If you wish to increase your score from 580 to 650 then your strategy will be very different from someone wanting to go from 670 to 725. Why? Because your starting point is different which requires a different approach. Also, while the removal of negative items from a report will almost always lead to an increase in score, it's a basic concept at best. Therefore, within this article, we'll discuss somewhat inside techniques known by very few (since this is what our company specializes in publishing).
In relation to just removing negative items, these are techniques which you can use even if you have NO derogatory information on your credit report. We'll start with the most overlooked strategy first and that's your debt to credit ratio...
WHAT IS A DEBT to CREDIT RATIO?
The most fraudulent belief I've been hearing for over 10 years is "I have excellent credit, I pay all my bills off in full every month!" This is a false belief for one to buy into and understanding your debt to credit ratio holds the key to getting your "credit mindset" right.
Your debt to credit ratio is your ratio of debt to total available credit you have been extended (revolving accounts only). For example: If you have $10,000 in total unsecured revolving credit accounts and you're currently in debt $2500, then your debt to credit ratio is 25%. Since the main way lenders make money is by charging interest, one of the elements of the credit scoring model is driven by your ability to maintain balances and pay over time. This shows your true (long term) credit worthiness which is most profitable to lenders since they make money primarily via interest and not annual fees.
Over the years we've discovered without question that carrying the proper debt to credit ratio will boost your score faster than paying off your bills in full each month. I have argued with the Better Business Bureau on this topic for and they still disagree (despite my sending them proof from Fair Isaacs own website MyFico the organization which invented the credit scoring software used by credit bureaus).
Of course, what do you do if you're like most Americans and your debt to credit ratio is too high? For example: You have $10,000 in unsecured revolving accounts but you owe $8500, thereby giving you an 85% debt to credit ratio. How can you bring it down without selling everything you own? The answer is simple and takes us to the next technique which is...
WHAT ARE SUB-PRIME MERCHANDISE CARDS?
The single most cost effective (and powerful) tool for consumers to increase their high credit limit and decrease their debt to credit ratio is the use of Sub-Prime Merchandise Cards which report to one of more of the major credit bureaus.
Unfortunately, despite their immense benefits, these are the most misunderstood cards in the credit industry. A large portion of the misunderstanding is due to marketers misrepresenting the cards and the growing number of companies promoting them. When you learn how they work one quickly understands why they have been the subject of much misrepresentation.
A Sub-Prime Merchandise Card is nothing more than a card attached to a line of credit which allows you to buy merchandise from a specific vendor (usually the company that sold you the card). The merchandise (in most cases) will be purchased through a catalog or online mall.
Where the problem arises is that the cards are marketed almost exclusively to the sub prime market via email, telemarketing and direct mail etc. The reason for this is they can advertise almost irresistible offers like "$5,000 Credit Card... GUARANTEED! NO Cosigner! You cannot be turned down!" or "Unsecured $10,000 Credit Line! Everyone Approved!". I'm sure you get the idea...
While there are many companies which do this and are a "shady at best", there are a few which do it legitimately and it's the best kept secret to build your credit and build it fast.
Here's how it works: the company approves anyone with a pulse (literally) and gives them a card for $5,000 to $10,000 with NO credit check and NO cosigner. However, the card is only good for merchandise through their website or catalogs and the consumer is required to put down a deposit on whatever they purchase. After the deposit is paid, the remaining balance is financed on the card.
A person buys $1,000 worth of merchandise. Their deposit is $300 so they then finance $700 on their merchandise card and make payments. Sound like a scam? If you say "Yes" like most people then you're missing the point... big time.
With a legitimate Sub-Prime Merchandise Card your credit line WILL be reported to at least one major credit bureau (or more). This means if you get a $7,500 card and you finance $500, on your credit report it will look like any other credit card and will do three extremely important things for you.
1.) It will increase your current "High Credit Limit" by $7,500 almost overnight as the account "looks" like any other unsecured revolving account.
2.) By carrying a small outstanding balance it will positively impact your credit report by building and showing potential lenders your credit worthiness.
3.) With a good payment history you are virtually guaranteed to receive "legitimate" pre-approved credit offers in the future.
This technique is hard to beat for both cost and effectiveness. Of course, the whole key is knowing exactly which cards report to the credit bureau and offer a 0% interest rate.
Professor Ron Williams finds creative ways to help his
college students and friends repair their bad credit and increase their credit score from the benefits of having the best credit card with 0% interest.