Comparing FICO and Vantagescore, Building Your Credit Score and How to Get Out of Debt

Thank you so much for joining me today. Remember, I've identified these six different things that the government can do to get us out of the massive debt trap that we're in. The debt and unfunded mandate or unfunded entitlement trap, whichever way you want to say it, that is coming at us. I mean, no business or no household could ever be run the way the US government is run, or any government for that matter. I mean, you know, I don't want to say any government. I'm sure there's like three governments out of the 200ish governments depending on which way you look at it, or countries, I should say in the world that are run in a fiscally sound manner, but the vast majority of them are not. They're all borrowing against the future for the present. Well, that's fine as a strategy for investing with inflation induced debt destruction. We all know that because we basically align our interests with the most powerful forces that the world has ever known, governments and central banks. And talked about that many, many times over the many, many years I've been doing this show. But let's look at some specifics that I just found recently. I thought they were just interesting because this will bring to light the incredible burden of debt that the US government is facing. So if you're watching on video, you see these charts on the screen. If you, if not, I will just briefly go over them, but government spending, fiscal year 2022, Social Security, 19% of all government spending, health. Now these things are, you know, broad categories, right? And there were other charts in this article that broke it down as to what these are. But I'm just covering the broad strokes here. Obviously. 15% of spending, income, security. Boy, that's a broad category. I bet that means a whole bunch of pork barrel stuff. 14% national def 12%. And what's interesting about that number, by the way, I just want to point something out. We've already got on income security and health, right? These two super broad categories. 29% of all government spending. Yet the left, the liberals will complain that there's too much military spending, but that's only 12%. Now I'm not in favor of the military industrial complex. I think it's a absolute scam. Of course I am patriotic about our country. I like the us I like its founding ideas. Of course it's been all ruined and perverted in so many ways, sadly. But you know, overall it's still a pretty great country. And the question is always compared to what? Hopefully things will get back on track. And someday we can move toward a world of less corruption, less crony capitalism and all of that stuff. But I am on the verge of going down a big tangent alert and a rabbit hole. And you know what? I'm not going to do it. So let's move on. And then now we add Medicare, another 12%. I mean, these are all basically social programs so far, right? Then education, training, employment, Social Security services, another 11%. So just look at all of that before we even get to our troops, our veterans who've made such incredible sacrifices that only get 4% of government spending. So we've got, what, 15% for health, 14% for income security, 12% national defense, we'll take that out. So we got 29% plus 12% for Medicare. Okay, so now we are up to 39%, 41%. And then let's add another 11%. We're up to 50 for education, training, employment, social services. Right. We're up to What? What's that, 52% of the economy or 52% of all government spending is on essentially some form of welfare. Right. I didn't count Social Security in there because that shouldn't be counted. That's a savings account or an investment account, supposedly. Right. Which it's definitely not. But that's what it was designed to be and should be. But of course, the politicians have put their hands in the cookie jar and they ruined that, too. So you can see that the military spending argument is invalid. Okay, just a little side note. So here we go. In terms of actual dollars. Well, trillion. Billions and trillions of dollars is the breakdown, and there's the percentage on that side. So you get the idea. Okay, let's talk about credit scores for just a moment. Probably everybody listening knows all about FICO scores and they understand how a FICO score is calculated to some degree. I've talked many times before on prior episodes about how there's not just one FICO score. There are several FICO models that are used. But do you know about the Vantage score? The Vantage score was just adopted for lenders to use who are selling off loans or delivering loans, as they say to Fannie and Freddie, the two big secondary market buyers, Fannie Mae, Freddie Mac. And the Vantage score is a little different than the FICO score. And I thought I would just go over that with you for just a moment. So before we dive into that, though, I want to talk to you about the credit of Americans. Right? Because this is an important indicator as to where the economy is going, where the housing market and the future availability of credit. In other words, if you have population with very low credit scores where their credit is beat up, obviously lenders are going to be reticent about lending to these people. You know, that goes without saying. And if you have a situation where those scores are low, the flip side of that indicator is that, why are they low? Well, obviously it shows that consumers are having problems, they're in over their head, they can't pay their bills, et cetera, et cetera. So what you see here is that in terms of FICO scores, 67% of all Americans have a FICO score that is considered good, very good, or exceptionally high. Let me break that down. Good is a score. Now, it doesn't say which FICO model. This is again, the FICO model for credit cards, auto loans, mortgages. Those are different models used, and they're close. The numbers will not be extremely far off. So again, they're just taking FICO scores. I don't know, maybe they're averaging all the models. I'm really not sure how they did this, but whatever. The point is that overall, the population has pretty darn good FICO scores, and 21% of them have a good credit score. 670 to 739 is considered good. 25% of the population has a very good FICO score, which is 740 to 799, very good. And 21% of the population has an exceptional FICO score, exceptionally high, which is 800 to 850. Now, I will tell you that since I really started paying better attention to my own credit scores, I don't think I've ever had an exceptional credit score. Well, maybe on one of the bureaus I've popped up above 800. And here's the thing I want to say again, which I have said over the years, look at, compare this to working out, right? If you're working out and you're going to the gym or you're exercising, whatever, right? When you're doing that, you're trying to make gains in your fitness level. And what happens when you're regularly exercising? Well, if you're pushing yourself, if you're trying to get to the next level of better fitness, you're going to be sore, right? You're going to be sore because you're exerting yourself. And I have always found it ironic and funny that people, they put this on social media. It's like, stupid. I see this on Facebook. They're bragging about their FICO scores being so high. Here's what that really means. That really means they're not pushing themselves, they're not extending themselves, they're not using their credit enough. When you look at a balance sheet, a traditional balance sheet only includes assets and liabilities, but, you know, the asset they forget to include is their ability to borrow, their ability to use credit for investing. And if your FICO score is too high, I submit to you that you're not using it enough. Now, the way scores are calculated is a complex. Well, it's not too complex, but it's a little bit complex. Blend of credit utilization, credit capacity versus utilization, your utilization ratio, your payment history, yada, yada, yada. We've gone over that on prior shows and how you can improve your scores. But suffice it to say that it's like the person who is not doing anything in life, right? So they never fail because they never try. Okay? I don't think you want a very high credit score. You want a good one. You want to be in the very good range, right? 7:40 to 7:99. That is very good. It's really all you need most of the time, right? And that shows that you're using your credit, and you want to use your credit. You want to use your body. So your body should be sore sometimes because you're using it. You're trying to grow it, you're trying to be more fit than you were previously. So you're going to be a little bit sore because you're pushing yourself. So this whole idea of bragging about your high credit score is silly. Okay? It should be good. Very good. Ideally, bump into that exceptional mark sometimes. But most people bragging about their super high credit score, they're not using their score, remember, like in traditional real estate. I remember one time sitting at the table negotiating a deal with an agent who was. She was a bit of a loser, okay? And she said to me that she never had a deal fall through. She never had an escrow fallout. And then I asked her, how many transactions did you do last year? She said four. Well, clearly you have 100% batting ratio because you're not getting up to bat very often. Now, I think that same year I did around 120 transactions, I had a few fall out. Okay? You know, if you do more stuff, you're gonna have more failures because you're doing more things, right? Look, if you take long walks, eventually, as you take a lot of long walks, you're gonna step into some dog poop once in a while, right? If you never walk, you'll Never step in any dog poop. I don't know if that's a good metaphor. If you never drive, you'll never get a ticket or have a car accident. But if you drive a lot and you put yourself out there and take more risk and have more exposure, you're going to have a car accident once in a while. You're going to have a ticket once in a while. Right? So you get the idea. So Vantage scores are different, of course. Only 61% of Americans have a fair or better Vantage score. So the Vantage scoring system, this would indicate that it is a higher criteria, a more difficult criteria. So what is considered fair on the vantage scale? 601 to 660. Good is considered 661 to 780, and excellent is considered 781 to 850. 13% have fair vantage scores, 38% have good vantage scores, and 23% have excellent vantage scores. Now this explains it reasonably well. So I got it here for you. It can take less time to establish a Vantage score than a FICO score. So that long, long credit history is not as critical on a Vantage score. So if you're younger or newer to the credit game or a foreign national who has created a life in the United States, you're going to be looked at more favorably in terms of the Vantage scoring model. Okay? It can produce a score with just a month or two of consumer credit opening a credit account, right? A FICO scores require six months of credit history. Now, that's not all, of course, it requires more than that, but it can start to kind of rank for you really, really quickly. Another difference is that some consumers who can't scored by most FICO models because of a limited credit history can still get a Vantage score. So what this Vantage model is doing is letting more people into the credit game. I don't know if that's good or bad, but it is what it is. We'll see, I guess, right? As this is more widely adopted, I can tell you that the FICO scoring model has a zillion flaws to it. A zillion flaws. And I've talked in the past about how the they are proposing new credit scoring models that take into account up to 1,000 data points. I'm not kidding. Okay. All sorts of things. And this gets a little bit scary, a little bit Orwellian. Hey, 1984. Because it sort of blends in with the social credit score model that we all should be very concerned about and we do not want. I don't know. Sometimes I think I want that kind of thing. I think one place we do need a social scoring model is infidelity cheaters and scumbags. Because in the game of love, there are a lot of just really awful people. And why aren't they ever held accountable? It's awful. Look, in the game of business, right, you can be held accountable, and that's through litigation and reputation, right? And hey, it's not always fair, but nothing's always fair. And at least on the litigation accountability factor or the government regulation accountability factor, you will, at least in theory, have the opportunity to fight back and to represent yourself and to protect yourself from that attack, right? And hopefully, if you're a bad person, you get nailed, and if you're a good person, you get exonerated. And, you know, that's more your word used in criminal cases. But whatever, you get the idea. You win the lawsuit, right? Or you lose the lawsuit. You know, certainly there are a million flaws with that, but at least there is some mechanism of accountability. Whereas in the game of love, there is no mechanism of accountability. In fact, it's like reverse accountability. The worst people seem to do the best. Totally unfair. So maybe we do need a social scoring model, at least for that, but not like China has it, okay? Because that's too Orwellian. It's too Big Brother. Anyway, tangent alert right there. And you can tell I have some energy around that, right? Okay, so vantage score model 3.0. This is not the one that was recently adopted, by the way, by loans delivered to Fannie and Freddie. That's Vantage 4.0. But here's 3.0. I don't have the 4.0 information in front of me. It ignores past paid collections. So, and this is ridiculous, right? We really got to look at the way credit scoring is done in this country, because it's. It's not right. But here's a common collection that I've had on my credit report, and you probably have to. You move and there's that stupid fricking cable box that they rented to you, the cable company. And the cable company doesn't really want the cable box back because now they're using newer cable boxes and they make it impossible to return the cable box, right? That's what they do. They do it on purpose. And then some collection for $75 shows up on your credit report that you didn't know was there. Here's one way we should correct credit scoring in this country, just like litigation, you should as the party on the other end who's having some Negative thing put on your credit report. They should be required to notify you. There's no requirement. So you have to sign up for a monitoring service. And you have to constantly spend time looking at your credit score, looking at your report and monitoring it. It's a huge pain. And those things are written with hieroglyphics. Like, who knows how to read a credit report? Right. I mean, you know, I have some experience in that, but most people don't. Okay? So really, there are so many flaws with the system, but whatever. But the new Fico 9 model, now, Fico 8 is the one that's very commonly used. Fico 5 and Fico 8 and the upcoming Fico 10 model and 10T, I'm not familiar with those at all either. Any of those. If you pay a collection, right, you, you know, you pay the past collection, it's not going to affect your score. And I think that's fair. That's the way it should be because you paid it, you, you satisfied the collection. But what bugs me is the notification issue. Right? That's the problem. Okay. How much does a late mortgage payment weigh on your credit score? Well, on the Vantage, it's going to weigh more heavily than other late payments. Be careful on those mortgages. Make sure you pay them on time. Right. And all late payments can damage your scores. But mortgage payments are going to have a heavier weight. So keep in mind about that. Allows just 40 days for rate shopping for a car or mortgage. Ooh, that's a tough one. FICO allows 45 days. What does that mean, rate shopping? Well, you know, when you shop around and you apply for credit at different places, you're going to get all these inquiries on your credit report. But what they say is if you do it all at once, because, like, look, you're shopping for a car and you're going to spend 45 days shopping for a car and shopping for financing for that car or that mortgage. Under FICO, you have 45 days where those multiple inquiries will only count as one, I believe. Don't quote me on that, but that's how I interpret this. Whereas on the Vantage model, you only get to shop for two weeks, 14 days, and they're counting that on the 15th day, if you get another inquiry. Now you got two inquiries which are lowering your score. So I don't like that. The Vantage scoring model does make allowances for consumers affected by natural disasters. So earthquake, hurricane, tornado, you know, floods, whatever. Right. They're going to allow some leniency for that type of thing, which you Know, I guess that's, that's fair. One thing though, of course people will cheat on that. So, you know, they might live in earthquake affected area or a hurricane affected area or, you know, whatever, and they'll claim they were affected by it when they really weren't because, you know, these things are somewhat surgical in the way they affect people. Sometimes they're broad and they affect everybody in the area. But mostly, you know, you might be affected, but your neighbor's not necessarily affected. Right. Depending on the age and construction of your house, or whether your house is up higher on the hill than your neighbor's house that was flooded. You know, there's a million things to that. All right? So anyway, I hope that's helpful to you in understanding these scores. Here are the vantage scoring factors. Okay, so 34% is amounts you owe and that comprises the utilization of your credit, which means how much credit do you have available versus how much are you using? So if you have $100,000 in credit available and you're using $20,000 of that credit, that's a pretty good utilization ratio because you're only using 20% of your available credit. But if you have 100,000 available and you've maxed it out, that's going to look really bad. It's going to lower your score balances. Well, that's part of utilization. So 11% and available credit 3%. So all of that is utilization. Payment history. 40% of the score is payment history. That's the biggest component. Okay. 5% is recent credit applications. Those are those inquiries we were talking about. And 21% is the depth of credit. So how long are your relationships with your creditors and how good is that relationship? Right, the depth of that credit. Okay, so I hope that's helpful on Vantage scoring. Now, I have some news about our cruise. Hey, that rhymes news about the cruise. A lot of you who came to Empowered Investor Live told me you were signing up for the cruise and you were super excited. So immediately when I got back, I emailed our cruise planner and here's what she said to me. This is the exact email she sent me. Jason, sorry to tell you, but at this point, there is one interior cabin left. Now, we didn't even offer interior cabins because we thought, hey, look, our group wants a balcony. Okay? Right. So we only offered balconies, the much nicer cabins on the ship, and there are three balconies left on the whole ship. So I can't see promoting this sailing at all as these cabins will probably be gone within the next few days. So what do you do now? This was yesterday. I got this email yesterday. You need to go to empowered investor.com cruise immediately and sign up for the cruise, like, right now. Do not pass go. Do not collect 200. Do it now. And of course, everything is subject to availability. We don't run the cruise line. When you buy that ticket, it is not like an instant booking, okay? It's simply signing up. And of course, you'll be refunded if you don't get a cabin on the. On the cruise ship. But this is a giant cruise ship and it's almost completely sold out. Some of you have already signed up, and that's great. We forward that to our travel agent right away and she will get you booked. So again, subject to availability, folks. But do it now and hopefully you'll get something. Literally four rooms on the entire ship are available. So do it now. Okay, so that's empoweredinvestor.com cruise but not Tori. We will book another cruise, maybe in the fall or something like that. So there will always be another thing coming up, but that's what we have for now.