How to Repair Credit Quickly and Permanently
I've scanned in a credit report 20 months after our client filed for bankruptcy. These folks followed the same strategies revealed here. You can repair credit quickly and permanently.
Here is a tried and tested formula for adding credit score points fast, even if you have been through tax liens, bankruptcy, foreclosure or some other credit disaster.
Challenge Negative Credit Information. If you really want to clean up your credit report, use this two-part approach: (1) take basic action first to remove obvious negative information, and then (2) use advanced strategies where necessary to clean up the stubborn stuff. For example, the credit bureaus all use OCR which stands for “Optical Character Recognition.” OCR is a program intended to weed out credit repair companies and frivolous disputes. If you don’t understand how to get past OCR, then you’re in for a world of frustration.
Example: Paul completed a Chapter 7 bankruptcy in April. Negative information on his credit report is preventing him from getting cheap credit deals. Paul writes letters to the credit bureaus, but a lot of negative stuff won’t go away. So Paul uses advanced tactics like “good will letters” or handwriting a carefully worded, concise note to decision makers at the bureaus. By using these advanced tactics, Paul is able to wipe out more negative stuff and increase his FICO score 78 points.
Add Positive Revolving Accounts. FICO rewards healthy credit card accounts with high credit limits and low balances. Add the revolving accounts to your credit profile and your score will go up.
Example: Stacy has four credit cards with credit limits of $250 each. She pays her bills on time. After six months she is able to get two of the credit limits raised to $1,000. Assuming Stacy keeps the balances the same, her FICO score will jump dramatically in 30 days or less.
Add Two Installment Loans, and Pay One Off in 12 Months. If you have two installment loans, one you paid off successfully, and the other you are paying on time, you will dramatically boost your FICO score. As you may know, an installment loan is a loan with fixed payments for a fixed period of time at a fixed interest rate and at the end of the loan the balance is paid in full, and the loan is usually secured by collateral, such as a car or truck.
TIP You don’t have to get a car loan to obtain an installment loan. There’s a really cheap way to obtain an installment loan. For example, William is recovering from bankruptcy. He goes to his credit union and tells the manager he wants an installment loan to re-establish credit. William confirms with the manager that the loan will be reported to all three credit bureaus (this is important). William agrees to deposit $500 in a savings account as collateral. The credit union loans William $500 at 8% interest. William will pay the loan in 12 equal payments of $43.50 a month with automatic withdrawal from his checking account. Total interest paid will be approximately $22 dollars. This will jack up William’s FICO score.
Piggyback Healthy Credit Accounts. FICO rewards you for paying your bills on time as well as for how long you’ve been paying them on time. A one-year-old account paid as agreed is not as good as an account you’ve had for 4 years and paid as agreed. Piggybacking is a “loophole” in the FICO model which allows you to use the healthy accounts of other people. I’ve seen radical increases in scores – 50 points in 30 days – by using this tactic.
Example: Rhonda has a FICO score of 650. Rhonda piggybacks two credit card accounts – both have low utilization and were started 5 years ago – into her credit profile. FICO now incorporates these two accounts in calculating her score, and Rhonda’s score takes off to 715.
Control Utilization. The utilization rate is by far the biggest part of the “Amount of Debt” FICO factor, and this factor makes up 30% of your score. The utilization rate is defined by your credit card balance divided by your total credit card limit. For example, if your credit limit is $10,000 and your balance is $1,000 then your utilization rate is 10%, which is excellent by the way.
The idea here is to keep the gap between your current balance and credit limit as large as possible so that you are using 28% or less of your credit limit for each credit card account. Try to keep your utilization at 28% or less on each of your credit card accounts as well as your overall utilization.
Example: Tonya owes $4,500 on credit card A with a $10,000 credit limit. She owes $1,000 on credit card B with a $10,000 credit limit. Tonya’s individual utilization rate for card A is 45% (not good). For card B her utilization is 10% (excellent). Her overall utilization rate for card A and B is 27.5% (excellent). However, to really improve her FICO score Tonya should pay down about $1700 of card A to get that card’s utilization rate lower. Remember, the goal is 28% or less.
Credit Score Loopholes Almost No One Knows
The loopholes I’m about to share with you is all above board and legal, yet I’m willing to bet that maybe 1 in 1000 people know about these perfectly legal credit score loopholes. By using these techniques, and depending on where your credit score is now, you may be able to raise your score by 100, 200 or more points in just a few months.
Alternate Credit Loophole. Non-consumer credit usually does not report to the credit bureaus. For example, business credit cards often do not report (more on this later) to your consumer credit bureau. More on alternate credit later in this chapter.
Example. Matt has two business credit cards in the name of his business which do not report to the credit bureaus. He also has 3 personal credit cards and these do report. His business credit cards are maxed out, but his personal credit cards have low balances in relation to credit limits (utilization). Matt’s utilization is excellent because he has low consumer debt reported to the bureaus.
Time Your Payments Loophole. Did you know you can pay off 100% of your credit card debt every month, and it may appear as if you are maxed out. How does this happen? It happens because you may be paying your bills on the wrong day of the month. Pay your credit card bill once a month on a day or two before the credit card company reports to the credit bureaus. If your VISA card reports to the credit bureaus on the 1st day of each month, pay your bill on the second to last day of every month.
Example. Sharon likes to use one particular low interest VISA card which has a $10,000 credit limit. By using the card for most purchases, a balance of about $5,000 accumulates during each month. Yet Sharon pays it off in full on the 1st of each month. However, Sharon’s VISA reports the balance to the credit bureaus on the 28th of each month when there is still a large balance. This creates a problem because her credit report shows a large balance owed every month and this lowers her credit score. To remedy this problem, Sharon needs to pay off the VISA balance a day or two before the credit card reports to the credit bureaus.
Get Investigated Loophole. If you dispute an item on your credit report, you will receive a letter from the credit bureau confirming they have accepted your dispute and it's under investigation.
While the item is being investigated, that negative item is not being calculated as part of your FICO score. So temporarily, you could see a dramatic climb in your score. Bottom line: it's not a long-term solution, but it can help get approved for credit or get a cheaper rate when a negative item is affecting your score.
Inquiry Loophole. When you apply for a car or a mortgage apply with every lender within one 30-day period. It will only count as one inquiry. The negative effect of an inquiry lasts 12 months from the date of the inquiry. However, don’t sweat inquiries that much. Inquiries don’t drive down your credit score compared to late payments, collections, judgments and excessive credit card debt.
Example. Joe applies for 20 car loans and 10 mortgage loans from April 1 to May 1. Joe will be considered by FICO as having only two inquiries, one for his car loan shopping and the other for mortgage shopping.
TIP It does not work the same way for revolving debt (credit cards and charge cards) as it does for mortgages and installment loans. So if you apply 10 times for a credit card in 30 days it counts as 10 inquiries and it’s going to drive down your FICO score more.
Reason Codes Loophole. Did you know a road map exists revealing how to increase your FICO score? These are called “reason codes” and there are over 40 of these codes, each code explaining what to do to boost your FICO score.
Raise Your Credit Limits Loophole. If you raise your credit limit, your FICO score will increase because your utilization rate will decrease. In this regard, timing is everything; so is knowing who to contact. There are “back door” numbers where you can get a decision maker who is more on your side.
Example. Barry has two credit cards, each with a $1,000 credit limit. His balance on each card is $500. So his utilization is 50%, which is not good. Barry calls at the right time to the right person and gets the credit limits raised to $2,000 per card. Utilization is now 25% (500 ÷ 2000). His FICO score goes up!
After my own financial disaster in 1998, I made a vow to learn as much as I could about credit, and restore my credit fast - or die trying! Really, I was so determined. The big breakthrough occurred when I met a man who was a legitimate "insider" in the credit industry. My credit was close to perfect in less than a year because of what I learned from that man.
Now I teach the same cutting edge techniques to my clients as part of the Total Tax Recovery system. If you are interested in resolving your tax or debt problems, and you want good credit fast, give me a call.
800 695 0525 or 414 771 9200