Home Buying Part 1: Credit Scores with Kyle Seagraves

Katelyn Magnuson: 00:00:15

Hey, welcome back to the confident money podcast.

Katelyn Magnuson: 00:00:18

My name is Caitlin Magnuson and I'm your host.

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We are going to be doing a mini season with Kyle Seagraves Kyle Graves, as a

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certified mortgage advisor, licensed loan originator, and the owner of when the

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house you love a YouTube channel with over a hundred thousand subscribers.

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And I couldn't be more excited to have him here helping you all understand

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the ins and outs of the mortgage industry as it is now and home buying.

Katelyn Magnuson: 00:00:42

So Kyle welcome.

Kyle Seagraves: 00:00:45

And Katelyn, I am excited to go through this series because so much

Kyle Seagraves: 00:00:49

of home buying

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I think is maybe not intentionally confusing on purpose, but it can be

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really confusing and overwhelming.

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And it's nice to break things down into kind of different sections or step-by-step

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through the process to help people feel more confident as they work through it.

Katelyn Magnuson: 00:01:04

Absolutely.

Katelyn Magnuson: 00:01:05

I couldn't agree more and having bought a house right after the last recession.

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I know that things have changed a lot in that time because I then

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purchased again in 2019 and it was a very different ball game.

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And I think it's really different even now, just a couple of years later.

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So.

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Very excited.

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We're going to be talking in this episode about credit and the ins and

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outs of what you kind of need to know.

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What credit scores are, what the ranges are, scoring models,

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soft pulls, and hard poles.

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So, Kyle, I'm going to just let you take the stage here.

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Let's dive face first into credit, which I know.

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A lot of our listeners are probably like, oh God, I don't even know.

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And like, what if the models aren't accurate?

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What if I'm not looking at the right information?

Katelyn Magnuson: 00:01:44

What do I do?

Katelyn Magnuson: 00:01:45

So let's start with what credit scores are and how to go about finding.

Kyle Seagraves: 00:01:51

Yeah.

Kyle Seagraves: 00:01:51

So a credit score, first of all, is just, a model and there's

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several different types of models.

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Just this algorithm that takes into account your financial history

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based on when people give you debt.

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So things like a credit card or a car loan or a student loans,

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different things like that.

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And so there are three different credit scores that every single person has

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a, you have one with Experian, one with Equifax and one with TransUnion.

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So three different credit bureaus as they're called.

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And there's different types of scoring models that lenders will use

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before they approve you for a loan.

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So for instance, a car dealership is going to look at one type of model.

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a mortgage lender is gonna look at another type.

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A credit card company is going to look at another type and unfortunately

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it's complex and confusing, and I wish it was more simple.

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But.

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Ultimately, you don't have to be a credit master to get approved for a loan.

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That's going to save you more money in interest.

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All we need to do is keep a couple things in mind to make sure that,

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our credit is on track to buy a home.

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And if it's off track, there's a couple of things we can do to get a

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little bit back on the right track.

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Really the first thing that you want to do is begin getting a good idea of where

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you're at with your credit, to begin with.

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And so this is where people commonly will go to something like, uh, credit

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karma or credit Sesame, and they'll see their score online for free.

Kyle Seagraves: 00:03:15

Um, and usually they're only going to show you one score, often

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it's Experian, and it's used with what's called a vantage score.

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So there's two big scoring models.

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There's a vantage and there's Franco.

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Vantage is commonly used in the auto world.

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FICO is what's used in the mortgage world now inside of each of those.

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So there's several different vantage scores, several different FICO's and

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ultimately you don't have to know them.

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You don't have to understand what score is being used.

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But it's helpful to understand first that there is a

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difference between these models.

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And so what you see on something like credit karma is going to be

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different than what a mortgage lender might see with your credit score

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and these different scoring models.

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Just look at things a little bit.

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For instance, FICO might look at your payment history

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differently than vantage score.

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My vantage score might look at your average age of credit

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history, uh, than FICO might.

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So when we're looking at these sites that have your credit score like credit

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karma or anything, that's available online for free, you're going to be

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getting what's called a soft poll credit.

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No softball means that this will not impact your credit score at all.

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So you can log on, look at your score for free, um, and have zero

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impact to your credit at all.

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It will not create an inquiry, meaning someone checked your credit

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score that will not happen when you apply for something like an auto loan

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or a credit card or a mortgage you get what's called a hard inquiry.

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And this is where a lender looks at your full credit profile.

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Uh, and it actually puts on a little inquiry onto your.

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Credit report.

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Now inquiries only impact 10% of your credit score.

Kyle Seagraves: 00:04:51

So it's not the end of the world.

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This guy is not going to fall just because you got an inquiry

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put on your credit report.

Kyle Seagraves: 00:04:56

Even though I think a lot of people teach that for some reason.

Kyle Seagraves: 00:04:59

Like if you get an inquiry, it's the worst thing in the world.

Kyle Seagraves: 00:05:01

It really is not.

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But, um, those are the.

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Really the big things that we need to know about credit as we're going

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through this process, you don't have to understand the models and the intricacies.

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We don't have to try to game the system.

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you can go really deep into credit and figure out how these algorithms

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work and try to game them to get higher and higher and higher.

Kyle Seagraves: 00:05:19

But ultimately when, when we're going from, just trying to.

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Optimize your credit to buy a house.

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You don't have to understand the deep complexity of credit.

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If you're wanting to go from like a seven 20 credit score to like an eight

Kyle Seagraves: 00:05:31

20 credit score, then maybe we need to get in the weeds a little bit more

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about like, how did the strategies work?

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But if we're just trying to say, we think we're in the mid six

Kyle Seagraves: 00:05:38

hundreds, but we want to buy a home.

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We don't really need to understand the intricacies here.

Kyle Seagraves: 00:05:44

So the confusing part for a lot of people though, is.

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When they log on to credit karma, they see their soft, poll credit

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score and they only see one, but then they talk to a lender and that credit

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score likely is going to be different than what they saw on credit karma.

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And often it usually ends up being around 20 points, lower than a mortgage

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lender will see your credit score than what they see on credit karma.

Kyle Seagraves: 00:06:08

And so what we can use credit karma for is, or any softball

Kyle Seagraves: 00:06:11

site, is tracking the momentum.

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Of the credit score.

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We don't actually care about the number specifically, whether it's a six 20 or

Kyle Seagraves: 00:06:18

6 34, whatever that number exactly is.

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We just want to see are the habits that we're doing with paying back

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debt and spending money increasing the credit score or lowering it.

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because we won't obviously want that to continue increasing

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if that's, uh, where we.

Katelyn Magnuson: 00:06:33

Now for anyone here, that's listening tile.

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What's the whole reason for them to be increasing or

Katelyn Magnuson: 00:06:38

improving their credit score?

Katelyn Magnuson: 00:06:40

You know, what's the impact to them when it comes to their mortgage.

Kyle Seagraves: 00:06:44

Yeah, the first thing is, being eligible to get a loan.

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So all different loans have different minimum credit scores just to be eligible.

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And then after we're eligible for.

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Uh, the higher, the credit score that we have, the easier it is to get approved and

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the better terms that we're going to get.

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So somebody with a six 20 credit score is going to get a higher

Kyle Seagraves: 00:07:05

interest rate on their loan than somebody with a seven 20 credit score.

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Now that adds up to thousands, possibly tens of thousands of dollars

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over the lifetime of a mortgage.

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So just making small changes even over the next six months to increase their

Kyle Seagraves: 00:07:19

credit score could literally save you tens of thousands of dollars just in India.

Kyle Seagraves: 00:07:24

So with the eligibility side of seeing, how do we qualify for a loan?

Kyle Seagraves: 00:07:29

Um, there are four main types of loans that we're going to cover that in a

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future episode, some little more in detail of these types of loans, but we have

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conventional loans, FHA, VA, and USDA.

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So the minimum for conventional loan, this is the standard.

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What most people get, uh, and gives the best term.

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It's a six 20 credit score.

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So we need to be above the six 20, ideally with a conventional loan.

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You want to be above a six 80 to get better interest rates, but six 20 will

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allow you to be eligible for that loan.

Kyle Seagraves: 00:07:57

Something like FHA, the minimum is actually all the way down to a 500 credit

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score, but you would have to put 10% down,

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which is usually a bit of a

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struggle.

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if you have a five 80 credit score, you can do three and a half.

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VA and USDA also very similar.

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They allowed down to a 500 credit score with 0% down.

Kyle Seagraves: 00:08:18

Now obviously 500 credit score, in that range of below 600, that loan is

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very difficult to do, and it's difficult to find lenders that will do that.

Kyle Seagraves: 00:08:28

So a really good target, I think for most.

Kyle Seagraves: 00:08:31

Is, uh, 6 46, 40 and above is going to allow you to be eligible for

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pretty much all those four loans.

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And there's a couple outside of those four that, get a little bit more nuanced,

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but six 40 and above will allow you to qualify for the four main types of loans.

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Then we'll start giving you better terms.

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Obviously the higher, the credit score, the better, One of the things

Kyle Seagraves: 00:08:52

that I think people can get stopped up with is they won't move forward

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with buying a house because they might be at that six 40 range.

Kyle Seagraves: 00:09:00

And they're like, well, we want to actually wait a few months to

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raise our credit score to seven 20 or whatever, to then buy a house.

Kyle Seagraves: 00:09:08

The problem with that though, especially in a market like this is when homes are.

Kyle Seagraves: 00:09:12

So quickly, right over past 30 years, 4% is the average appreciation.

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Over the past three years, we've been seeing close to 20 to 30%

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appreciation on homes when that's happening, missing out on buying a home.

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Forces you to lose out on that potential appreciation.

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So even though you could have saved more interest in the future, you

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did miss out on some appreciation.

Kyle Seagraves: 00:09:35

So I think six 40 is a really good target to then say, great.

Kyle Seagraves: 00:09:39

Now we want to go ahead and apply with a lender and see what our

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options are to then begin, decide if we want to move forward with that.

Katelyn Magnuson: 00:09:46

okay.

Katelyn Magnuson: 00:09:46

No, that makes total sense.

Katelyn Magnuson: 00:09:48

And if someone is looking.

Katelyn Magnuson: 00:09:50

To move forward and let's say they've been checking, you know, I know that Wells

Katelyn Magnuson: 00:09:53

Fargo provides me with a credit monitoring option that can kind of show me where

Katelyn Magnuson: 00:09:57

I'm fluctuating and what it looks like.

Katelyn Magnuson: 00:09:59

So in what you just explained, if they're generally generally looking at around

Katelyn Magnuson: 00:10:04

20 points lower, when there's a hard poll, are we actually wanting them?

Katelyn Magnuson: 00:10:08

If they're tracking their score and looking at that soft pool, are they

Katelyn Magnuson: 00:10:11

wanting to be closer to six 60, give or take to then be in the 6 46.

Kyle Seagraves: 00:10:16

Yeah.

Kyle Seagraves: 00:10:16

I think that that's a perfect way to look at it.

Kyle Seagraves: 00:10:18

And really it's, it's hard.

Kyle Seagraves: 00:10:20

I wish credit was a lot simpler where we could actually see that score.

Kyle Seagraves: 00:10:24

and it, it wasn't as you know, these different models and such, because,

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you know, for example, like my credit score is in the seven hundreds and

Kyle Seagraves: 00:10:30

I, I just applied for a mortgage.

Kyle Seagraves: 00:10:32

but when I look on softball sites, it sits at like six 80.

Kyle Seagraves: 00:10:35

When I know my credit score is like mid seven hundreds.

Kyle Seagraves: 00:10:37

So it has actually the opposite

Kyle Seagraves: 00:10:39

in

Katelyn Magnuson: 00:10:39

is as well.

Katelyn Magnuson: 00:10:40

I was surprised that you said that it's normally lower because mine

Katelyn Magnuson: 00:10:42

has always been lower on the soft pools and higher on the hard poles,

Katelyn Magnuson: 00:10:46

which is a pleasant surprise.

Katelyn Magnuson: 00:10:47

Right?

Kyle Seagraves: 00:10:48

it is a pleasant surprise.

Kyle Seagraves: 00:10:48

And so you know that at minimum, if we on the softball side, it's where we want it.

Kyle Seagraves: 00:10:54

Ideally, it's going to be that way for the mortgage side.

Kyle Seagraves: 00:10:56

And that's why I think the soft pull side, those free sites are really

Kyle Seagraves: 00:10:59

great at checking the momentum rather than the score itself.

Kyle Seagraves: 00:11:02

There's only one place that you can get your credit score, uh,

Kyle Seagraves: 00:11:06

that shows you exactly what the.

Kyle Seagraves: 00:11:08

What Paul and that's on my fico.com because that's actually the FICO

Kyle Seagraves: 00:11:12

company that creates the scoring models, to be able to do that.

Kyle Seagraves: 00:11:15

But ultimately, like, don't feel like you're in the dark with this,

Kyle Seagraves: 00:11:19

and it has to be a guessing game.

Kyle Seagraves: 00:11:21

You can apply with a mortgage lender for free, go through the pre-approval process,

Kyle Seagraves: 00:11:26

or even just talk to somebody and say, I'm interested in what my credit is.

Kyle Seagraves: 00:11:29

could you pull it?

Kyle Seagraves: 00:11:30

It happens.

Kyle Seagraves: 00:11:32

You will get an inquiry on your score, but an inquiry, most people don't realize only

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changes their score zero to five points.

Kyle Seagraves: 00:11:39

So worst case scenario, it would drop at five points and you actually have

Kyle Seagraves: 00:11:42

45 days to shop for lenders after that.

Kyle Seagraves: 00:11:46

So if you're at the point where you're like, I'm close, but I'm on the line.

Kyle Seagraves: 00:11:49

I'm not sure.

Kyle Seagraves: 00:11:51

Go ahead and talk with a mortgage lender and have them see what your actual

Kyle Seagraves: 00:11:54

score would be that they would use.

Kyle Seagraves: 00:11:56

Um, because.

Kyle Seagraves: 00:11:57

The cost of doing that is so low compared to waiting longer and longer, just

Kyle Seagraves: 00:12:03

because you aren't sure how your soft score will relate to your heart score.

Katelyn Magnuson: 00:12:07

Right.

Katelyn Magnuson: 00:12:07

And I think the more knowledge you can have here, definitely the more power that

Katelyn Magnuson: 00:12:10

you have to make empowered decisions.

Katelyn Magnuson: 00:12:12

And with that, I know that a lot of the clients that I chat with and a

Katelyn Magnuson: 00:12:16

lot of the listeners here have raised concerns that, you know, maybe they're

Katelyn Magnuson: 00:12:20

following Dave Ramsey, or maybe they've just had that drilled into their head

Katelyn Magnuson: 00:12:23

because we're millennials and we love avocado toast and how dare we be buying

Katelyn Magnuson: 00:12:26

lattes, but that we shouldn't have debt.

Katelyn Magnuson: 00:12:30

You know, debt is horrible.

Katelyn Magnuson: 00:12:31

Debt is a bad thing with the exception sometimes.

Katelyn Magnuson: 00:12:35

Home loans or mortgages.

Katelyn Magnuson: 00:12:37

But with that, I know a lot of people that I chat with are concerned that they have

Katelyn Magnuson: 00:12:40

to have all of their student loans paid off all of their credit card debt gone,

Katelyn Magnuson: 00:12:43

you know, all of their car loans paid off.

Katelyn Magnuson: 00:12:44

So when it comes to, you know, looking to apply for a mortgage or qualify, do they

Katelyn Magnuson: 00:12:50

need to be debt free when they're coming in and you know, how has that factor.

Kyle Seagraves: 00:12:53

Yeah.

Kyle Seagraves: 00:12:54

So I think with any financial decision, one of the best places to

Kyle Seagraves: 00:12:57

start is internally, because there's so much emotionally packed into the

Kyle Seagraves: 00:13:03

decisions we're making about finance, because they're usually not legit.

Kyle Seagraves: 00:13:06

And based on numbers, they're actually built on a lot of shame.

Kyle Seagraves: 00:13:09

So a lot of people have shamed us into making should

Kyle Seagraves: 00:13:13

statements about our finances.

Kyle Seagraves: 00:13:14

So anytime you start with evaluating, what should I do next with my finances?

Kyle Seagraves: 00:13:19

And it starts with, I should be doing this.

Kyle Seagraves: 00:13:21

Let's take just like maybe a day or two to see where, where did I hear that?

Kyle Seagraves: 00:13:26

Is this rooted in the level of shame coming in?

Kyle Seagraves: 00:13:29

Because things like I should be debt free before I buy a house.

Kyle Seagraves: 00:13:33

Isn't really based on a lot of logic or financial data.

Kyle Seagraves: 00:13:37

It's based on a lot of shame around, oh, I shouldn't have debt.

Kyle Seagraves: 00:13:40

Okay.

Kyle Seagraves: 00:13:41

The should, let me figure out where did the should come from?

Kyle Seagraves: 00:13:43

is that actually true?

Kyle Seagraves: 00:13:45

So you absolutely can qualify for a loan and be really successful financially

Kyle Seagraves: 00:13:52

with student loans, with auto loans, with a mortgage and with credit.

Kyle Seagraves: 00:13:58

Absolutely possible and possible to be financially successful with those as well.

Kyle Seagraves: 00:14:03

Now, then it comes down to a matter of preference.

Kyle Seagraves: 00:14:06

Are these the things that I want, that's a different conversation.

Kyle Seagraves: 00:14:08

You can have a preference of saying, I don't want to have

Kyle Seagraves: 00:14:10

this type of debt for me.

Kyle Seagraves: 00:14:12

I think, what is best is the only debt that I am hesitant about people

Kyle Seagraves: 00:14:18

having before they buy a house is if they have a credit card with

Kyle Seagraves: 00:14:22

a large balance that they can't.

Kyle Seagraves: 00:14:24

If you have a credit card, that's sitting probably close to like 20 to 25% interest.

Kyle Seagraves: 00:14:29

Even if it's a 10, 15, these are really high interest payments.

Kyle Seagraves: 00:14:33

And it's not a credit card that you're using for points and paying off cyclical.

Kyle Seagraves: 00:14:37

If you're, if it's like continuing to grow to me, it's not only is

Kyle Seagraves: 00:14:42

the cost of that credit card.

Kyle Seagraves: 00:14:43

It can be significant and we could use money to pay that down, but

Kyle Seagraves: 00:14:47

it also can be an indication of maybe, uh, where we're at financial.

Kyle Seagraves: 00:14:51

Um, we're not ready to take on all the other costs of buying house.

Kyle Seagraves: 00:14:56

So that's the only instance in which I would say if you have credit card

Kyle Seagraves: 00:14:59

debt that keeps accumulating, maybe we'll look at addressing that before we

Kyle Seagraves: 00:15:04

then start to look at buying a house.

Katelyn Magnuson: 00:15:06

Right.

Katelyn Magnuson: 00:15:06

Which makes total sense because that can speak to the general financial

Katelyn Magnuson: 00:15:09

situation, not the credit card debt itself being bad, but the reason behind why.

Katelyn Magnuson: 00:15:14

Increasing or credit card debt.

Katelyn Magnuson: 00:15:17

That's just sitting there stagnant, not getting paid off, which makes complete

Katelyn Magnuson: 00:15:20

sense because it shows that maybe you're not making enough or maybe you have

Katelyn Magnuson: 00:15:24

money going out in other directions, or you're just not quite comfortable

Katelyn Magnuson: 00:15:28

financially with where you are right now.

Katelyn Magnuson: 00:15:30

I'm a really big proponent.

Katelyn Magnuson: 00:15:31

I bought our current house with a car loan, no student loans, but a

Katelyn Magnuson: 00:15:35

car loan, some credit card debt.

Katelyn Magnuson: 00:15:37

And.

Katelyn Magnuson: 00:15:38

I don't regret it.

Katelyn Magnuson: 00:15:39

Like that's just a

Katelyn Magnuson: 00:15:40

tool for me.

Kyle Seagraves: 00:15:42

Right.

Kyle Seagraves: 00:15:42

Absolutely.

Kyle Seagraves: 00:15:43

Yeah, it's the same for me.

Kyle Seagraves: 00:15:45

I have student loans.

Kyle Seagraves: 00:15:46

I have an auto loan.

Kyle Seagraves: 00:15:48

Uh, I have credit card debt that I pay off every single month, but it

Kyle Seagraves: 00:15:50

doesn't continue to sit there and grow.

Kyle Seagraves: 00:15:52

And I think too, with buying a house, you're responsible

Kyle Seagraves: 00:15:56

for the cost of that as well.

Kyle Seagraves: 00:15:58

So if something happens with your furnace, even just the general cost of moving into

Kyle Seagraves: 00:16:02

a home, uh, if you're looking at know changing locks and handles and fixtures

Kyle Seagraves: 00:16:06

and paint and everything else that goes with it, you don't want to start

Kyle Seagraves: 00:16:10

putting all those expenses on a credit.

Kyle Seagraves: 00:16:13

If you're already using a credit card to pay for just the general cost of life.

Kyle Seagraves: 00:16:18

Uh, it's just going to continue to grow that problem.

Kyle Seagraves: 00:16:21

If I have to pay interest on all the things that I'm

Kyle Seagraves: 00:16:23

doing with buying this house.

Katelyn Magnuson: 00:16:25

Right.

Katelyn Magnuson: 00:16:25

No, I, I couldn't agree more so, and I really loved your point

Katelyn Magnuson: 00:16:30

that you brought about the sheds.

Katelyn Magnuson: 00:16:31

I think sitting and taking a second to really assess, you know, we have all

Katelyn Magnuson: 00:16:34

those limiting beliefs or all those ingrained beliefs that will pop up,

Katelyn Magnuson: 00:16:37

you know, from family, from the media, from people we followed from anything.

Katelyn Magnuson: 00:16:42

What do you actually want?

Katelyn Magnuson: 00:16:43

Because if something's not actually bothering you or actually hindering

Katelyn Magnuson: 00:16:47

you, and it's just you feeling this shame or this guilt or this lack

Katelyn Magnuson: 00:16:52

around, well, I shouldn't be doing that.

Katelyn Magnuson: 00:16:54

I should be, you know, the, yeah.

Katelyn Magnuson: 00:16:56

But what do you actually want?

Katelyn Magnuson: 00:16:57

What matters to you?

Katelyn Magnuson: 00:16:57

What's important to you?

Katelyn Magnuson: 00:16:59

And

Katelyn Magnuson: 00:16:59

if the, you know, if you're in a spot, I think that so many people,

Katelyn Magnuson: 00:17:03

when I bought my first house, I was shocked at how quickly I could buy.

Katelyn Magnuson: 00:17:07

I was a 19 year old kid.

Katelyn Magnuson: 00:17:10

You know, a bunch of jobs and like had to pull alternative.

Katelyn Magnuson: 00:17:12

Actually, I want to talk about that.

Katelyn Magnuson: 00:17:14

I had to pull alternative credit sources because I was 19.

Katelyn Magnuson: 00:17:17

And I had like two years of credit history.

Katelyn Magnuson: 00:17:19

I don't know how much experience you have with this Kyle, but for anyone

Katelyn Magnuson: 00:17:22

that's younger, that's listening or maybe they've been debt free for

Katelyn Magnuson: 00:17:24

years and they don't have established credit cards or they don't have,

Katelyn Magnuson: 00:17:28

you know, a lot of credit history.

Katelyn Magnuson: 00:17:29

What options are there for people that need alternative sources

Katelyn Magnuson: 00:17:32

of credit to prove credit?

Kyle Seagraves: 00:17:35

Yeah.

Kyle Seagraves: 00:17:36

So on a conventional loan, the ideal, and we can get into this more when

Kyle Seagraves: 00:17:40

we talk about, uh, you know, the different loan types, but the ideal is

Kyle Seagraves: 00:17:43

to have a two year history of credit.

Kyle Seagraves: 00:17:45

Um, I've done quite a few loans for people where they are 18, 19, and they, you know,

Kyle Seagraves: 00:17:50

they just recently got a credit card or maybe they only have a couple, uh, they

Kyle Seagraves: 00:17:55

have one credit card and that's about it.

Kyle Seagraves: 00:17:59

It'll look at it and be like, okay, this is what we would call thin credit.

Kyle Seagraves: 00:18:03

FHA loans are going to be a lot more lenient on things like that.

Kyle Seagraves: 00:18:07

whereas conventional loans usually want a two year history and usually it works

Kyle Seagraves: 00:18:11

best if you have two to three different types of accounts, so maybe a couple of

Kyle Seagraves: 00:18:15

credit cards, um, and then maybe you have your rent reported on your credit report,

Kyle Seagraves: 00:18:20

um, which is really helpful to do so.

Kyle Seagraves: 00:18:22

In those instances, with somebody who has a thin credit profile,

Kyle Seagraves: 00:18:25

there's a couple different options.

Kyle Seagraves: 00:18:26

One is you can look at something like an FHA loan, FHA loans are

Kyle Seagraves: 00:18:29

usually more expensive long-term so it's not my first option.

Kyle Seagraves: 00:18:34

You could look at adding a co-borrower.

Kyle Seagraves: 00:18:35

So somebody with more credit history that could be added on the loan to

Kyle Seagraves: 00:18:39

help support the fact that, uh, you know, there's a backup plan if needed.

Kyle Seagraves: 00:18:44

Another thing is what are called trade lines or alternative credit,

Kyle Seagraves: 00:18:47

like you mentioned, and what these are is, uh, things that aren't reported

Kyle Seagraves: 00:18:51

on your credit report, but they do.

Kyle Seagraves: 00:18:54

That you can pay stuff on time.

Kyle Seagraves: 00:18:56

So these are things like utility bills, um, your rental

Kyle Seagraves: 00:18:59

history, uh, insurance payments.

Kyle Seagraves: 00:19:02

If you can prove that those have been paid over something like 12 months on

Kyle Seagraves: 00:19:06

time, then those can be added into your credit profile as an additional tradeline.

Kyle Seagraves: 00:19:11

It's just not reported on your credit report.

Kyle Seagraves: 00:19:13

The only issue here is that when we do that, we get into what's called

Kyle Seagraves: 00:19:17

manual underwriting, and usually you have a higher interest rate.

Kyle Seagraves: 00:19:21

That's going to be.

Kyle Seagraves: 00:19:23

On that because it's more risky.

Kyle Seagraves: 00:19:24

most loans, the way that they are given an approval is actually

Kyle Seagraves: 00:19:27

through a computer software, a loan officer's going to take your whole

Kyle Seagraves: 00:19:31

application, put it into a software.

Kyle Seagraves: 00:19:33

It's going to do all of its thousands of different data

Kyle Seagraves: 00:19:36

points on is this risky or not?

Kyle Seagraves: 00:19:38

And it's all based on stuff that nobody knows about.

Kyle Seagraves: 00:19:40

Like nobody's told what are all the little data points of

Kyle Seagraves: 00:19:43

what works and what doesn't.

Kyle Seagraves: 00:19:45

So it's going to come back and say like the thumbs up, thumbs down.

Kyle Seagraves: 00:19:48

If it's thumbs down, you can do a manual.

Kyle Seagraves: 00:19:51

Where a human is going to take a deeper look at us and see, can we check off all

Kyle Seagraves: 00:19:56

the boxes that this is going to be less risky for us, but there's still a level of

Kyle Seagraves: 00:20:00

risk because the economy on the secondary market really likes when the computer

Kyle Seagraves: 00:20:05

software gives a thumbs up because it checks so many different things.

Kyle Seagraves: 00:20:09

Uh, so when the loan is more risky, because we have to use things like

Kyle Seagraves: 00:20:12

these additional trade lines, We're kind of veering off the path of a

Kyle Seagraves: 00:20:17

more traditionally approved mortgage user going to pay a higher interest

Kyle Seagraves: 00:20:21

rate because that loan is more risky.

Kyle Seagraves: 00:20:23

So it's something to be mindful of.

Kyle Seagraves: 00:20:25

I think being debt free is great, but you can also have an incredible credit

Kyle Seagraves: 00:20:31

score without paying a diamond interest.

Kyle Seagraves: 00:20:33

Like, uh, so I don't understand why we would try to throw away a credit score

Kyle Seagraves: 00:20:38

when it actually will cost us more money on something like a mortgage.

Kyle Seagraves: 00:20:41

It's very easy to have a credit.

Kyle Seagraves: 00:20:43

Just assign it to gas and one credit card assigned to groceries, and I pay

Kyle Seagraves: 00:20:47

those off every month and it can help you maintain a 700 plus credit score

Kyle Seagraves: 00:20:52

without paying a single diamond interest.

Katelyn Magnuson: 00:20:54

Absolutely.

Katelyn Magnuson: 00:20:55

I couldn't agree more.

Katelyn Magnuson: 00:20:56

Yeah.

Katelyn Magnuson: 00:20:56

I was that exact scenario that you described when I went to go look at

Katelyn Magnuson: 00:20:59

buying and I was 19, I had no auto loan.

Katelyn Magnuson: 00:21:01

I had no student loans.

Katelyn Magnuson: 00:21:02

I had one credit card that I think I might've had for like

Katelyn Magnuson: 00:21:04

a year, a year and a half.

Katelyn Magnuson: 00:21:06

And they were like, we don't know.

Katelyn Magnuson: 00:21:09

and it was great.

Katelyn Magnuson: 00:21:09

I mean, I ended up the loan officer that I'd worked with at the time.

Katelyn Magnuson: 00:21:12

And, uh, we can chat about this in a later one, but, um, had mentioned

Katelyn Magnuson: 00:21:16

that like, most people are looking to either buy or refinance within

Katelyn Magnuson: 00:21:18

the first three to five years.

Katelyn Magnuson: 00:21:19

So by that time, if I was looking to do that, I would have a much

Katelyn Magnuson: 00:21:23

more established credit history.

Katelyn Magnuson: 00:21:24

I was really happy with it.

Katelyn Magnuson: 00:21:25

It was barely more than rent, but again, this was 2010.

Katelyn Magnuson: 00:21:28

It was a very different market and it was kind of a lovely, it's a lovely

Katelyn Magnuson: 00:21:31

time to be building equity in a house.

Katelyn Magnuson: 00:21:33

So any other kind of wisdom or parting thoughts on credit?

Katelyn Magnuson: 00:21:39

Because I feel like this was a very thorough episode.

Katelyn Magnuson: 00:21:45

Most people, I think, think that they have to have high credit

Katelyn Magnuson: 00:21:48

scores, you know, 7 27, 40 plus.

Katelyn Magnuson: 00:21:51

And I think that that's kind of debunked.

Katelyn Magnuson: 00:21:53

Some of that, that you can get started sooner, even if it's a little bit

Katelyn Magnuson: 00:21:56

more expensive interest rate wise, or even if you haven't finished

Katelyn Magnuson: 00:21:59

paying your debt off because you can potentially be getting a home and

Katelyn Magnuson: 00:22:03

capturing some of that appreciation rather than waiting until late.

Kyle Seagraves: 00:22:07

Yeah, absolutely.

Kyle Seagraves: 00:22:08

You can get.

Kyle Seagraves: 00:22:10

Wait earlier.

Kyle Seagraves: 00:22:10

I think that a lot of people realize you do not have to have perfect

Kyle Seagraves: 00:22:13

credit, because for a lot of people, and this has been true of a lot of my

Kyle Seagraves: 00:22:16

clients is I've worked with clients.

Kyle Seagraves: 00:22:19

I'm a, down to a five 14 credit score to mid six hundreds and they wanted

Kyle Seagraves: 00:22:24

to wait and they were so glad that they actually move forward, buying a

Kyle Seagraves: 00:22:27

house, build up their credit score, qualified for even cheaper loan because

Kyle Seagraves: 00:22:31

the house value went up so much.

Kyle Seagraves: 00:22:33

The one last thing I would say, and this isn't directly related

Kyle Seagraves: 00:22:35

to credit, but happens, I think.

Kyle Seagraves: 00:22:38

Around these credit conversations that, uh, and just money in general, especially

Kyle Seagraves: 00:22:42

kind of going with like the sheds and the shame is that what I've realized

Kyle Seagraves: 00:22:47

has been helpful, I've kinda made the switch recently is I stopped talking

Kyle Seagraves: 00:22:50

about money with people like, especially kind of being in the entrepreneur.

Kyle Seagraves: 00:22:55

I have a lot of entrepreneur friends, and it's amazing how battlefield after

Kyle Seagraves: 00:23:00

a phone call with a friend of mine and we're, you know, we're talking about

Kyle Seagraves: 00:23:03

numbers and stuff, but it's like, no matter what happens, there's a level

Kyle Seagraves: 00:23:07

of that shame that kind of kicks in.

Kyle Seagraves: 00:23:08

And ultimately it's usually not helpful to have these conversations about

Kyle Seagraves: 00:23:12

exactly where you're at with somebody who's like friends or family, because

Kyle Seagraves: 00:23:17

it often can come with bad advice.

Kyle Seagraves: 00:23:18

Um, or it can introduce these elements of like shame or you should

Kyle Seagraves: 00:23:23

be doing this or, or whatever.

Kyle Seagraves: 00:23:25

I think we can talk around the concepts of money without

Kyle Seagraves: 00:23:28

talking about our own financial situation and what I found for me.

Kyle Seagraves: 00:23:32

And I think for a lot of people, is that when we stop oversharing, I think some

Kyle Seagraves: 00:23:36

of the finance stuff with people who may not be experienced enough to be able to

Kyle Seagraves: 00:23:41

help us actually walk through something, uh, it can help give you a lot more.

Kyle Seagraves: 00:23:47

So save those conversations for people who actually have valuable things to say

Kyle Seagraves: 00:23:50

and have a track record of that before we expose ourselves to, uh, hearing

Kyle Seagraves: 00:23:56

the advice that maybe isn't super solid

Kyle Seagraves: 00:23:58

season-3-win-the-house-you-love_recording-1_2022-06-02--t06-49-00pm--guest617609--kyle-seagraves: from

Kyle Seagraves: 00:23:58

them.

Katelyn Magnuson: 00:23:59

I could not agree more.

Katelyn Magnuson: 00:24:01

And that's something that I've implemented in my life a lot where I'm going to pay an

Katelyn Magnuson: 00:24:05

expert or talk with an expert in the area that I'm looking to make a decision in.

Katelyn Magnuson: 00:24:09

If I feel the need to, I'm not educated.

Katelyn Magnuson: 00:24:11

And then I will form my own opinions.

Katelyn Magnuson: 00:24:13

My own decisions decide what's right for me.

Katelyn Magnuson: 00:24:16

And then maybe notify the people around me or, you know, if that needs to be done.

Katelyn Magnuson: 00:24:19

But I think that so often we look for external validation and thoughts that

Katelyn Magnuson: 00:24:24

it can muddy our internal mental waters.

Kyle Seagraves: 00:24:27

Yeah, yeah,

Katelyn Magnuson: 00:24:28

Well, Kyle, thank you.

Katelyn Magnuson: 00:24:30

Next episode.

Katelyn Magnuson: 00:24:31

We're gonna be talking all about different types of loans and

Katelyn Magnuson: 00:24:34

diving really deep into those.