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1. Apply for business credit cards
Most people don't realize that over 90% of business credit cards do
not get reported to personal credit reports. If they are not
reported, they are not scored, period.
Many people run their businesses from their personal credit cards
and as a result their credit score suffers. You don't need
a big company to get approved for a business credit card; it is much
easier to get approved than most people think.
Once approved, you can move you personal credit card debt
over to the business credit cards and watch your credit score go
through the roof once everything is updated on the credit report.
2. Settle for deletion, or at least zero out, all
unpaid collection accounts less than 24 months old.
You need to pick your battles as to which accounts you focus on
during the credit crunch to assure your credit score
increases enough to get your loan approved.
When payment is made on a collection account that is less than 24
months old, the score will either stay about the same or increase a
few points. Settling in exchange for deletion is ideal, but not
always possible. Given the fact that the collection account will
keep selling to other collection agencies in the future, it is best
to deal with it while it is still young.
Once an account goes beyond 24 months you need to be careful when
settling because the account may erroneously have the date of last
activity updated to the current date and bring the score down as a
result.
3. Make sure you get rid of all your past due amounts on
non-collection/charge-off accounts and make sure you pay before the
due date until after the loan closes to be safe.
Within the delinquent accounts on your credit report, there
is a column called "Past Due". Credit Scoring software penalizes
people for keeping accounts past due, so past dues destroy a credit
score.
If you see an amount in this column, pay the
creditor the past due amount reported, unless that amount belongs to
an account that is charged-off or in collection. If that is the
case, use the advice in number 1 above to determine the best action.
4. Get rid of late payments.
Contact all creditors that report late payments on
your credit and request a good faith adjustment that removes the
late payments reported on your account.
Be persistent if they refuse to remove the late
payments at first. Remind the creditors that you have
been a good customer and would deeply appreciate their help.
5. Ask for a credit limit increase on your credit
cards and either pay-off if possible or at a minimum evenly
distribute the balances you're carrying on your revolving
debt.
Credit scoring software likes to see borrowers carry credit card
balances as close to zero as possible and also see that you have
been trusted with a lot of credit - which is why increasing your
limits is good.
If you can't afford to pay down your credit card balances,
evenly distribute your credit card balances among all
of your credit cards rather than carry a large balance on one
credit card to maximize your score.
6. Do not close your credit cards!
Closing a credit card can hurt your credit score, since doing so
affects your debt to available credit ratio. For example, if you
owe a total credit card debt of $10,000 and your total credit
available is $20,000, you are using 50% of your total credit.
If you close a credit card with a $5,000 credit limit, you will
reduce your credit available to $15,000 and change your ratio to
using 66% of your available credit.
7. Keep your old credit cards active.
15% of a credit score is determined by the age of the credit file.
Fair Isaac's credit scoring software assumes people who have had
credit for a longer time are at less risk of defaulting on payments.
Therefore, even if old credit cards have horrible interest rates,
closing those cards will decrease the average length of time you
have had credit.
Use old cards at least once every six months to
avoid the account rating changing to "Inactive". Keeping old cards
active can be as simple as pumping gas or purchasing groceries every
few months, then paying the balance down.
An inactive account is given less weight by Fair Isaac's credit
scoring software, so you won't get the benefit of the
positive payment history and low balance that card may have as much
as if the account were active.
8. Pay down Negative Amortization mortgage balances below the
original amount borrowed to increase the score
Most people don't realize that owing more than the original amount
borrowed on a loan is a negative event to the credit score. If
possible, pay down the balance on any and all negative amortization
loans on which you owe more than the
original loan amount. This includes mortgages and student loans.
Once you bring the balances below the original amounts
borrowed, a credit score increase of 5 to 10 points is very common.
Don't confuse this advice with labeling a negative amortization loan
as being bad. They can be a great financial tool when used
appropriately and make otherwise unaffordable payments affordable.
They can be great as long as you're not in the middle of a
refinance, but if you are, paying these balances below the original
amount owed can maximize your credit score.
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