So, your credit score is looking a bit weak and you’re tired of getting denied for credit cards and loans. How are you supposed to build your credit up when you can’t get even get approved for a credit card. or an apartment. You’re ruining your credit and here’s why!
Today we’re going to talk about five things that will destroy your credit and things that you have been doing and maybe you didn’t know.
Applying for Credit Too Often
The first thing that you have to understand about credit is… And this is a huge mistake, you’re applying for credit too often.
Every time you apply, you’re getting an inquiry.
Negatives of applying for credit too often
So there’s a couple of things that happen negatively here.
Number 1: Stacking Inquiries
Number one is you’re getting inquiries, every time you apply. And I know back in the day daddy and mommy told you, “Never be a quitter,” so you just continued to apply, and apply, and apply, hoping that one day you’ll get approved at one of these subprime banks.
But don’t continue to apply.
I have a golden rule of no more than two applications in a 90 day period. Anything more than that you’re getting a bunch of inquiries.
Most of the time you’re getting denied, and when you get to a certain level of inquiries, you start to get what they call the internal flag. What they do is they put an internal flag on your credit report and that inhibits you from getting any more credit, because they think that you’re searching for credit.
When banks think that you’re searching for credit it’s reverse psychology, they start to think that you are cash restricted. You might not have a lot of cash, so it’s basically like you’re saying you’re cash restricted because you’re searching for credit. Which is strange, but it’s the truth.
Number 2: Diminishing Your Age
Also, what you’re doing on top of that is you’re diminishing the age of your accounts, which is huge.
Think about this for a second. Every time you do an application, what happens is the age of your…
The average age of your accounts goes down because you’re putting into a new account. If you do five or six applications, even if you got approved for a couple of those, they have to put those new accounts on there.
And if you had it to year average, now you’re significantly lower. You’re in the months because you just added a bunch of new accounts. So be careful how many applications you do.
I recommend two every 90 days and that is the absolute most I would even stay with six months on two.
Co-signing for people
The second thing is a huge mistake. You guys are co-signing for people. I get it.
We have friends, family members, and children. But what happens when you co-sign for somebody, it’s just like an authorized user tradeline.
You are piggybacking off of them. What happens and kind of an example of this would be this.
If you co-sign for somebody and they make a late payment or whatever the reason is they couldn’t make the payment, what do you think happens to your credit? You’re financially on the hook just as much as them.
The piggybacking side of things is this, it’s the reverse engineer side. They make a late payment, now it goes to your credit. They miss a payment, goes to yours. It goes collections, it goes to yours, because you are just as much in agreement, financially responsible for that loan, that they are.
So think about co-signing. It’s a huge mistake and a lot of people are doing it right now for family and friends, and I understand it.
But if you’re not in a position where you could jeopardize your credit and you think twice about this person making the payments on time or getting a collection on that account, I probably wouldn’t co-sign for them.
Stop paying off collections
Number three, stop paying off collections. This is a huge mistake.
What happens when you pay off a collection?
Let’s talk about a collection first. First, it goes 30 day, 60 day, 90 day, and then it goes to collection.
You’ve got your three late payments, after that it goes to 120 and then you end up getting a collection on your credit report, charge off. A lot of times they’ll charge it off, sometimes it’ll go as collections.
But what happens is this, you guys think that, “Hey, if I just pay this collection, it’s going to go away. Or somehow if I pay the collection, it’s actually going to be a good thing on my credit report.” Huge misconception.
When you pay a collection, what do you think is happening? You’re acknowledging your debt and you’re saying, “This collection is mine, and therefore I’m going to go ahead and pay it.”
And now, guess what you have on your credit report? You have a paid collection.
What Lenders Are Looking For
When lenders look at you for the approvals of vehicles, credit cards, mortgages, now you have a collection and now you have a paid collection that shows “paid”, and then from there, guess what? You’re almost deep dead in the water in trying to get that removed.
When you don’t pay it and you have somebody handle that for you to get it removed, then you can go with the legal loophole and say, “It wasn’t mine.” Or you can go to the legal loophole and say, “I didn’t sign for that. Wasn’t my debt.” But when you pay it, what are you doing? You’re acknowledging the debt, you’re saying, “It’s me.”
Be careful with paying debts. Be careful with paying collections, especially because from there it’s almost impossible to get removed. Stay away from paying collections, get them removed. There are legal loopholes there.
Doing whatever you want because your credit is good
Number four is going to be a huge mistake. You guys think that if you have a 700 credit score, that all at once you can go out and start getting all kinds of stuff. It could be further from the truth either.
So we’re talking about a 700 credit score. What is a 700 credit score? Well, everybody wanted to be part of the 700 club and now everybody wants to be part of the 800 club. As time goes on the scores raise, people are like, “Nah, 700 ain’t nothing.” And it ain’t nothing. And let me tell you why.
Because you could have a clean slate, blank file, all your stuff removed, nothing negative, and I can add one baby trade line on there with probably 5K credit limit at six months old and I can get you a to a 700 credit score.
But where the misconception is is just because you have a 700 credit score that you believe that you can go out and start applying for a bunch of stuff because you believe that the number is what really matters.
The number doesn’t matter. I just told you, with a blank file I can get you to a 700 on one trade line. The problem is when you go to try to apply with a 700 credit score, one trade line, they’re going to laugh you off the block because you don’t understand behind the 700.
Not All Scores Are Equal
I can have a 600 credit score that’s 10 times more powerful than a 700 with the right meat behind it. And that means that you alone have about at least three to four accounts on there, of which some of those should be primary accounts.
So maybe two primaries, three authorized users, one to two inquiries at most. You want to have a good amount of age, an average of five years of average age across the board.
So do you think something that has three or four accounts on there were two inquiries and two primaries and two [inaudible] on there and it has about a five year average age.
Let’s say that credit score is only 625. That has so much more buying power than putting one trade line on and having even a 750 credit score. You have to understand what… Besides the 700 what is important on top of that.
And those factors that I just talked about are very, very important for strengthening the file.
Not developing relationships with the banks before applying for credit
Now, number five. Number five for you guys is going to be a bonus. I always give you a bonus at the end, just for staying. One thing that I want to tell you about is this, huge mistake that you guys aren’t doing, but this one’s going to spin it into a positive for you.
When you are trying to get credit cards, banks are relationship banks. Most banks are relationship banks. In order to get some credit cards, the mistake you’re making is not opening up a bank account first. I can name all five banks, including Citibank, Chase, Bank of America, Penn Fed and Navy Federal.
Those five banks, if you open up a checking account first before applying for a credit card, you get put into their internal system, you build a banking relationship. It doesn’t have to be that long, two weeks at the most. Then you go back to those companies and say, “Look, I want to open up a credit card.”
Here’s how to develop a relationship with the bank
So go there first, open up a bank account, go back 10, 14 days later and say, “Look, I want to open up a checking account with you guys.” Excuse me, “I want to open up a credit card with the guys.” Your chances of being approved at that point versus just walking into Navy Federal and saying, “Hey, I wanna apply for a credit card,” skyrocket.
So big mistake. If you’re not doing this, make sure you open a bank account first. This will give you the chances of opening up a lot more credit cards, a lot better credit limits, and a much higher approval rate.
Post the comments below if you have any questions about this video or others. I appreciate watching. Until tomorrow, take care.