With Anthony Davenport, Credit Guru, Finance Educator, CEO of Regal Credit Management, and Author of Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score
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Anthony Davenport is the founder of Regal Credit Management, the largest consumer credit repair firm in New York City and has worked with many of the country’s top real estate developers, professional athletes, celebrities, and top financial professionals. He’s got a new book. It’s called Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score. The book is an easy read that tells you how to maximize your credit score, repair a bad score, and covers many other aspects of this complicated industry.
Credit Industry Not Understood By Average Americans
Anthony says the average American with the average (less than perfect) credit score, pays several hundred thousand dollars in extra interest over his/her lifetime, and credit bureaus and banks don’t want people to understand how the credit scoring industry works.
While many Americans believe that credit bureaus are there to protect them or provide monitoring services, in actuality, their main purpose is to collect as much data on you as they can, and then sell it to whoever is willing to pay—sometimes unknowingly selling your information to criminals without realizing it—because they were greedy for the money. To make his point, Anthony quotes comedian John Oliver, who said: “You’re not the guy at KFC who’s buying the bucket of chicken. You are the chicken.”
Credit Scores Impact More Than Just Loans
Your credit score affects things beyond your need to get a loan. In Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score, Anthony Davenport explains that, in the beginning, credit scores were used to level the playing field so lenders wouldn’t necessarily charge more because of race, religion, or other factors. However, lending institutions soon figured out that they could use your credit score to charge more for items like auto and home insurance, even though the likelihood of a car crash or of your home burning down has little to do with whether your credit score is a 600 versus a 700.
You Can Take Back Control
The good news in all this is that books such as Anthony Davenport’s Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score can help you take back control. For instance, most Americans believe that simply because they’re paying their bills on time, their credit must be good. But regular bill payments account for only 35% of your FICO score. The other 65% can be manipulated to improve your score.
Think Of Creditors As Your Friends
Anthony wants us to think of creditors as friends who can vouch for us, and the longer they have known us, the more weight their word carries. People with high credit scores typically hold on to their accounts for a long time, do not churn credit cards for the best mileage points, rewards, etc., use their cards a little every month, and pay them off on time.
Additionally, using a substantial portion of your available credit can seriously damage your score. For instance, spending $400 on a $500 limit department store card might be interpreted as a sign of financial distress because you’re nearing the limit on that card.
To highlight the absurdity of score usage, Steve notes that the profile of an 800+ scorer isn’t all that different from a 700-799 scorer, yet, the latter pays far more in lifetime loan interest charges, insurance dues, etc.
Mistakes That Damage Your Credit Score
In Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score, Anthony Davenport says missing a mortgage payment does the most damage to your credit score because it’s typically your largest loan. Going delinquent on a student loan is the second worst because of the high amounts of student debt in the U.S. Consequently, Steve urges young would-be homeowners to concentrate on paying down their student debt on time.
In short, it behooves all of us to understand how the credit industry works and to assume that there’s a lot of misinformation out there. It’s up to us to learn how the system works so we can better navigate through it.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Anthony Davenport is the founder of the largest consumer repair firm in New York City and has worked with many of the country’s top real estate professionals, professional athletes, celebrities, and top financial professionals. He’s got a new book. It’s called Your Score: An Insider’s Secrets to Understanding, Controlling, and Protecting Your Credit Score.
And it’s an easy to understand book about all things credit. How to get the highest score, how to repair a bad score, and many, many other aspects of this complicated industry. Anthony Davenport, welcome to the show.
Anthony Davenport: Thanks so much for having me.
Steve Pomeranz: We get a lot of letters from listeners, and many of them want to know how to fix their credit problems. And I’m going to recommend your book on this. Why is this credit industry and this credit rating world so complicated?
Anthony Davenport: It’s very simple. So, it’s not taught in school. It’s not taught in home. It’s not taught by financial institutions, and it’s intentional. Because if you are the average American with the average credit score, you are going to pay an extra several hundred thousand dollars in interest over your lifetime because you don’t have the perfect credit score and the perfect credit profile. So they really want us to be just really ignorant to how the system works. And I found many challenges in releasing this information to people because the credit bureaus and the banks themselves don’t like people to understand how this works.
Steve Pomeranz: Everywhere down the line, you say in your book, either your credit history or the desire to get a mortgage or anything else,
everybody’s making money down the line.
Anthony Davenport: Yeah.
Steve Pomeranz: Tell me about that.
Anthony Davenport: So, to quote John Oliver, “you’re not the guy at KFC who’s buying the bucket of chicken. You are the chicken.” You are the product in this case.
Steve Pomeranz: Okay.
Anthony Davenport: So many people mistakenly believe that the credit bureaus are there to protect them or provide monitoring services or something like that. But in actuality, their main purpose is to collect data on you as much as they can, and then sell it to whoever is going to pay.
And sometimes they’ve sold directly to thieves and criminals without realizing it because they just were greedy over the money. So really, you have to understand that that is the way the system is built. So assume that a lot of the misinformation out there is not going to service you well.
And really, it’s up to you to learn how the system works so that you can better navigate through it.
Steve Pomeranz: Yeah, that’s what I like to hear because that’s exactly what we try to do on this show. Now, your credit score affects things beyond your desire or need to get a loan. It affects how other companies like insurance companies see you. Address that for a minute.
Anthony Davenport: Yeah, so in the beginning, credit scores were used to just try to level the playing field, so that they couldn’t necessarily charge someone more money because of their race, or religion, or whatnot. But now, institutions have figured out that they can use it to charge more money to people that are good risk in ways that we never intended. Like auto insurance and home insurance rates are now often determined by your FICO score. As if your home is more likely to burn down because you have a 600 score versus a 700 score. But it’s a means of them saying, “hey, we don’t care whether you’re rich or poor or whatever. If you don’t know how the system works, we can now charge you more money.”
Steve Pomeranz: Yeah, I saw a table at myfico.com, by looking at the information in your book, and it talked about national interest rates for mortgages.
Of course, it’s updated daily. From the 760 to 850 FICO score range, the mortgage would be 3.91. Now when you get to 760 was the lowest. So when you hit 759, it jumps to 4.14. And this is the hundreds of thousands of dollars you’re talking about over time. So that one point can make it more expensive, whether you’re 760 or 759. And you can’t tell me that the differential in that score says anything about your ability to repay.
Anthony Davenport: Nor is it supposed to. It’s just a means to charge us more money.
Anthony Davenport: And people don’t learn that there’s a lot of ways you can control this. The biggest misconception that I see is that people believe simply because they’re paying their bills on time-
Steve Pomeranz: Right.
Anthony Davenport: That their credit must be good. But as we mentioned in the book, that’s only 35% of your FICO score. The other 65% has nothing to do with whether you pay your bills on time. And that’s the part that you can manipulate, the easiest so that you can get that extra point if you need it.
Steve Pomeranz: Yeah, but okay, so let’s talk about that. The 800 score seems to be the holy land for credit scores. And there was a study that was done that showed what a person’s finances, so to speak, look like if they had an 800 score. And I’ve got that here. This is the average person. They have nine open credit accounts, averaging $62,000. And seven of those credit accounts were credit cards. They had $0 past due. I think that’s pretty expected. They had available credit limits, amounts not used on their cards and things like that, of 78,000 and they paid their bills 99.99% of the time. Can you comment on that?
Anthony Davenport: Yeah, that’s fairly accurate from what we’ve seen. One of the key things there though is that these lines of credit they have, have been open a long time.
Steve Pomeranz: Okay.
Anthony Davenport: So you have to think of your creditors as your friends. And your friends can vouch for you and say you’re a good guy or gal or whatever, but the ones that have known you the longest are the ones whose weight is going to carry the most.
Steve Pomeranz: Okay.
Anthony Davenport: So people with 800 FICO scores, they’ve had these accounts, but they’ve had them for a very long time. They’re not credit card churning to get the best mileage points, rewards, etc. They get their cards and they keep them.
Steve Pomeranz: Yeah, but-
Anthony Davenport: They use them a little bit per month and then pay it off.
Steve Pomeranz: Okay, yeah, so I mean, I’m thinking about my own situation. So my goal is to pay everything on time, to carry no debt except for my mortgage. I have numerous cards that are open, and I’ve learned a long time ago not to close them. But I do jump around. I like cash back. I’m a cash back kind of guy. So [LAUGH] If I get 1%, then I go to find a card with 2%, now I found a card with 3% cash back. But I don’t close the old accounts. This average $62,481 of debt, does that include a mortgage?
Anthony Davenport: No.
Steve Pomeranz: Okay.
Anthony Davenport: It doesn’t necessarily include a mortgage, but it can. So the real key there is that these people—it doesn’t matter whether they have $62,000 available or whether they have $600,000 available—it’s really all about their percentage that they’re using per card. And that’s what hangs up a lot of people is that 30% of your FICO score comes down to your credit card usage. But, again, that’s per card. So you could have a small credit card with Macy’s or a store card like that with a limit of 500 bucks, and if you have a balance of let’s say $400 on it, it’s crushing your FICO score. And it doesn’t matter whether you pay the bill off in full each month because you have to remember that these cards, they’re only updating the credit bureaus every 30 to 45 days. So you could pay it off in full each month, but if you used maybe $400 of it, it can devastate your credit score almost as much as if you missed a payment.
Steve Pomeranz: Wow, because it’s a $500 limit, and you’re borrowing $400.
Anthony Davenport: Yes, they don’t take your income, assets, or team fan status into the equation when they’re calculating FICO scores. they just look at a card and say, this is a sign of financial distress. You’re near the limit on that credit card.
Steve Pomeranz: That’s terrible. Let’s look at the 700 to 799 score. The average person had seven open accounts. Six of those were credit cards with 7,500 in debt, 125,000 [COUGH], excuse me, in debt overall.
Credit availability, 36,000. That’s lower than the one for the 800 score, which was 78,000. And they paid their bills 99.44% of the time with an average of $3 past due. Gosh.
Anthony Davenport: So that’s really proving my point that you can pay your bills on time. There’s no difference between these two groups.
Steve Pomeranz: Right.
Anthony Davenport: But it’s other factors that are impacting their scores and, in this case, it’s their credit card debt. They have a bit more credit card debt. It doesn’t take much to really drag you down. And those people are paying more for everything, from their mortgage, to their car loan, to their auto loan-
Steve Pomeranz: Yeah, really adds up.
Anthony Davenport: I mean it really adds up, yet they’re not any more likely to default, but there’s now a method to be able to charge people more.
Steve Pomeranz: Let’s talk about the mistakes that people make that damage their credit scores. You rank them in the book.
I’m going to start with the first one, missing a mortgage payment. That’s the most damaging, right?
Anthony Davenport: Absolutely, because that’s usually the most important aspect of an individual’s life is their home.
Steve Pomeranz: Going delinquent on a student loan is the second worst.
Anthony Davenport: Yes, because now student loan debt is getting to be among the highest amounts of debt we have. Even more than credit card debt, we have student loan debt. So they’re looking at that very heavily to see what someone’s default possibilities are.
Steve Pomeranz: You’re talking about the payment of the debt. The required monthly payment being late or defaulting on that, is that correct?
Anthony Davenport: Correct.
Steve Pomeranz: All right, so as a young person if you’re looking to buy a house in the future and you want to improve your credit score, concentrate on the student debt. 60 days late or a car payment, that’s pretty self-explanatory. I think if I was the lender, I would be very wary of someone who is that late on paying back a car payment loan, wouldn’t you?
Anthony Davenport: Yeah, absolutely, that’s usually their method of transportation. You need to keep it.
Steve Pomeranz: Yeah, ignoring a tax debt, what does that mean?
Anthony Davenport: So there’s a lot of various taxes out there, especially if you’re a business owner. And if it ever becomes a lien, what happens is if you didn’t pay your taxes for one year or whatever, and they put a lien on your credit report, now you’re basically prohibited from being able to get credit from any other institution. You can’t get a credit card or a line of credit or anything, unless you’re showing that you’re using it to pay off that tax lien. The government does not play.
Steve Pomeranz: Well, unfortunately, we’re going to have to stop here.
But to hear this again, to listen to the full show, or get a summary of the vital info discussed here today, go to our website stevepomeranz.com. And while you’re there, sign up for our weekly update where we’ll send you the weekly commentary and interviews from the show, including searchable archives if you think you’ve missed something, straight to your inbox.
Anthony, I’m definitely going to have you back on the show. There’s so much more information that is printed in this book and that can definitely help our listeners. Thank you so much for joining us today.
Anthony Davenport: Looking forward to it, Steve, thank you.
