideline than V.A. and Fannie Mae.
Rayce Robinson: [00:07:39] And so what in general, most people are going to be waiting about four years to do some kind of conventional loan, on average, if they do a bankruptcy. And then on FHA, it’s going to be two or three years, probably usually three before they can look at it now.
Rayce Robinson: [00:07:56] Well, you bring up as a great point. Sometimes people get past, say, the three years where they could maybe go FHA again, but they haven’t done enough to bump their score up. In the meantime, even though we get past that three years, you really have to work hard after something like that happens in the past to get your score up, because that’s automatically bringing your score much, much lower. I don’t know the exact number, but my guess is if you don’t do anything, you’re in the 500s when you get right off bankruptcy or foreclosure or something like that, so you really are starting from there trying to get up. And I’ve seen people with a B.K. with scores back over 700 by doing some of the right things.
Jenelle Ferrer: [00:08:37] So what does the credit score number start? So, you end up in 500 after bankruptcy. Does it start at five hundred?
Rayce Robinson: [00:08:44] No, in fact, it’s down to I think the actual numbers are 350 to 850. Really most people, though I would say 95 percent of people, are going to fall between 500 and like 770. So I mean the people you know, I haven’t seen too many people below 500 get over 800. We’ve seen a couple but they are overachievers or something.
Jenelle Ferrer: [00:09:13] So, what is a good credit score to aim for realistically? If people are under 600, what’s something good that you’re like ‘all right. Once you’re at this point, this is going to be much smoother sailing. But you know, under 600 this is going to be really rocky territory.’
Rayce Robinson: [00:09:28] I mean, 600 is a good number and 620 is like for a Fannie Mae loan or conventional loan, which is what a lot of people do, you have to be 620 or higher to even consider a conventional loan. Truthfully, if your credit score is 620 you’re probably going FHA anyways because Fannie Mae has a big, big overlay on interest rates where FHA doesn’t. This is the really cool part. You know, when you can take them with a 620 score and give them a fairly competitive rate where they’re going conventional and they’re looking at the rate going ‘wow.’ And that’s because Fannie Mae overlays their pricing to any bank that we work with and really bumps up that score or bumps up that rate with a low credit score.
Jenelle Ferrer: [00:10:11] Ok. Good to know, so 620 now. Now this is going to be our next session where we’re going to talk about real estate myths that are happening right now. But is it true that they are going to be raising the minimum score to 675? Do you know anything about that?
Rayce Robinson: [00:10:28] Yeah, so lenders and if people follow the news that are calling the mortgage crisis, which I think is more of a headline grabber. But there are some liquidity issues in the backend of these markets, meaning when you pay your mortgage payment off and you’re paying that to a servicer and that servicers paying to the people that own the asset. Well, even though all these people are on record forbearance or not paying anymore legally the government’s basically said as part of their CARES Act, that they’ll still have to pay creating liquidity in the market. So I would say, no, you can still do a low credit score, but it is taking more time upfront to really have somebody look at your situation and make sure they really have a good picture of where you’re at and put you with the right lender, because not every lenders are going to chase this analogy. They’re only doing 700 scores and higher. So, there are some banks that are doing that.
Jenelle Ferrer: [00:11:24] So, how long would it take to increase a credit score just 50 points if they listen to the basic things of paying off your credit card, not maxing out on your credit debt? How long would it take to just increase maybe 50 points on average?
Rayce Robinson: [00:11:41] So, it’s always a time versus what you can accomplish ratio. So, you know, a lot of times, unfortunately, when I get someone, it’s pretty quick. Meaning they’ve talked to you and they’re like, ‘hey, we want to buy a house.’ Of course we want to get them now while our rates are good and before prices move up. So, normally we’re looking at paying down debt and things like that. That can happen really quick. We can even do rapid rescores where I can literally have someone pay their debt down today and do a rapid rescore tomorrow and within three to four days have an updated credit score. And that could easily be in some cases, 50 points.
Jenelle Ferrer: [00:12:20] Wow, OK.
Rayce Robinson: [00:12:21] Now, ideally, what you’re saying is correct. You really would want to reach out earlier because if you have more time, there’s more things that you can do that are going to maybe have a bigger impact. But probably most of the time when I’m dealing with just because of the time frame is paying debt off, you know, typically what we’re doing now.
Jenelle Ferrer: [00:12:40] This is actually really good news for people who do have lower credit scores, but want to try to get their credit score up and buy now while the interest rates are really, really good because we know that the interest rates are going to go up. It just is one of those things that keeps being talked about and mentioned in the news consistently. And so we try to tell people, you buy a $250,000 house now, add a 3.5 – 4 percent interest rate. You’re going to get a lot more bang for your buck than if you try to buy a house for $250,000 at a 5 percent rate. You know, based on your interest rate. So, question, does your credit score have any effect on the interest rate a buyer can secure?
Rayce Robinson: [00:13:30] Yeah, it has a big effect. I would say so. Again, FHA has the least effect. Fannie Mae and conventional loans has a huge effect. So, even if you know about people putting 30 percent down, which is a pretty big down payment and still getting a rate .5 to 1 percent above the market because of the overlays, Fannie Mae basically has about eight tiers all the way from 620 to 740. So, depending on where you fall in that tier as a broker, I work with lots of different banks. The banks all across the board have to take those same overlays to be able to to get the pricing.
Rayce Robinson: [00:14:06] So, for most people, it’s going to impact their rate that they’re good and that’s going to impact how high they qualify up to, how much buying power that they have.
Jenelle Ferrer: [00:14:16] Absolutely. And that is a great point. I know some of the questions that I’ve seen in the past are, you know, as agents talk to me because the buyer wasn’t pre-approved prior to now. We don’t have that issue because when we list our properties, any offer that comes in, we vet through the lender that they’ve selected. And we do the reverse as well. We won’t work with any buyers until they get pre-approved for two reasons. We don’t want to waste their time and we don’t want them to get excited about a property that they can’t afford. And if they’re not ready or willing to put in an offer, there’s no reason in looking at homes because it’s not going to be available by the time they are ready. So, we want to make sure that people are successful in their home search upfront. So, when people have a low credit score and we send them over to you. When we get that response, how soon can you get a pre-approval back?
Rayce Robinson: [00:15:11] It’s going to depend on their situation. And that’s where having good communication because, you know, a question I was thinking of for you when you were talking is, do you have people that actually have pre-approval letters that seem like they’re ready to go, where you find out they weren’t pre-approved or they weren’t really ready to go or they really just didn’t know what they should know to be out there looking for a house? Do you run into that with buyer?
Jenelle Ferrer: [00:15:37] Not necessarily. Well, when we work with buyers, remember, in our process, in our consultation, we make sure that they have a pre-approved letter before we go. We don’t take pre-qualification. We want to get approvals because if they look, we want to make sure that we can move on it right away without any hindrance. Now, I’ll tell you on the listing side, when we’ve listed houses and have multiple offers, we call every lender and we make sure that we are vetting the lender and we’re asking specific questions without, you know, going into information or questions we’re not legally allowed to ask. But we do ask them, how qualified are they? How sure do they think this is going to close? And we’ve got information that literally has swayed us from one buyer to another, because of your lender and gotten the deal closed and the seller is happy as all get out because we’ve vetted them. We make sure that they will qualify, because the last thing we want is to have done that and not gone the route of vetting them, accept this offer, and then all of a sudden now they can’t get financing because it was a few points off or they made a purchase that threw all of their numbers and now they can’t qualify for a house. So, we do. But talk about some of those things, because it’s happened only once in nine years to me and won’t happen again. At least not as much as I can help it. Look, people making a purchase before closing that skews their numbers just enough, or now their credit score and their debt to income ratio is just off enough that they can’t qualify for a loan. Can you talk a little bit about that?
Rayce Robinson: [00:17:14] Yeah, I mean, most people understand they’re going through a loan process and try not to do certain things. But over the 18 years, I have seen a guy buy a car in the middle of the transaction, which, you know, I was really nice to him. But I’m like, ‘hope you like sleeping in the car, because that’s that’s really messed for debt ratio.’ So, I think people I’ve seen people put their name on a website and get like a 100 credit pulled all of a sudden that, you know, because they basically offered their information online. And there’s even banks out there that are doing photo online pre-approval letters and I’m not going to mention who they are. But if you think about it, you know how much time we spend with people to make sure they’re ready to go. And if you could just type your name, a number, and they could pull your credit automated and give you a pre-approval letter, it’s not doing that client a service either, because, you know, if it doesn’t work out, it’s usually the client that loses things for money on an appraisal, that’s the main amount inspection and escrow deposit put up. And so, you know, they really want someone to take that time and to be honest with them. you know, you’ve had this conversation, someone that is super excited to buy a house and they’re ready to put an offer in tomorrow and I look at them and like it’s going to be 30 or 60 days because we need to do these things to make sure you’re successful as a buyer.
Rayce Robinson: [00:18:33] The last thing I want you to do is go out there, spend all this money, and you do not become a successful homeowner. So, some of it is just being honest with people and letting them know exactly where they’re at. Have a very clear plan on what they need to do, whether it’s paying off debt or whatever the situation is, and then communicating, you know, with the agents so that they’re also having everyone on the same page makes it really, really well when you’re out there putting offers and you know exactly where that buyer’s at as far to help closing costs or close this particular buyer. Things that you need to know.
Jenelle Ferrer: [00:19:10] I mean, all great points, there’s just so many so many little things that people can do to help improve their credit, especially starting to get out of debt. I think getting them connected to a lender right away, I mean, that’s something that you do, is that we say, ‘listen, we need you to contact Rayce immediately so that we can get you on a game plan. Because if we can’t get you in time for this lease, we don’t want to get you a property before you have to renew your lease next year.’ And we are okay with putting people on hold in order to get their credit score up because it’s going to save them more money. We want to make sure that we have a good plan of action for them and that they feel comfortable and ready and know exactly what to do with their credit score and with their debt. Is there any other advice that you have for people as we’re wrapping this up? What other tips would you have for people that are ready to buy a house, but their credit score is between 550 and 580? What would you recommend?
Rayce Robinson: [00:20:06] So, two things come to my one. Be careful of the mortgage mess out there. I mean, we’re in the YouTube generation. I do videos. I know you do, too. But there is a lot of bad information out there. And so I see people doing things that are really old school; disputing trade lines, adding authorized user account, and there are certain things that may pull your score up, but lenders are aware of what you’re doing. And we have to undo a lot of that and actually delay. So, now I will say, you know, if you have really bad credit, meaning, you know that you’ve got late payments and all these things, sometimes you just have to bite the bullet and hire a credit repair company because lenders are not credit repair. They may know a lot about credit from looking at it, but there are some sophisticated things that somebody that works with credit all the time can do. You know, they can dispute things and then remove those disputes and they know what they have, where to start and where to end up. And so I do sometimes look at a client and say, ‘look, I don’t have the skill set. I’m not a credit repair, but I can help you become a home buyer.’ And, you know, just like you have lender contacts, I have people that I trust that I might say, ‘hey, you know, here is someone you could contact that could at least talk to you about that, where you could hire an expert to do that.’. So one, I would say be careful of the myths out there. People do these quick fixes and then they end up hurting themselves.
Rayce Robinson: [00:21:31] And then the second thing is you can get a free credit report. Remember, my score is going to be different. And that’s the most frustrating thing. Different industries have different models. So really, if you’re going to get a mortgage, have a mortgage company for your credit and that’s who you want guiding you through the process of what to do and not do regarding your credit.
Jenelle Ferrer: [00:21:58] Great, great point. I mean, everything you just said there is really important when. I mean, I think my best plan of attack is to send them over to you and you can let them know what the next steps are and whether or not they do. You need a credit repair company because not every credit repair company is going to be a good one. Some of them do like what you said, basically slap a Band-Aid on there and a lender is going to pick that up and say, ‘oh, I’m so sorry. This is not gonna work. You know, we’re seeing that this is, you know, either fraudulent or put a Band-Aid on there just to kind of wipe it away. But we see it clear as day. And so you’re not gonna be able to pull that wool over our eyes’ kind of thing. So, I think that that’s usually the best thing. I mean, I personally, as a real estate professional, would say we need to contact a lender right now. We need to see where your credit score is with the soft pull and see what we can do. And if we need to take an in-depth look, then go from there. And then those next steps will determine whether or not we’re going to be able to start shopping. You know, we can’t shop for a home if we don’t know what number.
Rayce Robinson: [00:22:59] And don’t wait. You know, I think you and I both would agree with this, that if you’re six months out, go ahead, call now. Look, we would rather talk to someone upfront even if they have a higher credit score. Sometimes it’s good for me just to look when your credit has no effect. You only have one reason to have a credit report and that’s for somebody to pull it in 18 years. I’ve never pulled someone’s credit, had any negative effect on them getting a loan. So whether you have an 800 credit score or 500 credit score the sooner out you look, because there are discrepancies that do show up on a credit report or things that are fixable, but only with time. So, my thought is the second you start thinking, ‘hey, we’re going to buy a house this summer, next summer,’ then you should look because I don’t mind, like you, working with someone eight months out.
Jenelle Ferrer: [00:23:47] Absolutely, and I love that point. I’m going to emphasize that again, you pulling their credit score is not going to drain their credit that it’s not going to hurt them. You’re literally just looking at what they have. How long does that stay open when you do a credit pull?
Rayce Robinson: [00:24:05] It’s usually 120 days. And there’s a bunch of weird rules like you can actually have other lenders pull it and it won’t count as an inquiry. A lot of lenders will try to scare you and say, ‘now that I pulled your credit. Don’t let anyone else pull it. I mean, we have no lender fees. We don’t charge application fees. We try to earn your business every step of the way. We never called you that.’ You know, lenders should do that. So don’t be scared. You have an 800 credit score and you’ve talked to a bank and you want to talk to me or someone else, there is no issue with you getting your score pulled responsibly. That is the only reason you actually have a credit score is to go out and get credit.
Jenelle Ferrer: [00:24:47] That’s the only reason you need. So, thank you so much, Rayce. This was wonderful. I know that we’re almost at twenty five minutes. But I mean, this is a conversation that is very important. And I can not emphasize how much we’re talking about this right now. We have a lot of buyers that unfortunately their credit scores are just not where it needs to be. But at this point, just talking to you can get them on a really good plan to get them to even purchase in a few months or even by the end of this year. So, thank you so much for your time. Guys, if you guys have any questions, you can feel free to contact us directly on Facebook. You can find Rayce — We’re going to have their information here tagged as well. You can reach Rayce directly through his website.
Rayce Robinson: [00:25:28] You know, just go to RayceRobinson.com. And I have everything on there.
Jenelle Ferrer: [00:25:37] All right. You guys can visit us at WaypointeRealty.com. We have a great page that you’re going to be able to find on our homepage that is frequently asked questions for home buyers. And we have 24-25 questions that are the top questions asked by first-time homebuyers. But it’s great for anybody and some of these credit questions are answered there as well. So, thank you guys so much for tuning in. And we hope that you guys have learned something. Take care.