Improving Credit Score As A First Time Home Buyer to Purchase a Home | How to Buy a Home Podcast #56

Warning, warning, warning. Today's episode teaches you a hack that, yes, it can increase your credit score by 100 points or more in 45 days. And yeah, you get extra money for your down payment. In the example that we're going to look at today, it's an extra 20,000 bucks. Now, if you think that sounds like a scam, good, that means that you're smart. Nothing in the financial world can be that simple or that easy without some trade offs. But if you're paying high rents, the math on this trade off might really work out for you. Time for an advanced finance episode of how to Buy a Home. Hey, what's good? Welcome to the how to Buy a Home podcast. I'm David Sidoni and many of you know me as the man with the plan for you to buy a home. And today, that plan is key. If you ask most realtors and lenders, hey, I want to buy a home. How do I do that? Well, they're going to instantly say to you, okay, let's get you pre approved and then we get your number and then we'll go out there and we'll get you a home. That's it. And that means that you are literally a number. And once again, I'd like to emphasize for all you out there, that is the correct way to use the term literally. For the love of God, stop saying you literally died. You literally could eat a horse or you literally would have sexual relations with your dessert. Unless you really would. And if that's the case, hey, no judgments here. You do. You just don't film it and put it on TikTok. Nobody wants to see that. Oh, I don't know, maybe they do. Only fans.

Hmm.

What the hell just happened? This was supposed to be the advanced episode for people looking for high level content, and I went on that rant. Well, I've just proven that in order to get this advanced level content, we obviously have to bring somebody else in. It's not going to be me tonight. Okay, let's listen to the expert. A man who for the past four years, when he figured out how to make this work, he's been finding and using this financial loophole to help wannabe first time home buyers who are in debt and with low credit scores make some enormous changes to help them be in a position to buy a home much faster than if they paid off their debt in the traditional way while raising your credit scores over 100 points. And in the example you're about to hear, adding an extra $20,000 for the down payment now you got to listen to this thing straight through, listen to the end. Doing that is not free. All right, there is a trade off, but it's not going to cost you any money up front. It's going to lower your monthly debt payments by huge amounts. And for many of you, by taking on this new smart guy debt, this equation may benefit you in the long run for years and years. Because the other side of the coin would be that you're still paying the balance of your debt while you're trying to save money, while you're still trying to pay your rent. And all those things don't jive together. The task seems impossible and the math is stacked against you. So now let's hear from the man, Mr. Dino Katziemettis, my Greek brother from another mother. All right, well, as promised, he's the lender extraordinaire, the man, the myth, the legend. We're very excited to have Dino back. Thank you so much for joining us today.

Yeah, so glad to be here.

As many of you know, if you've listened to the podcast, Dino is one of my Southern California major, big time colleagues and we've been working together for a long time and we're always talking about what's going on and we're always trying to kind of help strategize for these first time homebuyers. And one of the things that we're finding is it can get pretty complicated. But if you, if you've listened to the podcast, you understand doing potentially lower down payments. You realize when you do those lower down payments, one of the variables in your new equation is going to involve pmi. And Dino, explain to us how the difference is if you are doing pmi, what your credit score is going to do to how much you pay.

So it's really a huge factor in determining how much your PMI is going to be. Credit scores work in 20 point increments, so let's call it 6807-007207-40760. Every 20 points, your PMI will drop. Now, maybe not all banks are like this, but the good ones are. And the majority that I work with are. And obviously the higher your credit score, the cheaper your pmi. And to give you an example, these are just rough numbers, but I bet you anything if you had a 680 credit score as opposed to a 760, you could see a half, half reduction. So if the PMI was say $200 a month, I bet you it'd be a hundred dollars a month. With a 760 credit score. So credit score is ultra important. Not to mention you get a better rate on top of it.

Yeah. So I. We kind of dove right in there. We went right into the advanced level. We skipped 101, and we went to. We went to. To credit senior year. But there's a reason for that, is because what we're talking about is something a little bit different. Everybody knows and understands that the credit scores are important. Now, Dean, let's. So let's go back to the basics. If you're applying for a home and you've got a 680 credit score or even a 640 credit score, you can still get a home loan, correct?

Absolutely. There's. There's so many different varieties. Right. It's like a buffet. When you're getting. When you're getting a loan, the. The question is, is, are you at the cheap buffet or the expensive buffet? Expensive buffet has the better crab legs. Right. The kind that you don't have to break open 20 of them just to get a little bit of meat.

Yep.

Break open that one. So what I mean by that is, is your credit score needs to be good. It doesn't have to be, but it should be. And the reason why it should be is because you're going to get the much, much better loan. You're going to have way more options. It's like being at the better buffet. And we have certain techniques. Right. I think it's silly that when a lender runs your credit and they say, this is your credit score and this is how you move forward from that day on. Instead, how about taking a step back? Because everything you preach is about getting prepared to buy a home. It doesn't have to be right this second. You just need to get moving on it and get prepared. And you do that by working with the right people, the right team. The unicorns, I think you call them, Right?

Yes.

And if you're a unicorn.

You didn't know, bro.

I didn't know.

You didn't know. Okay, I'll get you your horn later.

All right, I'll take it. So. So preparing and taking a step back can save you thousands of dollars and make the entire experience that much better.

Now, you and I have talked about this, so I know where we're going with this. To continue your buffet metaphor, what Dino and I have talked about, and something that he's been doing with some of his buyers is basically going to the cheap crab leg buffet, realizing you're at the cheap crab leg, and the $4 prime rib, which scares the heck out of me when I know they want you to gamble, but come on. No way. But what we've done is, Dino told me, hey, I found a way that I know how you can go in the back door of the kitchen and talk to the chef. He's my buddy. And he'll just give you lobster for free. It's another trick for your credit score, something that we talk about in episodes three and episodes eight. But this is a huge trick for your credit score. The, this is the big reveal. Dino, tell us about what you, what you've been doing recently.

So I've been doing it now for probably about three or four years. We couldn't necessarily do it in the old days cause it didn't exist. It wasn't as, as readily available. But now there's this entire market out there for personal loans. Right. We got Lending Club and Sofi and all these different places. You can just go online, apply for a personal loan and then within minutes you can have an answer if you qualify or not. It's unsecured. It's typically a little bit of a higher interest rate. It's going to be based off of your credit score. And, and by having it's. It's called an installment loan. It's personal loan. It's an installment loan on your credit report as opposed to revolving debt on your credit report.

So and for everyone out there, what's revolving debt? That what everyone would normally assume is revolving debt.

So there's two different kinds of debt. Right. Revolving is your credit card debt.

Okay.

It's, it's versus installment is like a car loan, a student loan, which is really important to know. Right?

Yeah.

And a personal loan, an installment loan is going to have a definitive ending date. Right. Maybe it's a five year loan. It's going to have a fixed interest rate usually. Yep. And it's going to have a fixed monthly payment from the first date to the end date. And you know, you know when you're going to have your loan paid off. A revolving debt is like the credit card that is never ending. It's got that minimum monthly payment, but yet somehow, you know, it's, it's, it's. I mean it's going to cost you thousands of dollars.

Yeah.

Because you just let it keep going. So having revolving debt will affect your credit score greatly. And it's not uncommon. I see it all the time for people to have five different credit cards with debt on it. Sure. So number one, managing five different debts is a Lot of work. Yeah. It's not easy. Interest rates on revolving credit cards. Credit cards is usually much higher. Oftentimes they're disguised with zero percent interest or, you know, the first six months is, you know, 1.99% or something. But if you look closely, the vast majority of them, like 28%. Yep. And. And it's never ending, which means you're never going to get out of debt.

Yeah.

So our number one goal, that secret sauce that you were talking about, is to get people out of the revolving debt and into installment debt. And, and ideally, look, if you can go to mom and dad or a rich uncle, say, I need $10,000 to pay off my credit cards, great, do it. But if that doesn't exist, if you're not one of those very blessed people in life that you can just go to somebody and ask for money, then you have to get a little more creative. So here's an example, right? This is a real life example of one of my clients.

Okay?

He had $10,000, give or take a little, let's call it 10 grand worth of debt, credit card debt. He had $10,000 saved up in savings because he wanted to buy a house. It was his number one goal. And I looked at it and said, dude, you got, you got $10,000 in credit card debt. That's just drowning you. And how, you know, how about just paying that off? He's like, no way I want to buy a house. I don't care. I said, okay. So he had a 660 credit score because he was maxed out on all his cards. And, and he had $10,000 in savings and he wanted to buy a house.

Okay, so the 660 for the folks out there is. You're talking about this 20 point tiers. 660 is about the third or fourth tier on the bottom. So he needed to go 680, 700, 720, 740. He needed to jump up a few tiers.

And don't get me wrong, you can still get a loan.

Yes, absolutely.

But listen to what happens now when you do this the right way. So I said, okay, well, 10 grand's not enough to buy a house in Southern California as a down payment.

Correct.

All right, so you need more money. Do you have anybody you can go to? He said, no. I said, okay, here's what I want you to do. I want you to go to any one of these online personal loan banks.

And this is the new phenomenon.

It's the new thing. It's super easy to get They've been going on ever since, like the 2008 crash. They kind of came around, and now they're just the first flourish, and there's a whole bunch of them.

And for those of you who. Your wheels are spinning out there, this is not a credit card consolidation loan. That is totally different. A consolidation loan closes all your accounts, then you lose your history, and that's a huge part of credit. This is just. You keep those cards, you keep them open, you're going to get the loan. And then what? Pay them off.

And then you pay them off. So here's what we did in this particular case that I told the guy. Go get as much money as you can. Don't even worry about the interest rate. Just get as much money as you can.

Don't stress about the interest.

Don't stress about the interest.

Just get the money.

Yep. So he had twelve hundred dollars a month in credit card payments in five different little. Five different ones.

Right.

He. He went and got himself a $20,000 loan. He paid off all five of those credit cards, $10,000 worth. He had $10,000 left over that he now used as savings. So keep in mind, he had 10 grand before. Now he's got $20,000 in savings. He's got zero credit card debt. He's got one installment loan for 20 grand, which is a lot more than what he owed before.

Yep.

But somehow, miraculously, he dropped his payment to $600. So he's.

Whoa.

He added $10,000 to his savings account, and he saved 600amonth by doing it.

Okay, so I would recap it, but you have a little rewind button on your.

Yeah, because the story just keeps getting better.

Because. Because that, that. I know the big finish here. So now. But just to make sure we understand, from 1200 to 600. And now he's got 20 grand in the bank and only 600 payment. But I just wanted to touch on this. That payment difference is huge. For, for those of you guys who don't understand the banks, the way they break you down is how much money do you have each month? So if you're paying out a $500 on a car, that. That could be almost $100,000 less that you're going to be able to buy in a house because you owe the car people $500. So Dino and I will work with people all the time and try to figure out how do we get rid of all these monthly payments? Well, by doing this, that person just got $10,000 more and reduced by $600 that increases their loan approval by $100,000. Now, given the big finish.

Easy, right? So easy. Those are spectacular numbers. Keep in mind, though, I said don't worry about your interest rate, which sounds kind of like not right for me to say, but.

Yep.

Our goal wasn't to just reduce this payment. Our goal was to pay off all the revolving debt and get his credit score up and add to his savings account. So we added 10 grand to his savings account. So he now has $20,000 ready to go for down payment. And in less than 45 days, by paying off those five revolving credit card debts, his credit score shot up to 740.

So the same amount of debt, more by 10,000. Oh, more by 10,000. Is looked at so much more favorably. And when you're in an installment versus revolving that it shoots your score up. What was that, 60 points?

100.

100 points? I'll try 640.

Yeah.

Wow.

Yeah. So. So this is what's interesting. When you have five different credit cards that are maxed out, your credit score is going. Even if you've never been late, your credit score is going to take a major hit because it looks like you can't manage credit. But if you have five credit cards that are totally paid off and you have one installment note or loan. Yep. Then it looks like you're managing credit just fine even though you owe more money. It's the weirdest thing, but that's how it goes.

Well, that's the algorithm you have now. Now you have large available credit.

Yep.

Because you just gave yourself town title, available credit. And like you said, that installment is looked at so much differently because it has an end date.

Yeah. So now he said, okay, I did everything. He said, my score is better. So I reran it on my end, confirmed it's better. And I said, listen, you're ready to go. You can buy a house, but you can do better. So here's the. Here's the last step to the whole thing. Now, even though you've only had this for a month and a half, I want you to go back. I want you to go and reapply for another personal loan, but I want you to go to one of the better places. So he went to his credit union, but he did it with a 740 credit score. They gave him $30,000, so another $10,000 more. But instead of like that 28% interest rate that he had on the first one, now he's at 8.99%. His overall monthly payment stayed around the same as the 30, as the $20,000 loan.

With 10,000 more.

With 10,000 more. So he still walked away saving over $600 a month in overall debt. But now he's got $30,000 in the bank and able to go buy a real house.

So the net on this deal is he paid off $10,000 in credit card debt and so now he has $10,000 of available credit for his score and he got $20,000 in loans, these two loans, to add to whatever his base was. In this case it was 10 and reduce his payment by 50%.

Look, I'm not going to sugarcoat this part, right. He's now in debt $30,000 that he wasn't before. Yep. However, so this happened about a year ago, however, his house, and granted, prices went up like crazy, but his house is worth $150,000 more than what he paid for it. And what we did just recently, literally, it's been about a year since he's owned it. We just finished doing a refinance for him. We got all of the PMI removed, dropped his payment there even more. And, and this gets a little tricky, but on the refinance I can get a little more creative. So he skipped a couple payments, got a little bit of money out, did all this, that paid off the personal loan, had a paid off most of it. Put a plan in place that in six months it was all going to be paid off.

Yeah.

So now he's actually debt free. By the way, on the refinance his credit score was over 760 and he got the best of the best after that with no pmi. Even now he got lucky because the, the values, the value of homes skyrocketed. Yeah, but, but even if it was a normal escalation in equity, we could have still did a refinance because earlier we spoke about how every 20 points the PMI gets a little bit better. Yes, well, every 5% equity, the PMI also gets a lot better. So sure, his shot up and we got rid of the PMI, but let's say it went up by 5%. Yeah, your PMI is going to drop in half again. So the better, the better credit score will get your PMI to drop in A half. Another 5% in equity A year later will get the PMI to drop in half again. So even if the interest rates don't change very much, if they just kind of stay around the same, yeah, we can do a refinance to lower the PMI and hopefully lower your interest rate. But even if you're. Even if your interest rate doesn't get lowered, the fact that your PMI drops in half again saves you money. And this is interesting because I don't know how many people know this, but it also resets your cost basis of the pmi. Meaning if you bought a house at, let's just say, $500,000 and. And then a year later, it appraised for 550 and you still have PMI, it's okay, because as soon as you buy down the loan enough, you make enough payments that the loan, the balance, the principal balance is paid down, the PMI will eventually fall off.

Yes.

Right. If you work off of your original purchase price and you put 5% down, for example, you have to pay off 15%. But then let's say down the road, you refinance and appraise us for more money, and now you have 10% equity, you still have to pay it down, but you only have to pay it down by 10% now, not 15%. So your PMI will fall off even faster because you've reset your, your cost basis.

Yeah. Oh, wow. See, this is the incredible thing about this is, is that, like you said, we're not sugarcoating anything. But the whole, you know, thing that I try to preach on the podcast to everybody is to, is to let you know, yes, if you have a rich uncle or if you're in a position to be able to save 20% in a year, then you can avoid these options. Or you don't, you don't have to use these options. But for most people, someone like your example, who's got $10,000 in debt and $10,000 in the bank, which let's call that, you know, 30% of what he needed. Really? Then instead of short, you took. He took on the big debt at the end of it. But how many years of rent payments would that have been to try to not only save another $20,000, but reduce $10,000 in revolving debt.

So something that just popped in my mind when you're saying all that.

Yeah.

And this is where, you know, we're going to always have different people that vary a little bit as to what the right thing to do is. Like. How conservative are you? Well, I can tell you that I don't know if we can say his name. Doctor.

Sure. Doctor.

Doctor, who is extremely conservative, would absolutely tell you, use that $10,000, pay off all your debt, and then wait another 10 years and save up 20% to put it down on your house before you spend any money. On a house. And it's like in the meantime, you spent how many thousands on rent? And in the meantime, by the way, that same house is now worth $700,000. Right? I mean, it's gone, it's gone up like a couple hundred thousand bucks.

Yeah, don't worry about it. Somewhere in this laptop is, is an entire podcast where I'm going to take Mr. Ramsey on in a positive way because he's wonderful. I've talked to the guys from how to Money their podcast. I talked to him about it because he's a 20% or two. And I love the idea of getting out of debt. I also love the idea of not paying these skyrocketing rents. If you do the math and you look at the algorithm, sometimes it's worse for you to continue. It's just a vicious cycle. You're trying, you're paying rent and you're paying higher rent and you're paying higher rent. You're trying to reduce your balance of all your debt when, if you could just get into this appreciating asset, then you're going to put yourself in a better position. Well, I encourage everybody. I'm going to wrap this up without Dino. We went through a lot of heavy duty stuff, but the deal is your credit score can be the difference between you getting into a house or you trying to sit back and wait it out and think that there's no one out there to help you. This is something I want you to listen to and re. Listen to over and over again. Dino, I just, I'm in awe at your, at the things that you bring to the table. So if you had any other. A little, I'm gonna put you on the spot here. Any other advice for our first time homebuyers for folks that are out there that are listening, that are, are, are renting right now and thinking, I only want to sign one more lease. What's the best advice you can give someone if they're, if they're 12 months out? Because the balance between debt and savings is always such a weird cycle.

Yeah. You know, honestly, the, the, the best thing I could possibly tell you is to seek proper counsel. Don't think you know everything and don't think you got it all under control. Now, I'll be the first to say that you could get a lot of bad counsel from people that are out there.

Yes.

Right. So you're, you're. All your research that you do should be enough to get you educated, but then you spend more time trying to figure out who you're going to use who's going to be on your team, because whoever's on your team will set you up properly and will take care of you properly and will be working in your best interest, not theirs.

Have you heard what either 53 or 54. Have you listened to Madison yet talk about the unicorn bubble?

I did, yeah. Yeah.

So that, that's the whole thing. And she was the one who said that she went to doctor's mortgage people and. And then she came running back to her unicorn bubble. Now, sure, if you're in Southern California, great, give Dino and I a call. But the point of this podcast is this type of creativity, this type of relationship. First. There are people out there. It's not everybody, but you're talking even 12 months ahead of time. You're saying you want someone who's going to be the proper counsel.

I believe is the way the proper counsel. Because you can start now and you can set milestones and you can achieve them by making all the right moves. Right. It's not about a dash to the end, at the very end. And it's not about having to run a full marathon. There's way, there's something in between. And you can shorten up that marathon, you know, in half if you're talking to the right people that can show you how to get there. So example, right? This guy that I was talking about who only had $10,000, he was a year away. Instead, in three months, he bought a house. That's what proper counsel can do for you. And then lastly, I'm going to throw this out. I've spent a lot of time talking and recruiting loan officers and talking to various real estate agents. Right. Cause I work with so many different people in this industry. And I can tell you a couple things. And it's tough. Like, I really struggle with this one, because the majority of real estate agents will do like two deals a year, if they're lucky. So they're always hoping their relatives will have more babies just because they need. They need more business. That's how they get their business from relatives. Right.

And forced moving into something.

Yeah. And. And they just don't understand all of the details. And that's really scary to me because if you can't even trust that person to go out and negotiate the best car deal for you, why would you trust them to negotiate a home loan or a home. Several hundreds of thousands of dollars. Right. So realtors. And then I'm gonna switch it over to lenders, which is what I do for a Living. The majority of them don't even understand the process themselves. So to convey it properly to the clients and to make the process easy for them is. Is a struggle for them because they don't even understand it themselves. And a majority of them don't do very many deals. So the moral of the story is, if somebody needs money more than you, they're probably gonna be self serving in their advice as opposed to serving you. And I say serving because to me, that's really what it's like. It's serving people.

Yeah.

And even if they're not my clients, if I get a chance and I can serve them, I want to. It's gratifying and I know I'm helping somebody.

Well, and that's the big thing. For those of you out there listening in the other 49 states and every other. What is it? Providence? I'm. Oh, my Canadian friends are going to kill me. Is it a providence? Their states, the provinces. Oh, I'm sorry. I'll sing the whole Canadian national anthem to make you feel better. Okay. I promise. But to the things they call states up there, all you people, every place else in North America. Dino doesn't make a dollar if you go to your mortgage broker and your lending team and throw them this proposition. He's doing it because he's part of the how to buy a home family. And he understands that the more that we help educate you people, then the more that we're going to have you guys out there starting the revolution and us changing and getting you to be educated and get the absolute best for yourself. So he's right on it. There are wonderful people that can give you all kinds of time. And there's a reason they have all kinds of time, because they don't have any other clients and they're brand new and they're reading the same Google article that you did. So make sure that you've got the experienced people and you've got to get creative when you're 12 months out. I think I talk about it all the time. It's like driving from LA to Nashville. You can do it without a map and you'll still get there if you just follow the signs that say east. But by having a pro to Talk to you 12 months ahead of time, you'd be amazed. We've got listeners have come to us and said, I didn't think I could do it. And then I. I heard your podcast and I thought, maybe I can do some couple years. Two months later, they're closed and it's because understanding these kind of creative things. But hey, I'm gonna let you go back and re. Listen to all that. Improve your credit, credit score quickly. This is an incredible, incredible, powerful tool that you can use. Dino, thanks so much. I'll see you in the next one, bro.

Thanks, buddy. Appreciate it.

Later, man.

Good luck, everybody.

Damn, that was some serious stuff. I mean, we are getting way into financial wizardry to make these things happen. I'm going to say it again though, remember, warning, warning, warning. This might not be for everyone. In this example, this client figured out how to buy a house, but they accumulated an extra $20,000 in debt from when he started to be able to make this happen. So if you're out there and you're one of those skeptical people and you're thinking, hey, this guy says hack, that's no hack. It's robbing Peter to pay Paul. Yep, you're right.

It is. It is.

But maybe in this case, the guy who robbed from Peter so he could pay Paul, maybe that guy figured out when he compared the rent that he was going to have to pay for five, seven or 10 years. Years, maybe they decided that the debt acquired is actually less in the long run than paying rent and throwing it away for a large amount of time. This gives you the opportunity to put money into a historically appreciating asset. Appreciating asset. That's how excited I get about it. And you know, as long as you're aware of the current market levels and the potential forecast projections, then you don't have to worry about Peter and Paul coming and breaking your kneecaps. Here's a few of the basics to understand if you're trying to put together everything that Dino said. First of all, credit works in 20 point tiers. 20 point increments, as low as 580 to buy a house. Now, you're not going to get the greatest rate in the world, but you can do it. And all the way up to 760. And those of you out there with 800 credit scores, freaking out, remember, anything above 760 is gravy. When it comes to your home loan requirements. That's a plus. You can't get any higher. So this hack, what it's going to do is anywhere between 580 and 760. You're going to be able to jump several of those 20 point tiers, saving you money on each jump. Next, a little basic you need to understand is everything when it comes to your loan approval is based on monthly payments. All of your outstanding Debt is looked at how much you have to pay on each month, not the grand total. Hugely important, especially for those of you guys freaking out about student loans. Now, if you make $10,000 a month, the bank likes all your monthly payments to your debt to be around 3,300. That's for the best rate. Now, for some loans like those low down payment FHA loans, you can go up to 42 or 43%. So 4200, 4300. You might not get the best rate, but you still are going to be someone who can qualify for a home. So add them all up. Your monthly payments, not those total amounts owed. All right, I told you guys, just rewind and listen to it. But I'll try to give you the Cliff Notes version. Do you guys still have Cliff Notes? Are those still even a thing? Dino calls this hack the secret sauce. Getting out of revolving debt and into installment debt. Now, some of you out there, if you're blessed or lucky or both, perhaps the bank of mom and dad or the bank of the rich uncle or your crazy grandma, they're going to help you out. And that option is always better. Now, I actually had an awesome listener. He sent me this graph. It was a chart that he made for his parents with multicolored graphs showing them how the investment of him buying a house and using the money that he borrowed from them would save tons of money in the long run, versus five, ten years of renting. I've always said that this is a great idea to do. I call it the pre inheritance. Hey, mom and dad, instead of giving that money to me when you guys croak, how about giving it to me or, I don't know, loaning it to me now so that I don't spend the next 10 years wasting money on rent and I can build a financial foundation. What do you think? Good idea. Maybe it'll work, maybe it won't. But you know, if you're not that lucky, you don't have that option. Here's a great hack for you. Listen close to the example on this hack. Like I said, you might have to run it back a few times to comprehend it all. But all the numbers, they're just unreal. Incredible. They're staggering. When you realize these numbers, people are trying to get their credit points up by, by little bits of points. And we're talking 100 points. It's cool. It's sick. It's every other adjective you can think of. Here's the quick review. The Cliff Notes for your credit score, installment loans Good revolving credit, bad installment loans are loans like student loans. Yes. Did you hear that? Student loans. Student loans may not be the death of all millennials trying to buy a home like everyone says it is. Also car loans and personal loans, those are installment loans. Now, if you're trying to figure out what one is, pretty simple. These loans are looked at more favorably because they've got these three factors. A definitive ending date, you know when the loan is going to be paid off. Most of your car loans and personal loans are usually on a five year. If you're stretching it out, they have a fixed rate usually, and they have a fixed monthly payment. Revolving debt, bad for credit. These are credit cards. Never ending. Payments change monthly depending on what you owe. And if you just pay the minimum off, all you're doing is keeping debt forever and keeping the credit card guys in their houses in the Bahamas. You are not reducing if you just pay the minimum. And finally, the creditors, the gods and the goddesses at the almighty fico, they look unfavorably on these revolving debt debts because they can be used and abused at your leisure. Anytime you want to rack them up or rack them down, you can do that. And the last thing on these guys is they, they always tend to have those higher rates. Even the zero teasers eventually are going to jump up to 22, 23, 28%. So the hat came about due to the increase in the personal loans available over the last three or four years. That was the trick. These are all the good kind. They're installment loans, personal loans, remember, student loans, car loans, personal loans. Well, now that they're out there, we've got our guy. Dino didn't mention him, so I'm going to call him Steve. Steve was $10,000 in debt on revolving credit cards. Steve pays $1,200 a month on the credit cards and is not really reducing the debt because he's probably paying close to minimums. Steve has $10,000 saved in a 640 credit score. Steve wants to buy a house. So Steve pays off all the credit cards. Awesome. Now he has zero money saved. His credit score only goes up a little bit. And now he has to save $30,000 to match the money that he gets if he follows the hack. Also, while trying to save for years and years and years, that 30 grand, he still pays rent. That does. Literally. Once again, used correctly, nothing for him. Oh, not correctly. He got a roof, that's all. So Steve calls Dino and gets a personal loan. That's an installment loan, the good kind. Steve gets a loan for $20,000 at a high rate. But the crazy thing is Steve's payment dropped 50% from $1,200 to 600 bucks. And so Steve's got $20,000 loan. He takes 10,000, pays off the credit card debt, and now he puts $10,000 in the bank. So now he's sitting there waiting with 10,000 added to the 10,000 he already had. In less than 45 days, Steve's credit score went from 640 to 740. Can I get an amen? 100 points. And now Steve has $20,000 in the bank. Skeptics, I hear you. Yes, he still has $20,000 in debt, but his payment is half. Okay, now let's get to the next thing. So 45 days later, credit scores up 100 points. So Steve can go get a better bitching loan. Go to someplace that's going to give you a favorable rate, someplace like a credit union, which will allow him to get another loan, even a bigger loan, because he's got that dope new credit score 100 points higher. Steve looks great on paper. Not to mention the fact that Steve has shown that, hey, I've got this loan for $20,000, which I'm paying on time, fine. And I've got these $10,000 in debt. So he's showing that he's really responsible with his credit. So Steve gets a $30,000 loan to pay off the 20,000. And now that new $30,000 loan is at 8.99%. And Steve still has the same $600 a month payment. And he's paid off the 20 and added another 10 to his savings account. So now that's a total of $30,000 in the bank and a $30,000 loan and the payment 600.