The Gateway to Wealth: How Your Credit Can Level The Financial Playing Field
By Richard Le on March 25th 2021
Disclaimer: I am not in any way advising you to do, buy, or follow any specific plan with your credit. You are responsible for doing your own research and figuring out what best works for you, your goals, and what you’d like to get out of credit. YOU are responsible for your results. I do not assume any responsibility or liability as a result of your interpretation of the information below. 
Imagine that as a child you went into the garage and started playing with your father’s tools. A shiny hammer caught your eye and you took it to the backyard.

You decided it was a good idea to start throwing it up and down… When suddenly the heavy hammer lands on your eye and swells up, bruises, and from that point on your vision is just not the same anymore.

From that point on you might develop an irrational fear or hatred for hammers. But isn’t a hammer a useful and powerful tool?

If used correctly, yes.

Credit is the same thing, it’s simply a tool. It’s neither good nor bad, it all just depends on how it’s used.

Most people play with this tool and then end up hurting themselves. Then they develop an irrational fear of credit, sound familiar?

Think about it, Credit is the great equalizer...

Even if you weren’t born with a silver spoon in your mouth, you have the ability to use OPM, other peoples’ money, to change your socioeconomic status. 

The day you turn 18, with nothing but your signature, financial institutions are willing to lend you almost unlimited amounts of money to do WHATEVER you want with it!

The issue is the mistake the vast majority of people make... 

When people say, “I don’t have money.” Yet they buy a brand new car, designer purses, or watches… How do you suppose they’re doing this? They’re using credit and they’re using it the WRONG way! They’re building themselves a financial prison which is hard to escape.

If it takes money to make money and you bury yourself under a mountain of debt, how do you expect to ever change your financial situation? Not only will you not have the money to make investments, you’ll be starting from the negative, making things much harder for yourself. I was taught long ago that we have plenty of enemies and obstacles to overcome, don’t be one of your own enemies and obstacles standing in your own way.

I met a real estate investor who would use credit cards to buy mobile home parks. At first, I thought he was out of his mind, why would you buy real estate with high-interest credit cards?!

Well, he said to me, “I don’t care what my rates or costs are as long as I make my minimum profits.” If the deal made sense, he would acquire the property with his credit cards, then he would refinance those parks, pay off his cards, rinse and repeat…

I’ve met countless people who have built fortunes because they leveraged credit to acquire real estate…

When used correctly, credit CAN be the gateway to wealth.

Your scores may not be important to you now, but when you’re shopping for a credit card, car, or home it suddenly becomes the CENTER of your focus. Much like your health it should be worked on and maintained every single day. Most people don’t know what to focus on so let me break it down.

There are 2 major scoring models: Vantage and FICO. It’s not really necessary for me to dive into the major differences between the two… Just know that there are 2 major algorithms to calculate your credit score and then there are different versions within each algorithm. The thing they have in common is they look at the same criteria when evaluating your scores:
  • Negative History
  • Utilization
  • Age of Accounts
  • ​New Accounts
  • ​Mixed Accounts
Most people are aware of the first category. Don’t miss a payment, don’t let things go into collections, or be charged off. That one is obvious but I don’t feel enough people take this one seriously. 

For most scoring models negative history accounts for 35% of your score! This is usually where the algorithms put the most weight when calculating your score..! So it might be a wise choice to MAKE YOUR PAYMENTS ON TIME at almost any cost! If you have to skip a meal to make this happen, do it… Once you’ve achieved your financial goals you’ll laugh about it one day and thank yourself for keeping your credit clean.

Do you live paycheck to paycheck? Do you know someone that does? It’s annoying and stressful isn’t it? Usually running out of money before the next payday… In a similar fashion that’s how utilization is viewed. Utilization is usually the second biggest category at 30% of your score. 

This looks at how much credit card debt you are utilizing in comparison to your credit limits. If you consistently max out your cards, you are a higher risk client than someone who can manage to keep their utilization AKA debt to credit ratios between 1-6% on average. 

Use the financial snowball or financial avalanche to pay off your credit cards as fast as possible. I prefer the financial snowball where you pay off the smallest card first. Then you use the additional funds to pay the next smallest card, and so on until you’ve eliminated all your debt.

Have you ever gone on a date with somebody whose longest relationship lasted at best 5 minutes? How long did YOUR relationship last with that person? That’s what the age of accounts looks at… How old are your relationships with other banks and creditors? Are you able to maintain healthy long-term relationships? Age of accounts usually accounts for 15% of your scores. 

If you have a credit card that does NOT have an annual fee that you’ve had for a while, leave it open… It’s not doing you any harm. Just make sure you have SOME activity on it to keep it alive as some banks might close it automatically from lack of use.

Buy some gas on it every now and then and pay it off. If you have a card that has an unreasonable annual fee and no real benefit besides keeping it open, I might consider closing that account.

These 3 things usually account for literally 80% of your score. Is the rest important? Sure but it only accounts for 20% of your score so I don’t really account for it because if you manage the first 3 categories correctly, the remaining 2 kinds of take care of themselves.

There is ONE type of tradeline that impacts 4 out of 5 of the scoring categories that is my absolute favorite, credit cards.

Credit cards affect your history, utilization, age of accounts, and mixed accounts. Again 80/20 rule, why not dive into credit cards if they affect your credit so much?

The issue is that people don’t know how to use them. People use them as “extra” money instead of what it SHOULD be used for. You should replace your debit cards with your credit cards for so many reasons…

Basic financial literacy - If you only use the amount of money you can afford to pay off every month, you’ll never rack up a mountain of debt you can’t climb out of… 

So instead of using your credit cards as “extra money”, use it as if it was your debit card. Only spend what you can afford to pay off every month and this will save you from future heartache.

Security - If someone steals your credit card information your liability is often reduced to $0 or close to $0. If someone steals your debit card you might not ever see your money again.

Free travel - If you have good credit you can qualify for high tier credit cards which offer FANTASTIC travel rewards which can be worth typically 1%- 2%. When I first started building points I racked up over 750,000 points, worth approximately $7,500 - $15,000 in travel for flights and hotels in about 1-2 years. 

I was simply picking out cards with good sign-up bonuses (SUBs). These sign=up bonuses will reward you with a lump sum of points for spending a certain amount of money within a certain amount of time. It’s important that you do not spend money you wouldn’t ordinarily spend just to hit the SUB. Make sure you understand how much you need to spend and how much time you have to do it. If you can’t do it with normal spending (groceries, gas, food, etc) don’t do it!

Business - You can start a business and acquire business lines of credit which do NOT affect your personal credit. It does affect your business credit so don’t be reckless with these cards either. 

Business cards allow you to use OPM (other people’s money) to MAKE more money. Be mindful and be smart about this. Most business expenses are pointless and unnecessary in my opinion. If you use your business cards, I advise that you make sure you get an immediate return for that spend so you can pay off your cards right away. 

Such as buying something that your business flips, for example: If you’re in the used car flipping business… I would use that credit to buy a car, I know I can immediately flip for-profit and pay off my card. Or for me I’m in the mortgage business, my cards are almost exclusively used to pay for marketing and advertising which I know will generate me leads which I can then make money from.

Real estate - Using credit cards appropriately can not only help build your scores so that you can acquire mortgage loans. But as I mentioned I once met a successful real estate investor who would use credit cards to buy mobile home parks and then refinance with a normal mortgage to pay off those cards… House flippers routinely use credit cards to fund the renovations and pay those cards off upon selling the home.

When choosing which credit cards to apply for REMEMBER THE 80/20 RULE and do some basic math…

For example: If you get 2-3% back on a card that has 10,000 bonus points, figure out how much you spend and if that 2-3% in 3-6 months is even worth considering… Let’s say your average spend is $1000 per month on the category that this particular card gives you 2-3% that’s $20 - $30 a month… 

Compared to a credit card that will give you 25,000 points for spending $3k in 3 months which can be worth $500-$750 in free travel. Even a whole year of the 2-3% is $240 - $360… In this example you make more with focusing on the SUB (sign up bonus).

I usually don’t go for a credit card that doesn’t have at LEAST 50,000 sign up bonus points/miles.

To learn more about credit cards I would join Facebook groups to fraternize with other credit card loving nerds such as myself. Or if you’re not very social you can go to https://www.uscreditcardguide.com/en/ to do your own research and read about cards on your own.

If you’ve ruined your credit you have 3 options:

1. Negotiate pay to delete situations with your collectors/creditors. This is negotiating that they provide you a letter of deletion as part of the settlement of your account. You can take this letter and send it to the 3 major bureaus to have it removed from your report.

2. Dispute process. For any accounts / info that isn’t accurate or yours you can dispute and have it removed from your report. It’s just a matter of writing a personal letter to the bureaus addressing which accounts you’re referring to and telling them why it’s inaccurate or that it’s not yours to have it removed.

3. Wait it out. There’s a statute of limitations on how long a creditor can go after you, it varies from state to state. Do some research and figure out how long it will be before the negative accounts fall off your report.

Richard Le

Richard Le helps people build their dream home and invest into real estate. He is an expert in credit and mortgage lending and has been helping people build passive income by helping them build their real estate portfolio. If you're interested in building your own real estate portfolio then definitely reach out and book a call today.

Richard Le

Richard Le helps people build their dream home and invest into real estate. He is an expert in credit and mortgage lending and has been helping people build passive income by helping them build their real estate portfolio. If you're interested in building your own real estate portfolio then definitely reach out and book a call today.
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