You’re about to learn a little known, highly effective, and thoroughly proven strategy I have used to help literally thousands of my credit repair clients to dramatically boost their credit scores almost overnight.
I have personally helped thousands of hard working Americans just like you get the credit scores they deserve and get back on track financially.
Before I can tell you how to take advantage of this little know insider strategy, you first need to know how credit scoring works, so you can understand why it’s so effective.
The Credit Score Formula
- Your payment history makes up as much as 35% of your score – that means whether or not you make your payments on time. The presence of late payments, charge offs, collections, judgments or bankruptcy or any other negative remarks will cause your score to drop.
- The amount you owe (AKA Debt Ratio) makes up as much as 30% of your score – Otherwise known as your debt ratio, this is the amount of credit you are using divided by the amount of credit extended to you.
If you have a $1500 credit card with a $1500 balance, your score will go down because you are using 100% of the credit extended to you. If you pay it off, your score will go up because your debt ratio has decreased.
- The length of your credit history makes up as much as 15% of your score – this is how long you’ve had credit. You know how you would prefer an experienced dentist over a new dentist to work on your cavity? Well lenders prefer an experienced borrower over a new one.
- New credit applications make up as much as 10% of your score – when you apply for new credit your score comes down. Lenders only want to lend when you don’t need money. If they see you’ve been applying for credit with several lenders, this is a warning sign that you may need the money more than they want to lend it.
- Your mix of credit (loans vs. revolving tradelines) 10% – you should have a mix of credit cards, loans, and mortgages for the highest score possible. This ties in to your past history, amount owed, and length of history. It shows you’re credit savvy.
Getting Fast Results
As I explained, your payment history makes up 35% of your score and is the single largest factor in making up your score.
The only way to improve your payment history is to remove the inaccurate, obsolete or unverifiable negative data from your credit report.
This is the area most credit repair services focus on and is the most difficult to accomplish.
The next largest factor in determining your credit score is your debt ratio, which makes up 30% of your score. An overly simplified method of calculating your debt ratio is to divide your total balances by the total debt extended to you.
For example… if you have 3 credit cards with $1500 limits and they’re maxed out, then your debt ratio is 100%. If your balances are $750 on each, then your debt ratio is 50%. Generally speaking, the lower your debt ratio the higher your score.
| Available Credit | Balance | Ratio |
| 3 x $1500 = $4500 | 3 x $1500 = $4500 | 100% |
| 3 x $1500 = $4500 | 3 x $750 = $2250 | 50% |
Since it is easier to control your total credit and balances than it is to control how lenders report your payment history, this is the area we will focus on to improve your credit score quickly.
Any changes to your debt ratio will affect a change in your score the very next time your lender reports to the credit bureaus.
How to Manipulate Your Debt Ratio
There are only 3 ways to reduce your debt ratio. Let’s examine each.
First, you can pay down your existing debt – this is a great option if you have the money and already have some established accounts with high balances. Just pull out your check book and write them a check. This is not an option if you have no established accounts and/or no money to pay down the balances.
Second, you could increase your existing credit limits. Again, if you have good credit and established accounts, than this is easy enough to do. Just call your lenders and ask for a credit limit increase. They can approve you right there on the spot.
If you don’t have any established accounts or you already have some recent blemishes on your credit report, then this probably isn’t a viable option for you.
And finally, your third option is to add new tradelines. This is the easiest way to drop your debt ratio because you have a number of options.
You might hear people recommending you become an authorized user or joint account holder on someone else’s card. Let me quickly explain why that may not be such a great idea.
Authorized User Accounts
An authorized user is someone added to the primary account holder’s account. From a legal stand point the authorized user may place new charges on the account (if they have the actual card), but they are NOT legally liable for the balance. In other words, if the primary holder defaults, then the authorized user is not on the hook.
Due to changes in FICO’s scoring formula, you can only benefit from an authorized user’s account if they (FICO) believe there is a family relationship. So if you don’t share an address or a last name, it may not help your score.
Joint Accounts
If you sign a joint account contract, then you may place charges on an account you hold jointly with someone else. Both you and the other person are liable for all charges.
This is a problem if the other person runs up the bill and then skips town because the lender can come after you for the total balance outstanding, plus fees, penalties and interest.
*Note: This is what usually causes the majority of the damage when couples get divorced.
I never advise anyone to sign a joint account agreement for any reason, but it’s an option. Personally, I don’t believe any serious friendship or partnership is worth the stress of a financial arrangement.
New Credit Applications
If you have decent credit, than all you would need to do is apply for another credit card. It’s obvious, but it needs to be said. There are many lenders extending credit to consumers with less than perfect credit these days.
On the other hand, if you have thin credit, bad credit, or no credit, then it can be very difficult to get approved for a new credit card unless you knew beforehand which lenders would approve you.
It just so happens that you CAN know which lenders will approve you. Let me explain…
There’s a website called http://www.whogavemecredit.com/
On this site you can enter your FICO, income and other variables and they’ll tell you which lenders will approve you before you submit an application.
You can also search by lender name and/or state.
Please Note: I have no affiliation with this website. I don’t make a dime referring you to them. They are another tool we use to help our clients re-establish their credit quickly.
Be prepared to pay application fees and higher than normal interest rates to start for these programs.
After six or eight months, once you’ve established yourself as a responsible borrower, you could request a credit limit increase.
This is a time consuming process, but you’ll reap the rewards in as little as 6-8 months as long as you don’t make any mistakes. At that time you can go ahead and upgrade to a card with better terms.
No Money. No Problem.
As you can see, you don’t necessarily need to invest in credit repair to improve your credit. Any of these tweaks can have a big impact.
Give them a try and see how high you can get your score without spending a dime.
