In a previous article (Why Banks and Credit Bureaus Love Low Credit Scores) you learned the TRUTH about why you're worth more to the banks and credit bureaus with a low credit score, rather than a high one. After all, if you're buying a home for 0,000 and a low credit score causes you to pay a 2% HIGHER interest rate... that 2% ends up costing you in excess of 0,000 over the term of the loan. In other words, you'll throw away over 0,000 just because your credit score was low. Of course, many people will share the opinion this doesn't matter as you'll never stay in the home for the life of the loan and you can always later "refinance." It would be nice if that were true but, based upon our 16 years of experience we've found consumers rarely (if ever) do this. They're too caught up in the "Monthly Payment" and smaller monthly payments mean more interest paid over the term of the loan. As a result, it's not uncommon for 90 points in a credit score to cost a consumer over ,000 because of this type of thinking. Only focusing on the monthly payment makes about as much sense as marrying someone for nothing but their looks. On the flip side, improving your credit score by as little as 90 points can put over ,000 back in your pocket that you'd otherwise be pissing away to the bank (Yes, I say "Pissing Away" because that's exactly what it is).
So, what's the fastest way to improve your credit score up to 90 points - guaranteed?
The answer to that question lies within the ANSWERS to these THREE questions:
1.) What is the "HIGHEST SCORING" credit you can ADD to your Credit Report?
2.) What is the FASTEST way to ADD this type of Credit to your Credit Report?
3.) What impact will it have on your overall "DEBT to CREDIT" Ratio?
Contrary to popular belief the HIGHEST SCORING credit you can add to your credit report is any type of UNSECURED revolving credit account (please note, debit cards do NOT count). Many consumers believe car loans and home mortgages represent the highest scoring credit one can add. In our experience, this is simply NOT true. UNSECURED Revolving Credit Accounts are the RISKIEST type of credit to the lender while also being the easiest to be abused by the borrower. It's for this Reason we believe we've found them to be the HIGHEST SCORING when added and used properly. Compare this to a car loan or home mortgage, where if you quit paying, the home will be foreclosed or the automobile repossessed.
The next question becomes...
"What's the FASTEST way to ADD this type of Credit to your Credit Report?"
The fastest way to get this type of credit on your report is by obtaining what's known as an "Authorized User" Account. However, for this to be MOST effective, you need to have... The SAME Last Name and the SAME Mailing Address, as the primary account holder. Otherwise, this technique will be limited in its' Impact. So, if you have a brother, sister, father, mother (or spouse) living at the same address as you and are using the SAME last name... By all means, have them add you onto their ,000 Unsecured Credit Account and you should be looking good in no time flat. On the other hand, if this ISN'T an option, DON'T Despair. There is a "PLAN B" for you. You may be able to obtain what's known as an... UNSECURED "Consumer" CREDIT ACCOUNT. This is an account which gives you an "UNSECURED Credit Line" of up to ,000 but only allows you to purchase products or services from a particular catalog or website. Kind of sounds like a scam, right? But DON'T be a fooled... as long as the account reports to "ONE" or more credit bureaus it's actually the GREATEST invention since the Cellular Telephone and... It has the potential to save you over ,000 in wasted interest payments on a home mortgage. If you're sharp you should "get this." If you're "BULL HEADED" and stubborn nothing will change and the banks will love that...
Now, let's wrap up with the final question about adding an "UNSECURED" Consumer Credit Account and that is...
"What impact will it have on your overall DEBT to CREDIT" Ratio?
The answer to this question is EXTREMELY important as the majority of consumer credit score's suffer from a negative "DEBT to CREDIT" ratio. What Is Your "DEBT to CREDIT" Ratio? Your debt to credit ratio is VITALLY important to your credit score because it tells the story of how responsibly you're using the credit you've already been granted. To calculate your DEBT to CREDIT ratio simply add up all the UNSECURED Revolving Credit Accounts you currently have listed on your credit report. Let's say you had ,000 worth. This would give You a "HIGH CREDIT LIMIT" of ,000. Now, let's say on that ,000 of Credit, you're in debt ,000. Your DEBT to CREDIT ratio is calculated by taking the ,000 in High Credit and dividing it by the total amount of unsecured debt you have. In this case you have ,000 so it looks like this.
,000 in High Credit
,000 in Unsecured Debt
80% DEBT to CREDIT Ratio.
Ideally, you want a DEBT to CREDIT Ratio of LESS than 45%. Now, in this example, let's say you added an "Unsecured Consumer Credit Account" for ,000. (Yes, you can only buy products or services from their Catalog or website, but let's look at what happens). When the account gets on your credit report your "High Credit Limit" will instantly... INCREASE by ,000. This will take your High Credit Limit from... ,000 to ,000 (Overnight...) But that's not even the best part. The best part Comes with the impact it will have on your DEBT to CREDIT Ratio. Overnight, your DEBT to CREDIT Ratio will go from...
(80%) EIGHT PERCENT
(40%) FORTY PERCENT
Here's how it happens. When your High Credit Limit INCREASED from ,000 to ,000 from the "Unsecured Consumer Credit Account" being added, your unsecured debt stayed at ,000. When you divide ,000 in High Credit by ,000 in Unsecured Debt you now wind up with a DEBT to CREDIT Ratio of only 40%.