Tuesday, December 30, 2008

Community Chest: Credit Scores

So since I have decided to give some tips and insights on a range of topics...so since we such a positive financial tone in the country I figured we should start with the talking about credit. So I'm going to start with the basic info and get into the more advanced info. Your FICO score is broken down amongst a few factors that are calculated to come up with a score between 300-850 with the higher end of the spectrum being the best score and the lower end being the worst score. Your goal is to get onto the higher end and STAY THERE! At the bare minimum you want to have at least a 620-650, so if you aren't there you need to get a copy of your credit report and figure out what is on your report and see if there are any discrepancies or errors. Score Breakdown:
  • Payment History = 35%
  • Debt to Income Ratio = 30%
  • Length of Credit History = 15%
  • Types of Credit = 10%
  • Credit Inquires = 10%
Now with this breakdown it is important to understand a clear understanding of what happens when someone or you "run your credit report" because there are a lot of misunderstandings in this process. When you run your credit score its called a "soft pull" which means that it does not affect your credit inquiry percentage, you can do as many as soft pulls as you want. When a creditor runs your report they are doing a "hard pull" where it does affect your credit inquiry percentage so be careful to only do a hard pull when you absolutely need to, especially during times like these when lenders and creditors are being more stringent on their guidelines.

Types of Credit: This is basically the different types of credit accounts you can have, such as mortgages, auto loans, personal loans, gas credit cards, department store credit cards, consumer credit cards, and charge cards. You don't need to have all of these types however you do want to have a diverse credit profile so that they can see that you can handle them. Remember though that even if you get approved for a card that if they do a hard pull it goes against your credit inquiries so do this wisely.

Debt to Income Ratio: Ok this is the thing people have the biggest problem with so I am gonna get as clear as I can be. You want to have your Debt to Income Ratio be between 20-30% and BELOW!!! You should work to keep it at 30, then 25, 20, 15, 10, etc...You don't want it at 0% per say because then that will show no activity on your card and you run the risk of your account being closed. So if you have a credit card with a $5000 limit you should stop using it when you hit $1500 (I know easier said then done). The best thing to do is to pay off the balance completely each month, because you are still using the card but not incurring any interest as well as having a D to I ratio below 30%.

Payment History: This is an obvious thing here...bad accounts, collections, charge offs, etc.. won't be removed from your credit report for 7 years so don't let the accounts get to that point. Stop ignoring those creditor calls and talk to them..yes they are going to be assholes to you but I mean can you blame them? If someone owed you money you would be hassling them too so don't make it seem like you are innocent, just try to work out a payment plan with them so that it doesn't go to collections or charged off. In addition to that when you are able to pay ask them for a "Good Faith Adjustment" which basically removes the 30day , 60day, 90day or 120day late code that they are indicating on your report. Not everyone will do it but it doesn't hurt to ask, try and use it as bargaining power. This goes double for if you decided to pay off a bad debt completely before you pay it off make sure to ask that it is removed completely from your credit report and that you want a letter on their company letterhead stating to this effect.

Another tip that I want to give is that having higher limits on your cards shows other lenders that lenders feel that you are less of a risk which is why they are increasing your credit or giving you a large limit. Its very good to get limit increases so you should always accept these because it increases the overall amount that have available as credit (so you have more leverage when computing that Debt to Income Ratio). There are many tricks you can do to get credit limit increases and I am going to tell you a few that I know of that, and I have successfully used. Ok first off when you get your card in the mail immediately call and ask to cancel the card..I know sounds crazy right?! Wrong creditors want your business otherwise they would have denied your ass for the card in the first place, so when you ask to have your card cancel tell them that they opening limit that they are offering you is insulting and that if they don't immediately increase your limit to cancel the card. DONT ALLOW THEM TO RUN YOUR CREDIT!

They usually will say "Ok Mr. Forde lets see what we can do about that, may I run your credit to see what we have available for you?" Say hell NO! The reason for this is because they will simply give you same info and limit you got when you applied for the card. Say that if they can't do it now to transfer you to an "account specialists" or "account manager" who will treat you like you piss gold and diamonds. They will immediately be happy to increase your limit, waive or discount annual fees, and a handjob if they could reach through the damn phone. After you get what you want politely say thanks and have a nice day. Make sure to use the card for a good amount of the month and make sure to pay it off completely!

Then in either that following month or within the next 2-3 months call back and request the same thing, however here's the difference in your script. There's a good chance that they will deny and say your account is too new or that you just got a credit limit increase, then you go on to say well you were preapproved for a [that card's competitor] for [the amount you want your card increased to]. For example if I had a current limit of $1000 and wanted a increase to $1500 on a Mastercard, I would say "Well Visa preapproved me for a card with a $2000 limit, with no annual fee, and 2% cash back, I really am happy with my card but if you can't even at least raise my limit to a mere $1500 I will have to go with the Visa and cancel my card immediately." This will scare them because you not only use your card, but you also pay your bills off completely so they don't want to lose a great customer like you so they will comply with this. The only thing they might say is that you should just wait 3 more months because you are due for a scheduled account review that will automatically increase your limit if you're qualified, say you can't wait that long because you need to make a few major purchases over the next few months.

There are many more little tricks that I will reveal to you all in my future posts. So give this info a read and try it tonight on your cards if you want and let me know how it goes for you all. If you have any questions or have a detailed question about a specific situation I will do my best to help out. Hope this info is helpful to you all.

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