If I had to choose one thing as the most important aspect for raising your score after a financial meltdown, it would be this: Apply for new credit.
The problem is: How can you qualify when your score is low?
We generally refer people to secured cards, but even then: If you are already having financial problems, how can you afford the deposit required by secured cards?
Fortunately, our researcher, Natalie, found a new card that accepts applications for people with a score as low as 580. It’s not a secured card, so you don’t have to put any money down to qualify.
If you don’t have three cards in your name and cannot afford secured cards, you should apply for this card right away. Don’t wait, even for a day since we don’t know how long the guarantee will last.
Of course, we’ve done the research, and we believe this is one of the best subprime cards out there. It isn’t one of the 46% of cards that will hurt your score, so as long as you keep your balance low and pay your bills on time, this card will help your score increase.
Click here to apply.
Category: CREDIT SCORING
Build Your Credit with Do-It-Yourself Credit Tricks
Okay. You want to build your credit score, but you don’t want to pay a bundle.
Here are a few tricks that will help turn a bad score into a good credit score.
An obvious place to start is with your credit cards.
Here’s a little trick that can really boost your FICO score. (By the way, even though it’s perfectly legal, not one consumer in a thousand knows this technique.)
Most credit cards have a limit: a maximum credit line.
You are allowed to borrow against that credit line up to the maximum amount.
But, you should NOT!
Why not?
Lenders don’t like to make loans to consumers who are constantly “maxing out” their credit cards, because they consider them spendthrifts.
In fact, if the balance on any one of your credit cards is more than 30 percent of the credit line, your FICO score will be penalized.
So how do you reverse that trend … and raise your FICO score?
Here are two easy methods that work and won’t cost you a dime:
- Transfer balances from one credit card to another, so that none of the balances exceed 30 percent of the credit limit. If necessary, obtain another credit card and transfer some of your balances to it. (But keep in mind that you should never have more than five credit cards, and that you should transfer your balance after you have secured the credit card and know the limit.)
- Ask the credit card companies to increase your credit limit so that your current balance falls under 30 percent. If you can get the credit card company to raise your limit from $10,000 to $25,000, then you can safely borrow up to $7,499 – and not just $3,000 – on it without jeopardizing your credit.
Now here’s another trick …
You probably don’t know this, but credit card companies routinely under-report the limits on their customers’ credit cards – or, even worse, don’t report them at all. Let’s say your true limit is $10,000. The credit card company might report your limit as only $5,000 to the credit bureaus .
So if you have a $4900 balance, you appear to be “maxing out” the credit card, which will hurt your score.
Why do credit card companies do this? Because it keeps their competitors from offering you other cards.
When competing credit card companies see high limits from another card issuer, they have found credit-worthy borrowers whom they can solicit through the mail.
On the other hand, customers with low limits are not as desirable.
So many credit card companies report incorrect limits just to protect their customer base. But this could be hurting your credit score by causing the bureaus to think you are closer to maxing out your cards.
So what should you do? Simple: Just check your credit report to make sure the bureaus have the correct information. If not, call your credit card company and tell them they must correct the mistake – knowingly reporting incorrect limits is illegal. If you raise heck, the credit card companies will report the correct information.
– Philip Tirone
10-Minute Pocket Guide to Build Credit: A Free Report
Want a crash-course in how to build credit? Then review this “10-Minute Pocket Guide” every six months or so. I know it’s not really small enough to fit in your pocket … I call it a pocket guide because it’s short. In 10 minutes or less, you can be reminded how to build a 720 credit score.
Step 1: Keep your credit card balances under 30 percent of your credit limit.
To increase or maintain your credit score, your balance on any one credit card should be no more than 30 percent of your limit. For instance, if you have a $10,000 spending limit on your Visa card, keep your balance at no more than $3,000, even if you pay your credit cards in full each month. The debt you carry on a credit card in proportion to your balance is called a “utilization rate,” and credit bureaus respond more favorably if your utilization rate is low.
If your utilization rate is too high, do one or more of the following:
1. Transfer funds among your credit cards so that each card has a 30 percent balance or less; and/or
2. Pay off any debts that put your balance above 30 percent of the limit; and/or
3. Ask your credit card company to increase your limit so that your balance is less than 30 percent; and/or
4. Open another credit card account and transfer balances accordingly (but only after reading STEP 2).
Step 2: Have at least three revolving credit lines.
Credit bureaus give higher scores to people with at least three revolving credit card accounts, which include major credit cards such as Visa, MasterCard, American Express, and Discover. If you do not have at least three active credit cards, you should open some.
If you have poor credit, you might not be able to open a typical credit card. In this case, consider opening a secured credit card. Lenders that offer secured credit cards will require you to make a deposit that is equal to or more than your limit, thereby guaranteeing the bank that you will repay the loan. If you do not make your monthly payment, the deposit is applied toward your balance.
Another option for borrowers with poor credit is to be added as an authorized user to an existing account in good standing.
If you have more than five credit card accounts, do not close the accounts. Most credit experts agree that once you have opened the excess accounts, the damage is done. In fact, closing them might hurt your score and will never help it.
Step 3: Verify the accuracy of your reported credit limits.
Credit card companies often fail to report your credit limit, or they report a lower limit than you have. This causes your utilization rate to be reported as higher than it actually is, which degrades your credit score.
Why do credit card companies fail to report correct credit limits? They do not want to lose their client base. If other companies see that you have a high limit and a positive credit score, they might solicit your business. By failing to report the correct credit limit, credit card companies keep your name off mailing lists and better retain your business.
If your credit limit is not listed on your credit report, or if it is inaccurate, contact your credit card company and ask it to correct the mistake. Follow up with the credit card company by sending a letter. If you are still having problems getting the proper limit reported, contact the credit bureaus directly, send copies of your statements, and ask that they make the proper corrections.
Step 4: Have at least one helpful active or paid installment loan on your credit report.
Having a healthy mix of credit is a great way to increase your credit score. Therefore, to maximize your credit score you should have at least one installment loan, a mortgage, and three major revolving credit cards (Visa, MasterCard, American Express, or Discover). Typically, an installment loan is used to purchase a car, but it also can be used to purchase a computer, furniture, or major household appliances.
Make your installment payments on time. As helpful as an installment loan can be to your credit rating, it can be equally harmful if not paid on time.
Beware of harmful installment loans—those that delay payment on an item for more than 30 days. This type of credit will always hurt and never help your credit score.
Step 5: Remove high-priority errors from your credit report.
An error can be as simple as having the wrong address or name listed on an account. It can be a limit that is not listed. It could be investments you did not make or accounts you do not own. People with accounts in collection often have duplicate collection notices reported for the same account.
Errors come in two forms: high priority and low priority. By removing high-priority erroneous information from your report, you could see your score jump 20, 50, or even 100 points!
Beware, however, of spending too much time on this step. Errors that are older than two years are likely not hurting your credit score that much. As well, do not waste your time correcting low-priority errors. Faster, more efficient ways to increase your credit score are described in the other six steps.
| High-Priority Errors | Low-Priority Errors |
| Active collection accounts less than two years old and listed more than once | Incorrect address of a mistake in your address (low priority, unless you think you might be a victim of identity fraud or a victim of merged credit reports) |
| Someone else’s Social Security number or a mistake in your Social Security number (this could indicate that you are a victim of identity fraud, or this could result in your credit report being merged with another person’s report) | Wrong date of birth (low priority, unless you think you might be a victim of identity fraud) |
| Someone else’s name or a mistake in your name (this could indicate that you are a victim of identity fraud, or this could result in your credit report being merged with another person’s report) | Other incorrect information, such as your employer |
| Accounts that do not belong to you | Typos in your account numbers (low priority, unless you think you might be a victim of identity fraud) |
| Mistakes in your payment history that occurred within the past two years | Mistakes in your payment history that occurred more than two years ago |
| Accounts in good standing that are not listed in your credit report | Delinquencies older than seven years |
| Incorrect credit limits | |
| Collection notices that are not yours | |
| Account information—other than duplicate collection notices—listed more than once (high priority if the account is harming your credit; low priority if it is helping your credit | |
Step 6: Negotiate before paying a bill in collection.
Paying off a credit card after it has been in collection might further damage your credit. Bills that have been turned over for collection affect your score only minimally after two years and are all but erased after four years. Collection notices do remain on your credit report, but they affect your credit score only slightly. However, each time you make a payment on a bill in collection, your credit score will be damaged, and it will extend the amount of time the item stays on your credit report.
If you have a bill that has been in collection, you should not pay it until you get an agreement from the creditor or collection company to submit a letter of deletion to the credit bureaus asking that the derogatory item be wiped from your credit report. When negotiating for this letter, you should never admit that the debt belongs to you.
Step 7: Create a structured plan to protect your credit.
Your credit report changes daily. Once you have started to build good credit, you will need a plan for maintaining it. Otherwise, your good credit can turn into bad credit before you can say FICO. Once you have completed STEP 1 through STEP 6, develop a plan to maintain your credit, as described below.
Create a budget and spend frugally. Make sure you are never late on payments and that you can keep your utilization rate below 30 percent.
Use technology to keep your bills current. Set up automatic payments on all bills that you pay regularly. This way, you will never forget to pay these bills, and your credit will be protected.
Review your credit card bills and bank statements monthly. Check the limit and interest rate and adjust your balance accordingly. Review your credit card and bank statements and compare against purchases you’ve made. If you notice any unfamiliar items on your credit card statement or bank statement, immediately contact the credit card company or bank to determine whether you have been a victim of identity fraud.
Pull your credit report regularly and review the POCKET GUIDE. Contrary to popular belief, if you request your own credit report, you will not hurt your credit score, so request it freely. In fact, the worse your credit, the more often you should pull your credit report. After receiving your credit report, review the POCKET GUIDE and modify your plan accordingly. Make sure that no new derogatory information has been added to your credit report. Also make sure that previously corrected errors on your credit report have not resurfaced. Check for any indications that you have been a victim of identity fraud. For instance, look for names, Social Security numbers, and accounts that are not yours.
Credit Inquiries Won’t Hurt, As Long As …
“But Phil,” my client was saying, “I don’t want to pull my credit report. Won’t that hurt my credit score because of the credit inquiry?”
My response was, “Nope. A credit inquiry won't hurt your credit score—at least, not if it is soft.”
Let me explain …
The only kind of credit inquiries that hurt your credit score are “hard” inquiries. Hard inquiries are defined as inquiries into your credit score by a lender for the purpose of determining whether to extend you a loan.
All other inquiries are considered “soft” inquiries, and while they appear on your credit report, they do not hurt your score. So pulling your own credit score is considered a soft inquiry. Likewise, if a landlord or a potential employer pulls your report, the inquiry will not hurt your score. A lender’s inquiry might even be considered soft if it is done to determine whether to change your interest rate.
In other words, pull away! Checking into your own credit report is considered responsible behavior, and you won’t be punished for doing so.
So how many times can you pull your credit report? As many as you want. You can pull your own credit report every single day of the year, and your score won’t drop a single point. But if you have more than two credit inquiries by a lender within a six-month timeframe, your score will probably dip a few points.
How to Improve Your Credit Score in 5 Easy Steps
There are a variety of reasons why you’d want to improve your credit score. You could be getting ready to make a big purchase such as buying a house, or you may want to make sure your options are open in the case of an financial emergency. In fact, in today’s world, your credit score is a key element to financial freedom. In addition to higher interest rates, low credit scores can affect your life in many other areas as well. Companies run credit checks before employment, and low credit scores can affect your auto insurance rates. All of these are great motivators for making improvements, but there isn’t always a great amount of information on exactly how to improve your score.
To help address these concerns, we’ve compiled a list of five ways you can improve your credit score. Some actions may have an immediate positive result, while others will help improve your score over time. It’s important to remember that there are no fast fixes, however, your efforts will be rewarded with lower interest rates and better credit opportunities. To get started, read on…
1. Keep your credit balance below 30% of your credit limit.
Credit bureaus determine whether you are living within your means by evaluating how much debt you obtain in relation to your credit limit. This is referred to as your utilization rate. The bureaus reward consumers with a rate of 30% or lower. That means if you have a $1,000 credit limit, you will never want your credit balance to exceed $300. In fact, to be safe, it’s better to aim lower than the 30% rate because some credit card companies erroneously report lower credit limits, which would result in a higher utilization rate.
2. Make your monthly payments on time every month.
Your credit history is one of the largest factors in determining your credit score, with your recent activity weighing in considerably. In fact, your payment history makes up roughly a third of your credit score. That’s more than any other factor. If you’re at a loss as to where to start building your credit, creating a good payment history would be the best place to focus.
3. Maintain three to five credit cards and one installment loan.
Credit bureaus need to see credit history to determine whether you are a good investment. To provide this, you need to show credit activity. Having three to five credit cards that never go over the 30% utilization rate and a monthly installment loan that is reported to the credit bureaus each month will help to establish your credit habits. Keep in mind that retail credit cards are NOT a good option. This is due to the fact that they typically have very high interest rates and you are forced to shop at their location to keep the card active. If you do not shop there on a frequent basis, you may find yourself making unneeded purchases to maintain current credit history.
4. Check your credit report for inaccuracies and report them.
Did you know that nearly 80% of all credit reports have errors on them? These errors can negatively affect your score and therefore increase your interest rates resulting in higher payments. As a beginning step to building your credit, you should always get your credit report and check for errors. If you find any, you’ll want to report the credit errors to the appropriate credit bureaus.
5. Don’t close older or unused credit accounts.
Fifteen percent of your credit score is derived from the age of your credit cards, with older credit accounts giving you a better score. If you close these accounts, your average age immediate lowers and can result in a lowered credit score. Instead of closing these accounts, use them to pay small recurring fees such as Netflix or gym memberships. Then set up an auto-payment from your bank to pay the credit card a day afterwards. This way, you never have to actually use the card, however, you still reap the benefits of active payment history and an aged credit card.
For more information on how your credit score is determined, download our free eBook, What Your Bank Won’t Tell You About Credit.
The Truth About Closing Credit Card Accounts
When you’re in over your head or you’ve had a bad experience with something, your natural reaction is pretty much always going to be to steer clear of the cause for some time. With credit, this typically means cutting up credit cards and closing credit accounts. Unfortunately, when it comes to your credit score, this is one of the worst knee-jerk reactions you can have. On the surface, getting rid of your accounts makes a lot of sense. You’re having debt issues, so get rid of the source of the problem and your credit problems will start to disappear. The little known fact is that this can actually make your credit issues even worse.
Let’s look at this a little closer. Fifteen percent of your credit score is derived from the age of your credit cards, with older credit accounts giving you a better score. This part of your credit score is based on the average age of your accounts. As a result, every time you terminate older accounts, you drive down the average age of your accounts considerably and risk decreasing your credit score.
Another factor to consider is your recent credit history. The credit bureaus base their evaluation of your credit worthiness on your account activity. If you close your accounts, there’s no activity for them to evaluate. This can result in a lowered score because they have no current data to determine whether you are a responsible borrower.
In addition to your account activity and age of your credit cards, your credit score is also affected by your overall utilization rate. Your utilization rate is your percentage of debt compared to your credit limit. Credit bureaus reward consumers who keep their utilization rate below 30 percent. If you close an account, there’s a good chance your rate will go up and can directly affect your credit score.
If you are having issues with paying a card, some options you might want to consider include transferring some of the debt evenly across other cards so you keep your utilization rates below 30% on all cards. If you’re not able to do that, start reducing your debt and making your way to the 30% utilization rate by making regular monthly payments. A steady history of payments will demonstrate to credit-scoring bureaus your ability to manage your accounts and will eventually improve your credit score. You’ll want to pay special attention to the oldest accounts with the highest limits and lowest interest rates.
Build Credit: Debunking the Lower Credit Limits Myth
Similar to the belief that no credit equals good credit, having lower limits can actually be extremely harmful to your credit score. To understand how this works you need to understand utilization rates, or what we call the 30% rule. Credit bureaus look to see that you are maintaining less than 30% of your credit limit at all times. If you go over the 30% marker, you are considered to be living above your means and this will be reflected in your credit score.
The problem with lower limit credit cards is that it is far too easy to go over the 30% rule. If you only have a $250 credit limit, you can never have a balance of over $75 without creating a negative reaction to your credit score. In addition, many credit card companies report your credit limit lower erroneously. Meaning you may be right under $75 each month, but your credit limit is being reported at $200 instead, putting you over the 30% limit.
In some cases, when you’re rebuilding your credit you may have to work with these lower balances. This will take careful planning to avoid any issues with errors. However, if you have higher balances, you do not want to ask for your rates to be lowered. You can never have “too much available credit.”
The best way to make sure you don’t go over the 30% rule is to use auto payments. You’ll want to schedule a monthly payment for a bill such as a gym membership or other monthly payment you need to make to be taken directly from your credit card. Then, from your bank account, schedule another auto payment to pay the credit card for the same amount.
This may sound like taking a few extra steps, but it keeps your accounts active and you can control exactly what spending is happening on your cards so you don’t go over the 30% limit.
To learn all all the facts on your credit score, get the book that will walk you through the 7 steps to a 720 credit score.
Build Credit: The Truth About Living Debt Free
For a lot of people, living with credit card debt is simply a way of life. We have all heard of the credit crunch where banks lent more to people than they could afford to pay back. When people fell behind on their repayments, the banks were in trouble and drastically cut back on the amount of money they were lending. This then led to a collapse in the housing market as a glut of foreclosures suddenly came up for sale. A lot of people, during this depression, decided that credit was actually a bad thing and they started to live a debt free lifestyle. While this is a great idea in principle, it is not a good idea to close your credit card accounts and attempt to live life on a cash only basis.
The problem is that your credit score affects many areas of your life. For example, car insurance companies now use credit scoring as a way to determine how responsible you are behind the wheel of a car. More and more companies are now using credit scoring to decide how responsible you will be as an employee. Also, if you ever need cash in an emergency, it is essential to have a good credit score to ensure you get the money you need quickly and at the best rate.
What most people do not understand is that not having credit is just as bad as having bad credit. We no longer live in a society where you can be good friends with your bank manager and he, knowing who you are and how you live, can decide whether to lend you the money you need. Most bank managers know little more than sales department managers.
At US Bank, for example, the local branch no longer has control over whether a check that overdrafts your account will be paid or bounced. If you call the branch and ask them to pay it, they will tell you that they have no control over it. They will tell you, however, that you should apply for overdraft protection so that it does not happen again, and they will happily help you fill out an application. Of course, whether or not they grant you overdraft protection depends on your credit score.
The problem with not having credit is that the credit bureaus will no longer be able to assess your credit worthiness. Rather than assume you are a good person to lend to and risk being wrong, they will err on the side of caution and assign you a poor credit score. This could lead to higher rates on your car insurance, mortgage or even stop you from getting a job or promotion.
Unfortunately, it is not a good idea to simply put the credit cards into a drawer and never use them either. A lot of companies will declare unused cards as inactive and therefore they will not count towards building your credit score. However, there is a solution that will not cost you extra money in interest and will still build your credit score.
The solution is to have between three and five credit cards and set them up to automatically pay one monthly bill each. For example, your cable bill could be paid out of one card, your car insurance could be paid out of another and your gym membership could be paid out of a third card. In order to avoid interest charges, you could then set up an automatic payment to these cards from your bank.
In essence, using this method, your money leaves your bank and arrives at the place it needs to get to; it just passes through your credit card accounts on the way. This allows you to essentially live debt free, but give you the benefits of a healthy credit score so you have access to the cash you need in case of an emergency.
Build Credit: Debunking the No Credit Equals Good Credit Myth
Credit is a tricky subject. Everyone thinks they know the right thing to do, and everyone seems to be an expert. The fact is, there are a lot of myths and untruths about the way your credit score is compiled. The biggest and first mistake most people fall for is believing that no or little credit equates to good credit. This couldn’t be further from the truth.
Imagine someone you didn’t know came up to you and asked if they could borrow money from you. They promised they’d pay it back to you in a week. How would you know they were responsible or even ethical enough to return your investment? Now, let’s say a trusted friend you’ve known for years came up to you and asked you for the same favor. Your response would more than likely be quite different than the one you had towards the unknown person.
When you have little or no credit, credit bureaus view you as the stranger asking for money. They have very little information on whether you are a good investment and whether they are likely to see a return. You have to become like the trusted friend and create credit history to have a valued and trusting relationship.
This doesn’t mean go out and apply for multiple credit cards and start taking out loans. While you need to show credit history, you also don’t need to go into debt. To create a good credit score, you need at least three credit cards with balances below 30% of your credit limit and an installment loan.
Now, you may be thinking that credit isn’t really a big of deal and you don’t want to have credit cards and loans because they are a hassle. This way of thinking can hurt you financially more than you know. Your credit score is used to determine a number of things including, believe it or not, your automobile insurance and even your job worthiness.
When it comes to purchasing a house, your interest rate is determined by your credit score. This means you could be paying thousands more for your home because of bad credit decisions. Think about this:
On a $300,000, 30-year fixed rate mortgage, a person with poor credit (below 620) would pay $589 more a month than a borrower with a 720 credit score. That’s $589 a month! Imagine what you could do with an extra $7,068 a year. You could buy a new car, save for your child’s college tuition or with wise investments, double, triple, or even quadruple the money!
The bottom line is, your credit score can either help or hurt you financially. Learning the ins and outs of how to maintain a high credit score will give you a great return on your investment of time and research. It may even help you live the life you dream without overextending yourself.
Bad Credit Is Bad News for the Unemployed
A recent report from Inc. Magazine says at that at least 60 percent of employers run credit checks on potential job applicants at least some of the time. This is a 17 percent increase from 2006.
And given the high unemployment rate, this is particularly concerning. With a much bigger pool of candidates to choose from, employers can narrow the pool of qualified candidates by looking at a job applicant’s credit score. Fearful that a poor credit score is a sign of irresponsibility, an employer might not offer a job to a candidate with bad credit.
This means that job applicants may be hit with a double dose of trouble. Not only are they out of work, but they also are unable to make regular payments on mounting mortgage and credit card bills, which is causing their credit score to plummet. Since many employers are making credit checks a mandatory condition of employment, job applicants may find themselves stuck in a vicious cycle: No job translates to no ability to pay bills, which in turn causes poor credit, which means a person might be ineligible for jobs.
If you are a job applicant worried that an employer will run a credit check, your best bet is to be candid with possible employers and let them know about your experience. Since the recession has had unfortunate consequences for many people, the employer might be sympathetic to your plight. Pitch your situation as a learning experience so that you can show the employer that you are ready to move on from your mistakes.
Explain that you have started the process of learning how to build credit to minimize damage and improve your credit score.
By taking serious steps to repair your credit, your credit report might indicate that you have had a shift in the positive direction. If you walk into a job interview armed with a the facts about your credit score, how you have turned over a new leaf, and what your credit report indicates about your current behavior, a potential employer might be sympathetic, especially if you have extenuating circumstances brought on by the recession.
Though credit checks for job applicants might create barriers in the already-tight job market, employers are also likely to value an honest account of your situation. By being forthright about your past mistakes and offering evidence of your progress, employers will be more likely to look past a three-digit number and offer you the job.
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