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An Interview with Patrick Ritchie, Author of “The Credit Roadmap”

An Interview with Patrick Ritchie, Author of “The Credit Roadmap”

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    Patrick Ritchie is the author of The Credit Road Map, an in-depth look into how the credit world works. He is a certified instructor with the Arizona Department of Real Estate. Patrick is a guest lecturer for The Ohio State University and Arizona State University MBA programs. His book is approved by the National Association of REALTORS® and is required reading in finance and real estate classes at major universities. He and the author worked together at Winding Hollow Country Club in New Albany, Ohio in the mid-1990s.

    On Credit

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      1. Why is a good credit rating so important, and how can people improve their credit ratings?

      The main reasons are to borrow money or to seek employment. Obviously lenders look at credit reports and scores in making lending decisions. Employers, more and more, are looking at credit reports as a judge of character in the hiring process. There was a student in the Personal Finance class I guest lecture in at Ohio State who was offered a job and then had it rescinded when HR ran a credit report on him. In a tighter job market it literally can pay to have a better credit report than the next applicant.

      As far as improving one’s credit, the single most important aspect is to understand what is going on in the credit report. Having an understanding of what is contained in the credit report and what is not, FICO® scores consider five factors in calculating a score:

      1. Payment History: 35%
      2. Balances 30%
      3. Inquiries and New Debt: 10%
      4. Types of Credit: 10%
      5. Length of History: 15%

      With these set of factors the ideal account would be a credit card that I have always paid on-time (Payment 35%), with a balance under 50% of my available limit (Balances 30%), it is a major credit card (Types of Credit 10%) and I have had it open for over seven years (Length of History 15%). This is just an example of how the factors apply. There are many things that do not have a role in credit, such as income, assets, down payment amount, interest rates; these items do not influence our credit. Since income and assets play no role, we are all essentially on a level playing field from the standpoint that our credit will be based on our management of our given resources rather than the amount or lack of resources.

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      The best example of this would be two past clients of mine. I like this example because the two clients were the same age, but were in two entirely different worlds when it came to career and finances. The first client played for an NFL team, his income was $2,000,000 annually. The second client was a school teacher; her income was $40,000 annually. Obviously there is no comparison in regards to their resources. However, the credit playing field was completely level and the school teacher excelled, she had close to an 800 score, a fantastic credit score. The wealthy athlete did not manage his financial affairs well; his score was less than 580, an awful credit score. Where did he go wrong? His first mistake was co-signing with friends and family on vehicles, the payments were not made on-time and his credit suffered. Co-signing gives you equal responsibility, and equal demise when the payments are not made on-time, my advice is to never co-sign, ever ( I had a client who co-signed for her son on a house, he stopped making payments and ultimately forced his own mother into bankruptcy, if you can’t trust your own kid who can you trust)? His other issue was the accumulation of about 5 to 8 small collections, most under $200. He had the money to take care of them, but he never knew they existed. Overall, poor management and attention is what caused the low credit scores; it was not for a lack of money.

      What did the school teacher do right to achieve high credit scores? She paid things on-time, never compromised her good record by co-signing with people (Why do people ask you to co-sing? Because they don’t qualify, keep that in mind the next time someone asks you to co-sign), had no collections, had well aged credit cards, did not let mistakes linger on her credit report. She just practiced good management of her credit affairs, and gave her credit some attention to make sure it was in line.

      The first step in making achieving the best credit scores is to give the report an assessment to make sure everything is correct. This is the starting point. Make sure you understand what is on there, why it is on there, and most importantly should it be on there?

      2. What rules do people need to know in the world of credit?

      What people need to know is that there are two main rules, the first being the credit scores and how they are calculated, the second being the Fair Credit Reporting Act, which gives us our rights as consumers in relation to credit reports. These two separate sets of parameters are what shape our credit lives. The Fair Credit Reporting Act, like most statutes is boring to read, so I dissected it into easy to understand language any consumer will understand. I tried to only focus on the points that pertain to consumer rights, the actual aspects that impact credit. If there is one thing that everyone should know about the Fair Credit Reporting Act it is that the consumer must initiate their protections under the Act. If there is something incorrect on my credit report it will not magically fix itself, I must discover it, dispute it, and follow-up to make sure it does not reappear.

      The FICO® credit scoring factors are fairly straight forward. In the book I apply them to numerous examples, similar to how a law book would apply a legal concept to a real court case. By showing how the factors impact people in real life and displaying the potential pitfalls it gives readers a better grasp of how the factors apply to various circumstances. In my classes I always say “there is never a blanket answer to an individual’s credit scenario.” The reason for this is that there are numerous variables in each of our individual credit reports; the same event will impact our credit scores to a different degree. For example, if we have two people who both incur a 30 day late payment in the same month will they be equally impacted? If person A has 10 positive accounts, and person B has only 2 positive accounts, who do you think will suffer a greater drop on their credit scores?

      If I have 10 positives to outweigh a negative versus 2 positives it is apparent the person with more positive accounts is likely to suffer less of a drop to their credit score from a 30 day late payment. Based on this knowledge it shows us that having more, well managed accounts, is better than fewer accounts because in the face of adversity we will have greater protection by being surrounded with positive accounts. However, we always hear that having too many accounts is a bad thing. Based on what? There has to be a test to measure this, so how would I measure if I have too many accounts, or let’s say too many credit cards specifically? Wouldn’t it be based on my income or assets, my ability to repay what I borrow or could potentially borrow? That sounds like the test, but our income and assets play no part in our credit, so it is impossible to test how much is too much. The exception to this is that in applying for a loan the lender would know my income and it would play a role in the decision, but it still plays no role in my credit, since income and assets are absent.

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      In the absence of income, the credit relies on management, how am I managing my obligations? This is the critical item many people miss, it doesn’t matter how much or little income you have, credit is formed by your actions, not your checkbook. Obviously the size of the checkbook can make this easier or more difficult. Reflecting whether or not someone is living above their means and having trouble making payments on-time, or the flip side to that, the person has the funds, but just doesn’t make a great effort to pay debts on-time.

      What if my credit report tells me I have too many open active unsecured lines of credit (i.e. credit cards)? Reason codes tell you why your credit is not perfect, the important thing to realize is that your credit will never be perfect, if you are 740 or higher you have reached the upper echelon, getting to 800 is great, you will never hit 850 on the Classic FICO® model used by banks. Keep in mind there are knockoff credit scores out there being sold to consumers that may give you a higher credit score, but if banks don’t use those credit scores then neither should consumers. I hear all the time about consumers getting a “DisadVantage Score” online and thinking they have a great score, only to find out their FICO® Score is 100 points lower when they go to a lender to apply for a loan. If the real-world uses FICO® so should consumers. Whenever I say credit scores I am referring to FICO®. Back to the reason codes, if you have good credit already, ignore the reason codes. If the reason codes tell me I am not perfect because I have too many credit cards, then I close the credit cards (which I really should never do if I care about my credit scores being the highest they can be), the next time I check my credit report guess what the reason codes are going to tell me? “Too few open active unsecured lines of credit” or “Too many new accounts”, closing the well established accounts results in a lower credit score, ignore the reason codes, they are like the GPS system that tells you driving over the cliff is the quickest route to your destination.

      3. What is the highest credit score you’ve ever seen, and how was it attained?

      The highest I have seen was 841 on the max 850 scale. This score was attained by someone who was 70+ years old, the he had credit cards dating back to the 1960’s that were still open and active. What this illustrates is the importance of keeping credit cards open and active in order to constantly feed positive information into the credit report. Do I need accounts that are 50 years old? No, once a credit card has become 7 years or older it is a well established account. It is common to see people with 800 credit scores when they have credit card accounts over 7 years old. How could an 18 year old accomplish this? Ask mom and dad to add you on as an “authorized user” to their credit cards. In my book it talks about a 22 year who did this, he had no score because he had no credit, nothing good, and nothing bad. His mom added him as an authorized user to an ideal account she had (open for 10 years, balance was 5% of the available credit line, and it had always been paid on-time). Sixty days later when the account appeared on his credit report it generated an 817 credit score, simply because of the positive nature of that account. If he had opened his own account he probably would have a 620-range score for the first 12 months of the account existence. The authorized user account is a very powerful method to boost a credit score, and a great way for relatives to help each other. This came under major scrutiny and public outcry in the summer of 2007, so much so that Fair Isaac, Co. was going to remove it from the scoring model. The outrage has tempered and as it stands, the authorized user account cannot be excluded from the scoring model under the Equal Credit Opportunity Act, so it is a here to stay.

      4. Can you hire someone to fix your credit?

      You can, however, the purpose of my book is to give the reader an overall education about credit so they can fix their credit on their own, if it needs correcting. As far as hiring someone to do it for you, it is like hiring someone to clean your house, you could do it yourself, but maybe you want to have someone else to do it because you think they can do a better job. Consumers just need to keep in mind there really isn’t anything they can’t do themselves, although they may procrastinate and never get around to doing it. There are a lot of rip-offs out there, the Federal Trade Commission warns consumers about this. The best way to test a credit repair service is to ask what it is they will correct. If the service states they can remove everything negative regardless of whether it is correct or not, this is a red flag and they are likely to just take the money and run. Accurate negative information cannot be legally removed. It would compare to a tax preparer telling me they can get me out of paying any taxes whether I owe them or not.

      For people with extremely complex issues they may want to consult a consumer law attorney.

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      5. How badly do late payments hurt?

      Payments account for 35% of the score, so a late payment can be a considerable blow to the credit scores. One late payment is not going to completely wreck the credit score. The impact will be based on how much positive credit the person already has. In my book I wrote about a method called “re-aging” which can remove late payments. It exists in the Uniform Policy manual which is put out by the Federal Financial Institutions Examination Council. “Re-aging” can be a great tool, but its use is at the discretion of the lender.

      6. What about bankruptcies?

      I would call bankruptcy the worst case scenario for credit, but it is necessary sometimes. It is better to get closure and recover than to let a bad situation continue. Many people who go through a bankruptcy will recover in 2 to 3 years. A bankruptcy comes off the credit report entirely after 10 years based on the Fair Credit Reporting Act. The more time that passes the less impact a bankruptcy will have. Bankruptcy is not the end of the world, it is actually a means to get a new start and for some people is their best option. It provides the best closure other than just paying the debt back. If someone doesn’t have the money to repay debt they should consult a bankruptcy attorney.

      7. How can we avoid identity theft?

      For someone who fears identity theft I suggest “freezing” the credit report. To do this, go to each of the three credit bureaus websites (www.experian.com, www.transunion.com, and www.equifax.com) and search for “security freeze”. The instructions are on each site, the cost is minimal, no more than a one-time $10 fee, for victims with a police report it is free. By freezing the credit report it makes the credit report inaccessible and therefore a thief could not gain fraudulent credit from a lender if the lender cannot access the credit report. This is the best method of prevention. Simply monitoring the credit report puts a consumer in the position of responding to the act not preventing it. A fraud alert can be added to the credit report at no cost; however, it is not as efficient as freezing the credit report. With a frozen credit report a consumer can still apply for credit by requesting a pin code so that a specific lender can access the credit report. Identity theft is a lengthy subject and certainly pertains to credit, so I have an entire chapter dedicated to it.

      8. A lot of people are facing foreclosure. Is there an alternative to foreclosure that would be better for credit?

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      A short sale (the lender accepts less than what is owed) may be a better means for some people if the lender is willing to do it. The benefit to a short sale is to reduce the number of months of delinquency versus a foreclosure. If someone wants to keep their home they should request a loan modification from the mortgage company or a temporary forbearance if they are searching for employment. This is a complex issue; I have a three hour class about this specific topic. Individual circumstances vary, but the starting point is to always ask “do you want to stay in this house?” If the answer is no then a short sale, deed-in-lieu of foreclosure, or foreclosure are the likely companions to this. If the answer is yes, they would like to stay, then a loan modification, forbearance, among other options are worth pursuing. A homeowner should call the lender first to see what options are available to them. Any organization approaching them and asking for money to assist in preventing foreclosure is likely to do nothing and just take the money. To find a local HUD approved counseling agency go to www.hud.gov and find your state page, most of the HUD approved housing counseling agencies are top notch people. Like with anything, if you have a gut feeling someone is not looking out for your best interests then walk away.

      Productivity

      1. Describe an average day in the life of Patrick Ritchie.

      My day goes from 7 am until I go to bed, which is generally 11 pm. I am still actively doing loans (mortgages), always writing about something, outlining a new book (just finished the second one), creating a new CE class for professional license renewal, teaching my classes, or consulting with someone about their credit. I teach my classes around Arizona, but I also travel the country when someone wants to bring me in to teach about credit. Some days I may be in Lincoln, NE, other times I might be in Maui, HI, wherever I am hired to speak. Currently I am promoting The Credit Road Map as a useful supplemental text for Personal Finance and Real Estate Finance classes at colleges. In between all of this I am attending Law School at Arizona State University, only 2 more semesters to go. I have a wonderful son who is about to turn 5 years old, so all of my non-work time is spent with him.

      2. How do you keep it all together?

      I have no clue how I keep my sanity, but it involves a lot of coffee, lists of everything I need to complete, and simply moving forward constantly. The speaking and travel schedule requires a carefully planned calendar. My laptop is my most important business tool, it goes almost everywhere I go because then I can work from anywhere. Some of my best writing happens on airplanes.

      3. What are the most important things you’ve learned about productivity in the last few years?

      Write everything down and cross it off when completed. Try not to do the same thing twice, think about your procedures so there is uniformity, like a franchise. Never be afraid to take a 15 minute nap to recharge the brain. Most importantly, enjoy what you do and it won’t seem like work. I truly enjoy what I do, educating people about credit is a worthwhile pursuit.

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      Last Updated on July 4, 2019

      25 Killer Sites For Free Online Education

      25 Killer Sites For Free Online Education

      Whether you’re five or ninety five, the internet has a lot to offer. Particularly when the topic is education, the resources on the internet are endless.

      Best of all, many high quality sites are completely free. From history to coding, excellent free online education awaits on the following 25 sites.

      1. Coursera

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        Coursera is a website that partners with universities and organizations around the world. This brings a wide variety of topics and perspectives to one searchable database.

        Coursera is a powerful tool for free online education, and includes courses from many top universities, museums and trusts. This gives the site an extremely wide range of in-depth courses.

        Coursera is extremely useful if you’re looking to study many different topics, or want courses from different schools and groups.

        2. Khan Academy

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          Partnering with many post secondary schools, Khan Academy offers a useable, well organized interface. Also curating many courses from around the web, Khan Academy offers impressive depth on many different subjects.

          Among the more well known educational sites, Khan Academy is also incredibly useable, which may make it easier to keep learning goals.

          3. Open Culture Online Courses

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            If you are struggling to find exactly the material you are looking for, try Open Culture’s listing of free online education courses. The page highlights 1000 lectures, videos and podcasts from universities around the world. The site features a lot of material found only on universities private sites, all in easy to browse categories. This means you can find hundreds of university courses, without having to visit and search each university’s own site.

            Open Culture’s list features courses from England, Australia, Wales and many state universities around the United States. A very helpful resource for finding many courses in one area of study.

            4. Udemy 

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              Udemy’s free courses are similar in concept to Coursera’s but additionally allows users to build custom courses from lessons.

              Working with many top professors and schools, the site mixes the customizable platform of other sites with a heavy emphasis on top quality content. This is another site however, that mixes free and paid content.

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              5. Academic Earth

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                Another site with courses from many different schools is Academic Earth. Much like the three sites above, Academic Earth brings together top notch courses from many different sources, and focuses on offering a wide variety of subjects.

                Academic Earth lists courses by subject and school, so it might be easier to find what you’re looking for.

                6. edX

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                  Another great option for free online education is edX. Also bringing together courses from many different schools, the site has impressive, quality information for everyone. edX covers a great range of topics.

                  7. Alison

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                    Unlike the previous sites on this lists, Alison is a free education site offering certification in some areas. Alison offers courses mainly in business, technology, and health, but also includes language learning courses.

                    It’s a great option if users need certification for their learning as Alison also offers school curriculum courses.

                    8. iTunesU Free Courses

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                      A very convenient place for free online education is iTunesU, because it integrates seamlessly with your iPod, or any app-ready Apple mobile device. On iPad, iPhone, or iPod touch, users download the iTunesU app.

                      Desktop users can access  iTunesU on the upper right hand corner of the iTunes Store. iTunesU is also convenient because the store is categorized much like iTunes.

                      Users can search learning materials in many different ways, including genre and topic. However, courses are often a mix of free podcasts or videos, and paid content.

                      ITunesU does include courses on a pretty wide scope of topics, but does not integrate with Android, Google or Windows mobile devices.

                      9. Stanford Online

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                        Your hub for all the online offerings from Stanford University, Stanford Online offers self-paced and session based courses. While Coursera features some courses from Stanford, many classes are only available via other hosts. Some courses require iTunes, but most are completed in your web browser.

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                        Stanford Online is a great site for high quality courses, though the topics are somewhat limited compared to sites partnered with more than one school.

                        10. Harvard Extension

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                          Like Stanford Online, Harvard Extension features free online education courses from Harvard only. This is another excellent source for top notch course material, though the course variety is less rich than multi-school sites.

                          Additionally, Harvard Extension allows you to search for courses by professional certificate. This makes it much easier if your online education goal includes certification.

                          11. Open Yale Courses

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                            Open Yale Courses echoes Harvard Extension and Stanford Online, in that it offers only courses from Yale. While the site is similarly limited to topics taught at the school, Open Yale Courses offers a lot of videos of actual campus lectures. The availability of videos makes the site a great option if you’re looking for quality courses, but learn better by watching than by reading.

                            12. UC Berkeley Class Central

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                              Much like the other schools on this list, UC Berkeley has a variety of free online education options. The school has slightly fewer courses than the schools above, but includes some supplementary lectures, webcasts and RSS Feeds, making it easy to keep up with the topics you choose.

                              13. MIT OpenCourseWare

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                                Similarly, MIT offers a variety of free courses. The school has a comparable number of courses to the schools above, plus includes very in-depth course materials on the subjects available. MIT also offers free RSS feeds, a convenient way to continue learning.

                                14. Carnegie Mellon Open Learning Initiative

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                                  Carnegie Mellon’s free online education site is comparable with the other school’s on this list, however, Open Learning Initiative also covers a smaller range of topics. But for the topics that are covered impressive, in-depth material is available.

                                  15. Codecademy

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                                    Codecademy is a website dedicated specifically to teaching coding. Where other coding sites follow an example/practice session workflow, Codecademy includes a live practice window. This means you can practice coding while still viewing the lesson material.

                                    The courses at Codecademy are well written and easy to follow and the website is organized very nicely. Codecademy features a centralized dashboard where you can monitor your progress, plus organizes lessons into complete modules. This lets you learn an entire language without needing to pick the next course manually.

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                                    16. Code

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                                      Code is another website focused on coding and app writing. A site with high quality courses, Code also features learning options for kids.

                                      In addition to kid friendly courses, Code offers free online education classes on a wide variety of technology topics. These classes include app writing, robotics and Javascript.

                                      Most of the courses are also geared in a such a way that they can be useful in a classroom setting. This makes Code a great resource for harder to find coding topics, as well as various learning settings.

                                      17. University of London Podcasts

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                                        The podcast page on the University of London website is another great source for free education. While the courses are limited to podcasts, the site features podcasts from it’s own campus, as well as eleven universities in and around London. This gives learners a wide base of topics and lectures, but still ensures in-depth material.

                                        18. University of Oxford Podcasts

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                                          Similar to the University of London, the University of Oxford features many different podcasts. Most are public lecture series or lectures from visiting professors, with several different recordings available.

                                          The advantage to this particular site is that podcasts are organized into series, making it easy to subscribe to multiple lectures on one topic. Another good site for thoroughly in-depth lectures.

                                          19. BBC Podcasts

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                                            For the more casual learner, the BBC offers a wide variety of podcasts on many different topics. Most podcasts are updated weekly, and focus on everything from finance, to sports, to current events.

                                            Through the World Service line of podcasts, there are also many in different languages. The focus of these podcasts are less in-depth and theory based, which may be more accessible to the average person.

                                            20. TED-Ed

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                                              Another great destination for more general learning is TED-Ed. From the same people that brought you the all encompassing, motivational web series, comes a site chocked full of educational videos. Most include impressive animation, and all are ten minutes long or less.

                                              Not only is TED-Ed an excellent site for the curious, it also includes supplemental materials and quizzes on the videos. This makes the site extremely useful in formal education settings, as well as in entertaining ways to brush up on new discoveries and topics.

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                                              21. LessonPaths

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                                                LessonPaths is another great tool for those looking for a more usable and convenient way to access learning material. On this site, users create link playlists of their favorite learning materials from other sites. Users then rank these collections, making it easy to find many different high quality, accessible sources on a given topic.

                                                22. Memrise

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                                                  Another impressive free online education site offering ease of use and convenience is Memrise. Available both on desktop and as an app, Memrise is a particularly powerful tool if you are studying a language. The site encompasses many other topics as well, though some of the course material is user generated content.

                                                  Part of what makes Memrise special is their integration of games into the learning materials, mixing learning with entertainment.

                                                  23. National Geographic Kids

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                                                    The kids site for National Geographic is another site that makes free online education applicable for younger users. For those looking for kid friendly education, a large variety of games, puzzles, videos and photos keeps kids interested on this site.

                                                    National Geographic Kids doesn’t organize learning into courses, making materials available by topic and medium instead. This makes National Geographic Kids a good option for those looking for a more casual learning environment.

                                                    24. Fun Brain

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                                                      Fun Brain is another good option for kids who want to learn online, but focuses on games and fun puzzles. Particularly focused on math and reading, Fun Brain’s game based approach can be valuable if the child in question struggles to pay attention.

                                                      Fun Brain offers rewards and challenges as well, and is another site aimed at a casual learning experience for kids K-8.

                                                      25. Whyville

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                                                        Similar to the sites for kids free online education is Whyville a destination for preteen online learning. The site includes a variety of social features, with a focus on learning materials geared for young teens.

                                                        Whyville also mixes in educational games, to make the site a well rounded option for kids too old for simple games, but too young for heavy reading based material.

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                                                        Featured photo credit: Dai KE via unsplash.com

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