There's a direct correlation between your credit score and home buying.
We all know that credit scores affect the amount of house you'll be able to buy.
Here, I talk to Nelly Rasuleva, Board Certified Credit Professional, from All In One Consulting, and ask her the top questions that come up from home buyers.
Below is a transcript of our Q&A:
Me: ...all right so it's being recorded right now and you know just like we discussed we want to be able to provide value to home buyers and part of...I'm working with somebody right now.
He reached out to me a couple of months ago and wants to buy a home. And they're all you know...a lot of home buyers right, they're all gung-ho.
They're very excited about their first purchase and then when you start really diving into their situation, whether it's financial, whether it's credit, you kind of get to a stopping block there, a bump in the road, and what's happening is that they may have the cash, but "Randy I have this blemish on my credit report. What do i do you?"
So i figured, you know this could be a great opportunity for you, with the experience that you have in kind of giving just raw knowledge to people looking for answers to these questions that they have. And we're going to go through this list that we have of questions.
But before we dive, let's go ahead and just talk a little bit about you, what it is that you do, and how you're able to help out buyers.
Nelly: Got it.
So thank you so much for allowing me to be part of your video in this meeting. My name is Nelly and my background is...I came from a car business and I worked with the prime and subprime clients in the Toyota store and that's where I saw a huge need for credit education.
People would come to the dealership with like 400 credit score and just try to buy a large purchase of $20-25,000.
And I realized that there is a need to like educate people and help them with credits before they come to dealerships, before they go to any kind of lenders to apply for loans and that's how I created this company in 2017.
I started working with everybody at first, trying to help everybody with their credit situations until I realized that home buyers actually are the best market for me personally - just because they're most motivated and they follow all recommendations and that's how they get into their houses.
It's good for me, good for them and my business is built only on referrals.
I do not spend money on any kind of marketing.
And at the same time i try to like teach them about importance of the credit credit score is probably the most important number in America and that determines absolutely all your purchases - whether you're renting, buying, whatever you do in credit cards, your job, your utilities...everything is connected to your credit score.
Even your auto insurance, believe it or not.
A lot of people don't realize, but their other influences are tied to their credit score. The lower their credit score, the higher they pay for their insurances.
So my job is to educate people and help them to fix their blemishes on their past because a lot of people don't realize that if you have a bad credit, it's not gonna stay like this forever.
It's going to stay like this forever if you don't do anything about it!
So that's pretty much what i do.
Me: Very good introduction. So you've been in the industry for quite some time.
What is it that you've seen like...you know...kind of guide us through the process of not necessarily the home buying process but how does credit play a role in the home buying process itself?
Yes we know that credit is extremely important like you just mentioned.
But how does that determine loans and what you're able to afford?
And then more importantly, if there is a blemish, how do you fit in and how do you help out?
Nelly: Got it.
So when you apply for anything, I always suggest to check your credit reports first and make sure there is no like surprises for you. A lot of people don't realize there are 70-80 percent of the time there is mistakes on credit reports.
There are accounts that people don't even know about in the past. So first thing is to check out your credit report.
Figure out what's correct, what's incorrect.
And when you purchasing a house, how credit like plays a role lenders look at three things only when you are applying for the home loan -
- they look at your credit
- down payment and
- your income
They want to have like stability and three questions that they need to basically ask - do you have the ability to pay back this loan you apply for over a hundred thousand dollar loan and are you able to pay it back?
Do you have a job that supports this on paying back the loan that kind of things that important and um a lot of people don't realize that you can actually switch these three things.
Income, down payment and credit can be basically substituted.
For instance, you have a lot of income and a lot of down payment that will make credit look a little bit like unimportant but at the same time it's still important. It's just your credit, I mean the interest rate will be a little higher than if your credit would be better.
So those kind of things matter.
And the fastest way like for instance a lot of people right now trying to like get into house.
They don't care about interest rate.
They just want a 640-650 to qualify because this is the average credit score right now to qualify for home loan 640-650 forty.
How are you gonna get there fast?
"The fastest way to boost your credit is with credit cards because your credit card payment, good on time payment, is responsible for 35% of your total credit score."
Me: You said 35%?
Nelly: Yes 35% is the biggest actually like a portion of your credit is responsible for like your credit card payment, on time payments of course.
If you have late payments that's a big no no.
You need to take care of late payments as well before you apply for home loans, especially if you're applying for FHA loan.
So yeah, main thing is like a credit card payment...pay down all your balances.
Stop swiping your cards and start paying down and when you're paying down...paying down twice a month instead of once a month actually helps the situation and gives you a little bit faster points.
Applying for an authorized user account on somebody, on a family member, on family member's credit card also will help to boost credit very fast within 30 to 60 days.
I always say if you need to get into a house like in the next 90 days, credit cards is your best friends and you need to utilize them.
Me: How is it...you mentioned that they need to have the ability to pull their credit and check it, obviously, we hear at least once a year.
Where do they have to go to pull their credit?
Nelly: Well there are some free options of course to pull your credit with the annualcreditreport.com.
Yes you can do that. You can check your credit with the sources like credit karma.
But I always say if you getting something for free you have to give away all your information. You become a product and I definitely don't recommend going with the free sources.
First of all, they have some kind of loss. For instance annual annualcreditreport.com does not give you any kind of credit scores. They give you your full report but no scores.
Credit Karma, excuse me...
Me: Yeah you have to pay for the score.
Nelly: Yes exactly. In Credit Karma, gives you only two scores against all three.
So I always say, there are different sources to pull your credit.
But pay. Like paying for, to get the credit report, you're gonna get much more information.
Plus most of credit monitoring accounts come with some kind of identity theft protection.
So definitely there is benefit of using credit monitoring on the paid versions, rather than free versions which does not give you anything.
Me: And some credit cards also offer credit monitoring.
Nelly: Yeah, they offer credit scores but not their reports.
So definitely it's very useful to know your credit score.
But I always say, your credit score is derived from your credit report.
That's why it's more important for you to see your credit report.
So if there is some kind of mistake or you see like high utilization, you need to take action. You need to take action.
And your credit score itself is not going to give you any kind of information other than numerical.
Me: How does it work when somebody goes, if it's a married couple, or somebody that's filing jointly on a loan...if one person has fairly good credit and the other one not so good credit?
How does that work?
And then what can what can be done to help the one that has the lower score?
Nelly: Okay. Many, many couples would like to be on the loan just because they want to be part of this house - so that's the reason.
But from the lender's perspective, the only reason you should apply for joint loan is when one income is not sufficient to support this loan.
If you want to be, you can still be on a deed.
Definitely you don't have to be on the loan to be part of this house.
That's what I recommend.
I always ask them, "what's the reason you want to be on a loan?"
Because unlike any other type of loans, like for instance, if you go to dealership and your credit is 750, my credit is 550, they will basically approve your credit score.
But if we do the same thing with a home purchase for instance, they will approve based on my 550 credit score not yours...because on a home purchase, they always go by the lowest credit score rather than highest.
Me: You know i had a phone call two days ago. Client makes decent money, ready to buy a home. But then he's like "Randy, I have a collection on my report."
He has one collection, he said. According to him, everything else is fine but he has one collection.
Now if it's already gone to collections, is it advisable from a credit rating perspective, is it best to settle with the collection, with the creditor or do you just pay it off and call it a day?
Like is it better to show on the credit report as "settled" or does it show as "paid"?
And does either one have more value in terms of raising your credit score?
Nelly: Great question.
Once account is in collection, the damage is done and the only way to turn that collection into positive is by removing it altogether from your credit.
Paying down this collection let's say you pay this down and instead of $500 balance now it's showing zero balance but it's still a collection. It's still affecting your score negatively.
The only thing that's changed is the debt to income ratio now. Now your debt is $500 less than before, but credit score unfortunately, did not change.
For those kind of people, I always ask "are you in a hurry?"
If they in a hurry, I recommend them to reach out to collection company and try to settle.
But they have to negotiate the removal from the credit report.
That's the only way for them to like make that account positive.
If they do have some time to work on this account, especially the balances, for instance, more than a thousand bucks, I recommend them to dispute this account.
Give about three months because this is how long it takes for average disputing process.
And try to remove this account from the credit report altogether by finding some kind of discrepancy mistake on a credit report.
Me: How do they dispute?
This is going to be a two two pronged question - number one how do they dispute? and then the second one...
I think I might have to edit this part because I just totally forgot what that second question is.
So I'm definitely going to delete this part 🙂
Nelly: That's something awesome that you can do.
Me: How do they dispute?
Nelly: So the way they dispute the account I always say do not use these templates that you can find on Google.
Use your own story. Be a human.
Because you're trying to reach a human.
Essentially because when you're disputing accounts online or like using the template, they have a system called e-OSCAR and that's a machine basically...it's a machine that reads your letter and determines what to do with your dispute - whether to verify your account or delete this account - that's the machine.
But your goal, if you want a fastest result, is to reach a human.
Because all credit bureaus do have humans that work there and you need to just put your story there and what happened with this account.
Why you disagree with the balance?
For instance, a lot of people don't realize that balances that show on the collection account are incorrect!
Because they essentially didn't sign up for like $222, for instance.
They signed up for $200 - everything else is interest and fees.
And your job, my job as a specialist, is to find a mistake that...like even if i find the like one dollar or one cent mistake discrepancy between what they're reporting on my credit and what actually is, by my agreement, that's enough ground to request a removal from your credit.
So as you can see it's very, very like meticulous work to find a mistake and stuff but that's called factual disputing.
You're not saying like this is not mine or whatever.
You say, "hey i disagree with this...this is my grounds and this is my proof."
If you have for instance proof sometimes people have like screenshots from their their bank accounts that they paid off the balances.
Another good story probably like a lot of people needs to know about the collection companies, how collection companies operate.
A lot of them operate illegally.
They just purchased the debt but they don't have anything to back up this debt, you know, they don't have any kind of documentation that, like for instance, Nelly owes them like $300.
They just have my name, my contact and my original creditor that I owe $300.
So here's what happened with my client last year.
She was applying for the house.
She had $1800 collection on her credit and she needed like to fix it fast.
So she reached out to the collection company that was on her credit report and she basically paid this balance.
She paid the balance moved into her house six months down the road collection company calls you and requests that $1800.
So the thing is, she never validated this debt.
She never validate anybody can own your debt it can be like sold and resold all the time.
But if you don't know why this collection companies are requesting this amount from you, do they have any agreements that you sign with the original creditor?
Do they have like a transfer of the debt?
There is like special document that's called transfer of the debt that each collection company has to have on your account.
But a lot of them don't, from my experience.
When we request some documentation to prove that they validated that a lot of them cannot provide us with anything and that's how we achieve the removals.
Me: Is there a time period between submitting for a dispute and then the time that the creditor or the collections agency has to respond to before the credit bureau says okay it's no longer valid, let's just drop it altogether?
Is there a time period there?
Nelly: Great question.
It was a time of 30 days to respond before pandemic hit.
Ever since March 2020, everything changed.
Now credit bureaus and collection companies don't have any limited time to respond to.
The pandemic, they understaffed and they don't have to basically respond 30 days.
They basically say, how do they explain it..."reasonable time" to respond.
That's how they say.
But what can be reasonable, can be six months or twelve months.
You know like "reasonable timing" that's what it is so far.
Like and i know there is like a company credit repair organization company called nasco they actually file a lawsuit so they stop this like and put back because a lot of people cannot qualify for their home loans qualify for their business loans and everything due to credit bureaus not responding on time.
We saw major slowdown when pandemic just started like for three months people wasn't getting any kind of response from credit bureaus.
Me: Well this happened to me personally and it was regarding a medical bill.
I'm sure medical bills are huge when it comes to credit issues and whatnot I know.
It was only for 20 bucks or 40...something very minimal.
But I was against the actual thought that I just didn't own it...like it there was no reason for them to charge me that amount of money.
And I called them and talked to the billing department.
I kept disputing it with them and they kept sending me bills.
They kept sending me bills. I kept calling them and we just got into this vicious cycle...was very ugly cycle.
Finally they just reported it, they sent me a final bill and it said you know, we're sending it to collections so at that point...I got lucky in that the building is here locally where I live.
So i drove over there, unexpected, and ended up talking to somebody face to face.
They ended up taking...I ended up...long story short, I ended up just paying it and just getting it over with.
It was very minimal.
But a lot of times, what happens, it shifts from...once it leaves billing and goes to collections, the customer no longer can deal with a regional creditor or the actual company, right?
They have to deal with the collections?
Is it not possible for them to send it back?
Nelly: Once it's in collection, it's done? like yeah no way to return other than like completely removing it from your history
Me: And so who has the ability to remove it from your credit report the collections department the collections uh agency
Nelly: Collection needs to report to...because essentially credit bureau is gonna remove it from your credit but collections needs to like notify the bureau saying like hey he either satisfied the debt or like we we settled the amount or whatever right like collection company needs to report to the bureaus.
Bureaus will remove it from your credit
Me: The actual negative part of it?
Me: So they have the ability to do that?
Nelly: Absolutely, yes.
Me: Okay that's interesting.
Nelly: companies and credit bureaus those are the two...I mean full basically organizations that can remove your accounts from your credit.
Me: What are the four again [credit bureaus]?
Nelly: Transunion, Experian, Equifax and collection company that you're working with.
Me: Ah-huh, okay.
But you have to let them know and some of them might be dirty and not want to do that for you.
Nelly: Yes. If you're not going to speak up...like they're not going to do anything to your benefit.
Me: Do collection companies...they have a very bad rap.
They're very harsh and brash on the phone.
They're just trying to collect money.
Do they try to help or is their job to help you or is their job just to freaking collect?
Nelly: In my experience, it's just to collect money business.
It's a for-profit business.
The collection companies buy your debt for pennies.
If you owe them hundreds...they buy it for like 10-20 and then they try to like collect the full amount and that's their profit between 10 and 100.
Whatever is in between is their profit and that's how they able to negotiate with you and give you some kind of offers..."oh like you owe us thousands but you can pay us 200 and be done with it."
This is how actually they make their money.
Okay now say that they're ready to apply for a loan...the customer is ready to apply for the loan and their credit rating is just a lower on the low side...not quite 640 or 650.
What's a quick way...what are some quick tips that they can do to help jack up their their credit rating a little bit so that they can be able to qualify for a loan?
Nelly: Like I mentioned before, the fastest way to jack up your credit score would be utilizing your credit cards correctly - either yours or somebody in your family.
Immediately you need to become an authorized user on somebody in the family with a good credit score, with a low credit utilization on the credit card.
That's very, very important. Do not...
Me: I'm sorry...low to low utilization meaning what?
Nelly: Meaning that like for instance, your credit limit is thousand dollar on a credit card. Low utilization is considered anything less than $300 dollar.
Yes, thirty percent.
But ideally I always recommend to stay under 10% when you're applying for the home loan.
This is the fastest way to for you to pick up points .
Let's say you have a $1,000 limit credit card and your balances is $800.
For you, you can easily pick up 20-30 points if you drop this balances under $100.
How fast do the credit bureaus update the credit?
Nelly: 30 days. So like you do this today, 30 days later, you're gonna see the effect on your credit score...with most of them.
Like some banks work slower. Bank of America I noticed, they're slower. It takes them 60 days to update.
But great banks like Delta, Navy Federal, Capital One...they very, very fast.
Me: Very good.
Finally, one last question that I... and one common question that I always get is, you know, I'm shopping with a lender and went to my bank and they gave me...they pulled my credit and they said I'm approved for whatever at this interest rate.
And I say "well, have you shopped around."
"No I'm scared to shop around because if I shop around, it's going to drop my credit score."
What's the truth behind that?
Is that accurate?
Nelly: The truth is I would say like do your research before you start applying. Or talk to somebody very knowledgeable in the lending world so you know your options based on your credit score.
Because you can get those numbers without letting them pull your credit, as long as you're dealing with a knowledgeable person.
So if you try to like shop around, for instance for the rate, your score is going to go down and you go and have like several hits on your credit.
Every time your credit is pulled, it's lowering your score.
But it's true that like in if you're shopping within like two weeks, all your hard inquiries will be considered as one.
But from my experience, I don't see people shopping within two weeks - especially for their houses.
They shop like for months for months and they let lenders pull their credit over and over and over.
I say like don't do it.
Do your research before you apply.
Know what you can qualify for based on your income and your credit score and then go from there.
And from that point, it's a matter of finding your house.
Because like if you did your research up front, you know for fact this is the lowest interest I can get based on my situation.
You know, right now it's so easy.
It's like from like what 1.9% to 3.9%...this is it and everything in between is my options, okay.
Me: So the trick is to, if you're going to do it, apply for you know... have lenders pull credit but within a two-week time frame and that will count as one hard inquiry?
Me: Got it.
Nelly: ...and same with the auto loans too.
So I think we covered a good deal here today.
Any final words that you want to give to the audience?
Like as far as the medical bills, I see like a large amount of medical collections popping up lately.
And I would say if you trying to dispute those accounts yourself, always look at the dates.
The trick with the medical collections is they have to, like hospitals, have to wait for 180 days, which is six months, before they send out your account to collections.
So, if they didn't, most of the hospitals send out your account to collections after three months of not getting paid.
But insurance companies have to have some time to like pay down your balances and everything.
So for that reason, they have six months to do so.
But hospitals don't wait and that's the easiest way for you to like dispute and remove the account if you dispute the dates.
Me: Very good.
Nelly: ...and if, for instance, the credit repair is pretty like a detailed process.
It's not just like a sending out disputes.
It's a like an overall process that includes like your positive and negative accounts, and inquiries as well, even your place of living, right.
Like believe it or not, if you clean up your addresses from your history that will boost your score too.
Overall credit report needs to have everything in one...like one name, one date of birth, one social, one address and so on, and one job.
Everything else needs to be like cleaned up.
That's what I would say and if you don't have time to work on your credit, you can always reach out to me and I'll help you to navigate and give you a consultation absolutely free of charge.
Me: How are they able to get a hold of you?
That's my email.
If you give me 24 hours, I usually respond within that time frame.
Me: Very good and we're going to keep...I'll make sure to have your contact information in the description below if, wherever this ends up showing up, on youtube or wherever.
But Nelly I want to thank you so much for your time.
Very, very...you dropped some knowledge bombs.
Up I'm sure everybody's going to have...they're going to get a lot of value out of what you said here today, so thank you very much.
Nelly: Thank you so much for having me here.
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