Credit Score: What Dentists Need to Know

Welcome back listeners to another episode of the show. I'm going to dive right into the subject today. The subject is credit score. Now you may not feel this is terribly relevant. Maybe you don't tap into your credit score very often because you're not taking out new loans every day. But that said, credit score is just a part of life. Why? Because if you're a dentist, I. Well, debt is just a part of your life. Think about it. Think about the amount of student loans you had to take to get through school. Most people are having to take out debt to buy a car. Most people are having to take out debt to buy a home. And the vast majority of you dentists are taking out debt in order to buy your practice. And so whether you like it or not, you have to manage your credit score. And, and there is some basic knowledge that I believe will help you manage that effectively. And if you do so, having an increase of 50 to 100 points on your credit score could make or break the difference on your ability to buy a practice or to buy that house. And if you're young and listening to this, if you're in dental school or even undergraduate program, this is even more relevant to you. But this is going to be relevant for anybody out there who is going to be taking on some new debt in the future. If you are done with debt, you are self made completely. You have more money that you will ever need to buy those things that you want with your practice or your home and in your personal life and you therefore never need debt again. If you knew that, then you don't even need to listen to this podcast. That said, I think the majority of you will at some point take on more debt, whether that's for equipment, buying, a new practice, a second practice, buying a home, a second home, etc. Let's understand credit Score a little bit. Do you ever feel lost in your practice finances? And how about your personal finances? Ever wonder where your hard earned money goes and why you're not seeing the financial progress you've worked so hard for? If so, listen up. As a dental CPA and financial planner, I've created our company Practice CFO just for you. With almost two decades of experience, Practice CFO integrates great, great CPA services like accounting and tax with customized financial planning, both business and personal. Think of it this way. Our dental focused CPA services give us the X rays we need to clinically plan your global finances and be effective financial planners. It's a highly customized approach we call the CFO model. Historically, having A CFO or chief financial officer was an advantage of large corporations only. But today, practice CFO gives that same advantage to private dental practice owners. As a client of practice cfo, you'll be assigned one of our dedicated CFO advisors. You'll receive insightful financial reports each month, have regular financial review meetings, reduce taxes, grow your wealth, and feel more in charge of your numbers. Because we believe that in the competitive landscape of dental practice ownership today, you have to be an effective business owner, not just a capable clinician. Reach out to learn more at www.practicecfo.com.

All right, credit score. You know, credit score, inevitably, you can't talk about credit score, talking about debt. These two things are essentially one and the same. They're attached as a point of conversation. Debt is a variable in your business and financial life that most of you can't avoid and need to understand well to make smart financial decisions. I view debt. I'll use a metaphor. I view debt like fire. Fire is an incredibly powerful tool. It's used to build things, to mold things, and manufacturing, to grow. To think of all of the things we could not do if we did not have the ability to make fire. And yet at the same time, it can be a raging disaster. It can burn through a forest, it can burn through housing, just like we saw here in LA. Here in 2024, 2025, we've seen the incredibly damaging impact of fire. Well, debt can be the same way. Debt is an enhancer to your financial success, and it can also be a debilitating destroyer of your financial success if you manage it correctly. And I think the key is to control the debt. Control your debt, number one. And number two, understand what is the true purpose of debt. Let's dwell on that subject just a little bit. And then I'm going to jump into what is a few key topics on the credit score that I think every dentist should understand at a basic level. Credit score 101. But what is the value of debt? Well, people in business, people in finance, people in banking, people in private equity, they all know that one of the magic tools to get a return on your investment is debt. Because here's what debt allows you to do. It allows you to get what's called leveraged growth. And let's think about it this way. You buy your practice and your practice is a million dollars. Let's say that for that million dollars, you came out of pocket $50,000. So you come out of pocket $50,000 and you'd step into that practice. The bank lends you $950,000 and you get that practice that was worth a million dollars and over a five year period you grow it to be worth $1.5 million. So it grew by $500,000. Well, the bank lent 95% of the money, but who gets 100% of the growth? You do. And you only paid came out of pocket of 5%. Now you pay interest on the debt, of course, but the concept is accurate. You came out of pocket 50,000. And over a five year period you essentially earned 500,000 in equity because you leverage somebody else's money, you leverage the bank in order to get an outsized return on your $50,000. And that goes the same thing with your home. It goes with a rental property. It goes with a lot of things where you're able to borrow money at a modest interest rate, especially if you get a tax deduction on that interest rate and then you get to keep 100% of the return on that thing that you bought. Now what do a lot of people use debt for though? A lot of people are using debt to buy things that go down in value instead of up in value. And that everyone is not the purpose for debt. That's not the purpose for debt. This is why I'm not a fan of rolling over balances on your credit card. I'm okay if you use your credit card. If you have it set up on automatic payments and you never make late payments, I'm okay with that. If you're smart and you control it so you get the benefit and it doesn't control you and get the benefit of you paying inordinate amounts of interest. And I, I will also say when you buy things on after pay, or you buy things on pay now, buy now, pay later, or you take out a home equity line to go buy a boat now, unless this is some special boat, that boat is going to be worth less money in five years than it is now. So my general rule of advice is you are only taking out debt when you are buying an asset and not when you're buying a consumer item. Assets are going to be your practice. That is absolutely an asset. Your house, that is absolutely an asset. Could you call a car an asset most of the time? No, because it's going to be worth a lot less five years down the road and it's going to be worth a lot less five minutes after driving it off the lot. And when you take out debt on these things, what happens is if you look at your personal balance sheet and if you're listening to my podcast. You know, I like to talk about your personal balance sheet. Some people call it your net worth statement, but it's simply a listing of everything you own and everything you owe and what the difference is between those two things. And that's called your net worth. In business, it's called your, your, your equity, your book value, equity value. In your, in your business, what the business is valued like less. What is your debt on the balance sheet is your equity in the business. Same thing with the house, et cetera. And there's a lot of things that dentists buy that is not going up in value. So I want to just drive this point home that understanding the purpose of debt is understanding that debt should only be used when you're using it to buy an asset that grows in value and you keep 100% of that value. Now I'm even, okay, if you buy your practice and the value of your practice stays the same at a million dollars, but you're using its cash flow to pay down the debt and therefore you're building equity. So if you have compared your associate job and let's say you're making $250,000 a year at your associate job, and if you buy a practice and you take home $250,000 after overhead and debt, you're essentially at the same place with dollars in your bank account. Yes, but you are at a better place by owning your practice because you're building equity compensation every year. You're building, you know, $100,000, $150,000 earlier on in the debt site, in the debt term, you're going to pay off less because you have more money going to interest. And as you get down the road in that payment plan, and let's say you're in year eight or nine on a ten year loan, most of what you're paying is going to go toward the principal and less is going toward the interest on that. But my point is, is that that money that goes out the door to pay off the debt is actually going into an asset. And that asset you can use later to monetize. And it's especially valuable if that asset is going up in value. Now, some people, it's a little bit of a diversion, but some people will take out leverage in order to invest in the stock market. And they'll borrow money from, let's say Charles Schwab on a, what's called buying on the margin, buying on margin. And they take out, let's say a loan of 50,000, they put in 50,000, and they get an investment worth $100,000. And then if that investment goes up to 200,000, well, they can pay off the $50,000 that they borrowed, and they're keeping 150,000. And that's a 3x multiple since they only came out $50,000 out of pocket. And that works great. But what happens if that $100,000 investment drops down to $50,000? Well, there's what's called a margin call. And you may have to pay back that 50,000, and now you may not have the money to do it because the value of that investment just dropped. And if you have to sell it at 50,000 to pay off that $50,000 loan, you essentially are out of pocket the $50,000 that you came out with in pocket in that example. This is why I'm not a big fan of, of margin investing. But when it comes to investing in very sort of predictable assets like a dental practice value, like a real estate property, like a home, using debt, leveraging debt to get that leveraged return is absolutely the best way to go about it, especially because the interest can be tax deductible. The interest on your house is tax deductible on your Schedule A. The interest on your practice is tax deductible on your P and L. And if you have a rental property, the interest on the loan for that rental property is going to be an expense against the rental income on what's called Schedule E of your tax return. So I'm not opposed to debt. I'm opposed to a misunderstanding and a misuse of debt. All right, let's go into credit score now, because the credit score is how you access the debt. If you have a poor credit score, and I'll define what that is here in a moment, you're not going to get the debt that you need to take those big financial steps in your life, like buying a practice or a home that are absolutely essential to wealth accumulation in our country. And if you never sort of get that asset on your balance sheet, like that house, and if you don't, it's going to be really hard to get into a house ever. And so the smart thing you can do is earlier on in your career is you can buy. Buy just a small house, a small house, something that you can afford where the loan payment equals about what the rent payment is, and then you just build equity. Then five years later, when you go to buy that house that you want a little more, maybe there's a child or two running around now, you take the equity and you roll it into that new house. And that's how you get in the game. It's really hard if you don't get in the game at a small house earlier on, really difficult. So I do recommend that. All right, but on this credit score, this is your access to get those needed loans at those critical junctures in your career and in your life. It's not used, it should never be used for anything but those critical junctures, building assets. A credit score is a commoditized numerical value of how lendable you are. If you go back 50 years to the 60s and 70s, banks had to get all this information on you. They wanted to talk to your neighbors, they wanted references, almost like you're applying for a job. They have to go through the details of your financial resume, so to speak. Well, over time, companies like fico and these companies that built a way to essentially label you with a number called your credit score. That's live and real time at any given moment. By having access to your credit history, your payments, amount owed, your credit mix, all of that allows a bank to easily tap into that and right away know how lendable you are. It's actually such an amazing concept how this has evolved over time. Now, in my opinion, the credit score, unfortunately, is a distorted view of people's ability to pay back on a loan. And I believe that there's a lot more context to somebody than the credit score. And I think that over the next, I don't know, five to 10 years, I think AI and some other features are going to come into it that are additional predictors or even better predictors of whether or not you're going to be able to pay off your debt. For example, there's an app, I read about this in China, that you, a company, a lender, will use this app, and it will go inside your bank account, and it will use AI to run an analysis on your spending levels and on your ability to pay back debt. And it will then provide a probability of that borrower's ability to pay back that loan, which is different than just what's your static credit score, which sort of looks at that stuff at a higher level, but it's not digging into your checking account, looking at all your transactions. See, I think there's going to be a change in the future at how granular these banks and the softwares they use to assess your lendability, I think that's going to. I think that's going to change a lot. But as it is right now, the Credit score is still the name of the game, and there are five factors that determine your credit score. Number one is your payment history. Your payment history constitutes 35% of the credit score calculation. Your payment history, have you paid on time period. Number two is the amount that you owe. The more that you owe.

The less you're going to be lendable. Number three, the length of your credit history. So if you just got a credit card two years ago, you're going to have a lower credit score than somebody who got a credit score when they were 8, when they got a credit card when they were 18. So the length that you've had an open line of credit, whether that's an installment loan or a revolving loan, I'll talk about those two here in a moment. That is 15%. So 35% payment history, 30% amounts owed, 15% length of credit history, and 10% credit mix. Credit mix is the types of loans that you have, and the last 10% is new credit. If you're taking on new credit, that has an effect on what your credit score is. Every time you take out new debt, that can help or even harm your credit score. So those are the five driving factors. Let's go into each one of those a little bit more. Credit score 101.

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Okay, I'm gonna use Experian and maybe I should start off by emphasizing that there are three big companies who evaluate your credit score and come up with a number. So you're probably aware of this, but if you're not, you've got three numbers on your back. You've got three credit scores, and they're most likely all different.

And I'm going to use Experian. They all calculate it slightly differently, but they use the overall same variables. But that slight difference creates nuance in your credit score. And different lenders will use a different one of these three agencies, one or more, in order to assess your lendability. So experian says that 67% of Americans have a good credit score. And a good credit score is something that's above around 670 and.

In the range goes from 300 to 850, which I believe it's the same across all three of them. One of them might only go up to 800, I don't recall. But it's pretty similar across all of them. And if you're between 300 and 579, you are very poor. You don't want to be in that place. About 16% of people are in the very poor category, and they may be required to pay a fee or deposit in order to be approved for credit just to minimize the risk of that lender. If you're between 580 and 669, you're fair. That's about 17% of people out there are in this category. These are applicants with scores in this range. They're considered to be subprime borrowers. Though it's fair, it's not good, it's not very good, it's not not exceptional, it is subprime, about 17% fall into that category. And if you're in that category, either of these two bottom categories, you're most likely not going to be able to get a loan, or at least a loan from a traditional healthcare lender. When you buy your practice, you need to get into at least the good category. And the good category is 670 to 739. That's a good category. That's about 21% of people are in good. And.

Only the banks have or these companies have determined that only about 8% of applicants in this good category are likely to be delinquent on a future payment. So that's a pretty good place to be. Now, I want you to be at at least in the next category, because if you're in the next category, which is very good and starts at 740 up to 799 you're likely going to be a okay to get a loan for a house or a practice. Of course there's other variables which is what is the income that you are making in your W2 or business income. It's not just your credit score, it's your credit score and your income levels relative to your global debt. Those three factors are really going to drive how much, how much new debt you can take take on. But this is the category I really want you to be in is very good or the next category which is exceptional and that's 800 or above. And if you've got 800, when you check your credit score, pat yourself on the back, you've been an excellent. You've been in excellent control with your debt and managing your debt. Let's now look at a couple average credit scores. So I mentioned the average borrower has a 60 or 67% of borrowers are in that good category. That one right in the middle between 670 and 739. What Dental lenders are looking for from associates who buy a practice is at least being good. Ideally they're very good or exceptional. That's where you need to be. So if you're thinking about buying a practice as a first time buyer or even as a second time buyer, look at your credit scores and see are you, I think a safe place to be would be 700 or above. If you're slightly below 700, you may still be okay to get that loan depending on your income and some of the other factors.

Let's talk about now. The payment history. The first variable in the calculation of your credit score. The one that consumes the most.

Weight in that credit score calculation. Payment history 35%.

This is the leading indicator or the best predictor of future on time payments. Now generally if you're little bit late on one or two payments you will be dinged but usually not intensely. If you are a lot, if you have more late payments or if you have a late payment that's not just a couple days but it's a couple months that can really hurt you. I'm going to share an example that I had in my case. So I had a business.

I had a business account that was paying.

On a. It was a QuickBooks fee and I closed that account and QuickBooks was late. There were a couple late payments and it got reported to the credit agency. It dropped my credit score because that account was attached back to me personally at the time. This was a long time ago. It dropped my credit score from about 820, all the way down to about a 670. I couldn't believe it. And it was a $60 payment. And there were two of them, two months in a row. And that small amount, even though I had been current on every other payment ever, dropped me from excellent all the way down almost into the fair category. I could not believe it. And so I did my best to rework that and get it back up. I wrote letters, but it's tough, it's difficult to repair that. And it's taken me really a few years to get back up closer to the 800 mark. So be just very careful to not be delinquent on your payments. And I'm a financial planner, and that still happened to me. It's unique to sort of the business situation that I was in. I had an accountant who did not stop or switch that over at the time. And I learned my lesson. And I want you to learn the lesson from me, not learning it yourself. And that came as a surprise when I was looking at a house that they told me what my credit score was. It was a complete and utter, utter shock. If you end up going into bankruptcy now, that's serious. It's going to be on your credit report for seven to 10 years. And good luck getting a loan to buy a practice. So if you walk away from a practice that you bought and you have to file bankruptcy, if the bank isn't willing to work out some restructured plan, you're probably going to be an associate for a very long time, if not indefinitely. And there's nothing wrong with being an associate. But if your goal is to be a business owner, and generally speaking, business owners do take home more money than associates, and they build equity also, they also bear the burden and the joys and the heartaches of being a business owner. But if you want to be a business owner, then you are going to need to have a decent credit score. All right, let's go on to the second category here. And that is amounts owed. How much do you owe? And this is about 30% of the calculation of your credit score.

Initial amounts of debt will increase your credit score. So let's say you go and you get a line of credit and you start putting on a little bit of debt, maybe you go, you get your first car loan, or maybe you get that credit card and you have a little bit of debt on it. That actually increases your credit score because it says, this person is in the game. They have some debt, they made a payment or two, and they're showing that this is off to a good start and the credit score starts to rise a little bit. But if your credit balance starts to get too Are you looking to buy or sell a dental practice? If you're a seller, how do you find a strong list of potential buyers? There's no MLS or Zillow for dental practice sales. In such a fragmented market, many dentists selling their practice feel discouraged. That's why I built practiceOrbit.com practice orbit is modernizing how dental practices are bought and sold. It's a platform technology. Y' all know them Zillow, Airbnb, Uber, and OpenTable, just to name a few. These technologies do two things. First, they help match buyers and sellers by centralizing the marketplace. Second, once the match between buyer and seller is made, these technologies help them navigate the sale to a successful close. Here are a few of the features inside a Practice Orbit users can determine a reasonable sale price for practice in just minutes. All they need is the most recent business tax return. Practice owners can use the directory to find important service providers like practice brokers, attorneys, accountants and bankers. Practice owners and their brokers can invite those service providers into the platform so all parties are coordinating the sale together. Practice owners will have a beautiful digital listing of their practice like a home on Redfin. And importantly, the listing will be anonymous and personal information like your address, name and pictures are only released after an NDA is signed and approved by you or your broker. Practice buyers can create saved searches to be auto notified when new listings come on the platform that fit their desired specialty and location. And hey, dental practice brokers, you can list all your practices on the site for free. By doing so, you'll get access to Practice Orbit's large pool of buyers, all of whom have created profiles and saved searches to be auto notified when new listings come for sale. You can use the platform to introduce your listings to a targeted set of buyers. Additionally, and optionally, you can use the platform tools such as a built in NDA, a customizable loi, and a workflow tool to navigate the sale from LOI to closing. In fact, you can manage all your listings on the system from listing the practice to NDA or to LOI and finally to closing the deal. Create your free account today at www.practiceorbit.com.

High. That curve will reverse and your credit score will start to decline. And that's because there is something called credit utilization. And credit utilization is this.

If you have a credit card, I'll use a simple model. Here you have a credit card that allows you to spend $30,000. If you're constantly keeping that under 5 to $7,000 and it gets paid off, you have a very low credit utilization ratio. Let's say you're on average. Let's say you're on average. You have $30,000, and on average you have $10,000. I'm using a simple number here. That is 33% credit utilization ratio. If you're at $5,000, that's going to be about 16% credit utilization ratio. You want that to be pretty low. You want that to be pretty low. That will increase your credit score. If you're constantly hitting or bumping up against your limit on that credit card or that line of equity on your home or that equity line on your business, whatever that is it on, on those revolving, on those revolving debts, as you do that, that's going to harm your credit score. So low balances, low debt balances on installment loans. And yeah, this is the third one on installment loans. And I want to talk about the difference between those two here. Credit revolving balances, revolving debt. That's things like your credit card and equity lines. There's not necessarily a term for you to pay it off. It's just like this reverse checking account that you can go negative into that you have to pay off over time. An installment loan is one that has a beginning and an end date and it has an X number of payments. When you take out a loan, that sometimes may harm your credit score because now you have more debt relative to your income and your credit availability. As you pay that off and the balance goes down, your credit score generally goes up. Let's go on to the next category, which is length of credit history, how long have you had credit open? So if you pull up a credit report, it will show how long back over the years that you've had a credit open, Whether that's an installment or revolving line of credit. This is about 15% of the calculation. And credit histories, they get better with age. If you have one credit card for years, and that was your only use of credit card, I want you to be careful to not just go and close it down. Instead, do that once you have other credit cards in place. This is a great reason for.

If it can be controlled for a younger person who's 18 or so to get a credit card, even if they simply sit on it or maybe use it a little bit, but always pay it back. You got to be careful about that as you talk to maybe your children or if you're younger, in your 20s and you hear this. Credit cards can be very, very dangerous. But if you're disciplined and you get that credit card when you're 18, by the time you're in your 30s, you've got now 15, 20 years of credit history. And that's really going to play well for you when you need to go and get a loan, because your cred score should be pretty good. Okay, let's go on to the next one. And that's your credit mix. And this is about 10% of the calculation of your credit score. Now, I mentioned earlier, there's these two main types of loans. One's a revolving account, credit cards, store cards, as well a heloc. That's a home equity line of credit where you borrow against the equity in your house. And then there's installment loans where you actually have a fixed time period to pay them back. That's mortgages, auto loans, student loans. You're very familiar with these types of loans. When you have more types of loans, it does actually help your credit, assuming that you've been current in paying them all off. Because when you have revolving and installment accounts, you're showing discipline not only on paying required payments from the installment accounts, but you're also showing discipline on those revolving accounts that don't necessarily require you to pay them off, at least pay them off meaningfully. You can get by by paying minimum amounts, but when you're paying those things off, you're showing that you have the discipline to pay off amounts that aren't necessarily required. And that's a good thing. So credit mix is 10% of the credit score that you have.

And lastly, new credit, which also makes up about 10%. Let's go over a couple key items. People often have questions about what about when you have new credit inquiries. And so you're looking at getting a loan. Sometimes you're going to rent a house and they will do a credit. They'll tap into your credit, and new credit inquiries typically will remain on your credit report for two years. And you got to be careful, and I have too many of these things, or open up too many accounts at once. It's better to open one and then on that one credit line, continually ask for an increase of credit limit on that one line. Let's just use credit cards. You could go get three or four $5,000 credit cards, but I'd rather you have one 30 to $40,000 credit card. Now, your credit card companies will raise that limit. When you have been paying off that card regularly, they see that you're a Reliable borrower. And so they want you to borrow more. Actually, they want you to borrow more. And.

If you do that, then they're possibly going to get more, more interest on you. And so what you can do is every, I would say, six months, put a recurring reminder on your calendar to go on to your credit card company. And a lot of them have a way in your login online to do it within seconds to request an increase. American Express does, I think some of the other ones do. Or you can always use a chat function or call them and ask them to raise your credit score. They're going to ask, what is your income limit? They don't really vouch for it, which is kind of strange. They just ask what your income limit, what your income is, and then most of the time they'll increase it. And if they don't increase it by the amount you want, you could ask for a lower amount or they'll tell you how much they will increase it by. But the reason why you want to do that isn't so you can go buy a bunch more stuff. It's because you're improving your credit utilization. You now have more credit available to you and the amount of amount of debt you're actually using, the amount of credit you're actually using as a percent of that now increased limit goes down and your credit utilization ratio goes down. And that's going to help your credit score go up since they have an inverse relationship to each other. Now, sometimes a new credit card account may reduce your credit history, so be careful with that. Remember, your credit history is how long you've had credit and it takes the average of all of your accounts. So if you got one account that has 10 years and you have one account that has five years, your average credit history is 7.5 years. It's the midway point between those two. And so when you open up a new account that has very little history on it and can reduce the average credit history, so be careful on opening up too many new accounts. Ideally you're not switching that often. But new credit accounts, though, it's interesting there because they also can reduce your credit utilization rate. If you get a new credit card account now, you have another $15,000 credit limit on that. Although it may increase your credit history, it could also decrease your. I'm sorry, it could decrease your credit history, but it could also decrease your credit utilization ratio.

If you haven't put any new debt on that, you just got a new credit amount, and so now your credit utilization goes down. So a lot of times those two things will offset each other. I don't get terribly concerned if you have to open up a new credit card. I'm more concerned of your motive for doing that. Are you doing that because you're desperate, you don't have cash, or are you doing that because you're closing an old credit card to get a new credit card that just is better suited or because you're moving to one of my recommended expense management systems in your business, like a ramp credit card, which is what we use at practice CFO and has so many control controls and built in tools on the login software to manage your expenses. Savvy as a business owner. All right. Also.

Credit inquiries, you know, there's soft inquiries and there's hard inquiries. Soft inquiries usually don't affect you. And, and so I would ask when someone is wanting to do a credit search on you if it's a hard or a soft inquiry. If it's a soft, shouldn't be terribly concerned. You start getting too many hard inquiries. That's showing the credit agencies, Experian, TransUnion and Experian, TransUnion and Equifax are the three. You're basically telling them, hey, I need, I need to borrow money, I need a bat. If you've got five or six hard credit inquiries that may indicate you're kind of in a desperate situation. So be careful there. Some rate shopping is allowed, especially when you're going on, you're trying to get the best deal, the best loan. Rate shopping is okay, but ideally it's a soft inquiry on your credit score. Okay, let's talk about how you can increase your credit score. Well, the very first thing you need to do is you need to go get your credit report, see what your credit score is. Now, by law, the credit bureaus and I mentioned these a moment ago. Equifax, Experian and TransUnion, Equifax.com, experian.com and TransUnion.com make sure you're not at a fraudulent site because there are fraudulent sites that are going to ask you for a whole bunch of personally identifiable information. Be careful. But if you go to a website called annualcreditreport.com this is legitimate. This is legitimate. Www.annualcreditreport.com and you can get a free credit report for all three agencies. Now you can do one per agency or pure. They call them bureaus, credit bureaus, one per year. So every maybe six months you could get one from Equifax and then one From Experian. Six months later you can rotate and see what they are for all of them if there are errors. And keep in mind about 26% of credit reports are reported to have errors. At least one error and like I mentioned earlier, one error can be very damaging. That's why you do want to monitor these. You want to dispute them. Each bureau has an online dispute resolution form. I recommend you do that. If there are errors, be careful with advisors or people out there who are asking you to pay them to help fix your credit score. There is a place for that and I have seen that done. I, when I, that happened to me and I paid a company a couple thousand dollars to help me fix my credit score. They had a really nice website and they wrote some letters and ultimately it didn't help. And ultimately it just required time and to make sure I didn't make an error like that again. And then it recovered, but it took some time. So you can do some research on those. Just be careful. A lot of people are lured to paying some money because it's an easy sell. If they tell you pay me 2000, I can get your credit score back within months. Be careful there. I also highly recommend that you freeze your credit now. Ever since that time I do this, I freeze my credit on all three. It's actually very easy. You log into Equifax, Experian or TransUnion and you can freeze your credit. What happens is that nobody then can go and try to get credit in your name. And this is what is happening in the underworld of fraud and embezzlement is there's a whole industry, hundreds of billions of dollar industry that's underground trying to get your personally identifiable information. It's bought and sold on markets just like Amazon. It is, it's. It's a crazy world under there. And the way to protect yourself from that is you lock your credits with all three agencies so nobody can get your information. Tap in, get a loan that you don't even know about and that's going to destroy your, it's going to destroy your credit score when it's not paid back and somebody walks away with money or they get a credit card and they go spend, spend it like crazy until it's tapped out and you never know. And it's very difficult, it's very difficult to recover your credit score when things like that happen and fraud is prevalent for sure. The credit card companies are getting remarkably good using AI to spot unusual transactions based on your spending history. Amex has saved me on numerous Occasions I have no idea how somebody gets my credit card and they're buying things that are clearly not what I would buy. And it's found on amex. I get a push notification on my phone. I always immediately respond to that. Immediately. This happened when I was actually at the CDA California Dental association last year. Somebody broke in my car, took a wallet. They went to Target down the street and they went to like Dave's Hot Chicken and they started buying stuff. And thankfully I was able to stop that after those two transactions, get my money back and very easy to replace those cars. I have no idea how that happened. So credit freeze didn't prevent that. Somehow somebody got a credit card. And it may be because when you swipe your credit card and there are these very simple little slips that fraudsters will put in there at a gas station or someplace else that will read your card. And then they go, when nobody's looking, they take it out and then they go import it in their computer and it will have all the details on your credit card. And then they go crazy. This is why I only use contactless pay now. And I recommend this for everybody listening. I, in fact, I'm not even carrying my wallet anymore. I keep my wallet in a safe place. I keep it in my car. Even though my car was broken into last time. I had better security around my car now for that. But I use and you can carry your wallet, that's fine. But I use contactless pay on my phone. I use my Apple Wallet. It works phenomenal. Virtually every vendor now has a good or will take contactless pay. I've even used it on my Apple Watch, which is kind of convenient to do that. And then I have a picture locked on my phone of my credit cards on my Apple phone, my iPhone, that if I need to have a visual, for example, an online purchase, I can see it there without having to go get my, get my wallet. So I've tried to go completely digital in that regard. But another, this is this just another reason to be very careful with, with your credit cards and who can get access to them. So credit freezes are great because nobody's going to be able to go out and take a loan or get a new credit card in your name. The only inconvenience is when you actually need to go have get a lender and they go to check out your credit. They hit a block wall and they got to contact you and you got to go online. You have to unfreeze it. Okay. Also I recommend getting a credit card in your name as early as possible, provided that you're disciplined with it and you can talk to your kids about that when they turn 18, possibly getting them a credit card. Maybe you get them a credit card and then you lock it up and you're safe in your closet and they never have it. All the while they are building some good credit score. Also, pay your bills on time. That goes without speaking. Please set up payments to be automated on your credit cards. This is where if you listen to my podcast recently on emergency reserve, emergency reserves in your practice and personally, and also managing your spending habits in a very systematic and controlled way, you should have your automated. Your automatic payment should happen without you needing to even blink. Now, if you don't have those other two things, emergency reserve and your spending habits in a healthy place, then oftentimes you might only have the lowest payment being automated instead of the full credit card balance being automated. And that's not good because that's how you'll build up credit card balances over time. And that's not a disciplined approach to managing your credit. And also it will bring down your credit score because your credit utilization ratio is going to go up and that's not good. Consider setting the payments to be made twice a month. You could do that. That way your credit utilization ratio is even lower. Reduce the amount of debt debt you owe. That's obvious. Request increases to your credit limit every three to six months. We talked about that. And also be careful to not close unused credit cards until you have enough other sort of credit facilities to make up or blend out that credit card that you are closing down. So these are a few ways to get your credit score up. Let me talk briefly about what is the impact when you make a mistake like I did, you make a mistake, all right. Number one, you maximize your credit card, your credit card fully maxed, or you have a very high utilization ratio on your credit. If you're. Here's the interesting thing. If you're a higher credit score, say 750 versus a lower credit score, say 680, you're going to be impacted more if you're a high credit score than a low credit score. For example, in that case, your credit score may go down by 25 to 45 points at 750 credit score. If you're a 680 credit score, it might only go down by 10 to 30. So the better your credit score, the more you're going to see a swing. When you make a mistake, the next one is being late by 30 days on a payment at 750, you're going to see a drop of 90 to 110. Think about that. Your credit score for being late on payment doesn't matter. This is the interesting thing. It does not matter if that is a $30 payment or a $3,000 payment in this one area. I mean, it does when it comes to your credit utilization and total credit balance and all that stuff. But when it comes to the category of are you making your payments on time, your credit history, which is the biggest factor there of 35%, that tier does not care. If it's a $30 payment or a $3,000 payment that you missed, it doesn't matter. So if you miss a small payment and you're at 750, you may end up in 650. That is a huge drop. And it may take months, sometimes years to get back to where you were. If you're at 680, that may drop you 60 to 86. Still significant, but not as much. All right. If you have to settle debt because you can't make the payment and a bank has to allow you to restructure your debt or to cancel some of that debt and you're a 750 credit score, you're going to see 105 to 125 drop. That's crushing. If you're at 680, you're probably going to see a 45 to 65. Also crushing. But the interesting thing is if you're a 680 or 750 and then you have a debt settlement between those two, you may end up at the same place because the drop on the 680 is less than the drop on the 750. And so you're back in that same place as the person who had the lower credit score. And it's going to take you a while to get back the next one. Is foreclosure not a good thing. You foreclose on your house, for example, you're going to see a drop of 140 to 160. That's. That is just devastating. If you're at, if you're at a 750 score. If you're at a 680 score, you may see a drop of 85 to 105. Now, bankruptcy, the atomic bomb of that all. Know, the hydrogen bomb of them all, maybe the foreclosures, the atomic bomb, the bankruptcy. That is a, that is a drop. If you're at 750, you're. If you're in the good category you're going to see a 220 to 240 drop. You're going to end up down in the low 500s, maybe even below. It just doesn't get worse than that. And it is a slow, long climb. It takes about seven to 10 years to climb out of that hole. All right, everybody, that is credit score 101. We talked about how it relates to debt. What is good debt? When should you take out debt and when should you not take out debt? In other words, what is worthy of you taking on more debt or on your personal balance sheet? If it's going to increase your assets on your balance sheet by more than your debt, then that can be a good thing because you're leveraging growth for your benefit. Also, it's critically important for dentists who are in a type of career. Assuming you're going to buy a practice that is constantly needing the bank to facilitate your growth, when you buy that cone beam, you buy that CAD Cam, usually you're going to have to put that on debt when you buy your practice. Clearly that's going to be put on debt and it's very difficult to do those things if you're just living purely on cash. Now, I actually would love it if you buy your CAD Cam or your cone beam in cash. That's phenomenal. It's probably going to eat into your emergency reserve fund and you got to build that back up two. But when it comes to most of you, you're going to need that and that's okay because even though a CAD Cam is going to go down in value a little bit unique and that's not a consumer item, and I should have mentioned this earlier, that CAD Cam, if you use it and your lab supply, your lab costs go from 7 or 8% down to 3 to 4% and you're saving 4% a year, 4% of your revenue per year. That may be adding 40 to $50,000 a year in your cash flow and then eventually the loan is paid off and you still get to continue that. Now most of you are upgrading to the omnicam or the next, the next one and taking on some debt for that. I get that.

And, and be careful with always upgrading everything every single time. That usually is not necessary and can be a good friction on building, building your wealth. Now if you need it to be clinically good, obviously use your discretion on that. You want all the tools you need to be a great dentist. But the last thing, I'll also say that I should have mentioned this earlier since most of you had or have student loans or even accumulating student loans as we speak. I know that taking on student loans does not give you an asset on your personal balance sheet. And so in theory, student loans are bad based on that definition. The only caveat I will say is that when it comes to education funding and in moderation, using debt to acquire a skill set and a knowledge which will then make money later is the same thing as getting an asset, because that asset is going to drive you more money later. It's not going to be something you put your money into and you get no value out of. After five or 10 years, whenever that thing is done and gone and sent to the junkyard, you, your education is probably the best investment in assets. Like I think it was. Benjamin Franklin said, the best investment you can make is in your own education. So don't feel bad about having student loans. Hopefully you kept that under control a little bit. And the government, of course, has a lot of incentives to help that be manageable. I think education costs have run away. They've gotten incredibly out of control, and institutions have very much become for profit entities. And that's coming at your expense. I mean, you go back 30 years, getting a degree from UCLA or some other place was marginal. You came out with very little debt. And now these colleges are sitting on billions and billions of dollars in their endowment fund. All the while you're coming out with 5, $600,000 in debt. I see a little bit of a problem with that. But you know what? That's for another day, another topic. We will maybe address that at some other point. My main bottom line there is for your student loans. Don't feel bad, let's get those paid off. Don't pay those off before paying, before doing other important things like investing in your retirement plan or your 401k or getting a match from your employer, because those things give you tax deductions now. And you're going to get a better return, most likely than what your return is by paying down the student loans. And the government will usually, if you still have it after 20 years, let's say you're on pay, then that will be paid off. Now, there's a whole other subject. There's a whole other subject, your student loan. We could have many podcasts on this subject and when and how to pay down your student loans. But bottom line there, it's a good use of debt to acquire a degree like you have and then go use that to make money. All right, everybody, that is the episode on your credit score. Hopefully you walk away a little bit more versed on this subject. I think the key takeaway first is really about debt and how and when to use debt. And then tether to that is really therefore why you need to understand the credit score and to follow your credit score. Thanks everybody. Until next time.