6/8/2012 4:32 PM ET|
'Cheat' your way to better credit
Great credit scores mean a healthy financial future. If your scores are less than ideal, here are some quick, legal ways to push them up.
To err is human, to forgive takes time -- at least when you're dealing with credit scores.
Even small missteps can deal big blows to your scores that can take months or even years to heal. Bigger screw-ups can keep you in the credit-score basement even longer.
Fortunately, there are ways to speed up the recovery process. Each of the methods described below is perfectly legal, even though we're calling them "cheats." They're more like shortcuts to get better credit.
None of these methods will work for long, though, if you don't have your financial act together. You'll quickly lose any improvements in your scores if you miss a payment or wind up with new collection accounts.
Once you're in a position to pay all your bills and start using credit responsibly, though, you might consider some of the following:
Cheat No. 1: Piggyback on someone else's credit
Being added as an authorized user to someone else's credit card can raise your own scores, if the credit card issuer is cooperative. Many issuers will export the cardholder's history with that account to your credit reports.
Some issuers won't do these exports, and some credit-score formulas ignore authorized-user information in their calculations. But the leading credit score, the FICO, still takes authorized-user information into account.
You'll need to first find a cooperative person with good credit (obviously), and that person will need to check with his or her issuer to make sure the information will be exported to your credit reports. If all systems are go, you don't need to have access to the card -- the other person's responsible use of that plastic will help your scores.
Caveat: The flip side is that your scores can suffer if the other person suddenly skips a payment or maxes out the card, so make sure you find someone you can trust to continue handling credit well.
Cheat No. 2: Make your credit card debt disappear (Option 1)
A big part of the FICO credit-scoring formula is credit utilization: how much of your available credit you're using at any given time. The formula is more sensitive to balances on your revolving accounts, such as credit cards, than it is to balances on your installment loans, such as mortgages, auto loans, student loans and personal loans. When it comes to credit cards, the less of your available credit you use, the better. Using less than 30% is good, less than 20% is better and less than 10% is best.
If you have big credit-card balances, consider paying them off or down with a fixed-rate personal loan from a bank or credit union. These loans, which typically last for three years, can not only help you get out of debt but can transform the nature of that debt in the eyes of credit-scoring formulas. A balance that is hurting your credit scores because it's on a credit card could be a neutral or even a positive factor in your scores if it were transferred to an installment loan.
Caveat: Lender policies differ, but not everyone will be able to qualify for a personal loan.
Cheat No. 3: Make your credit card debt disappear (Option 2)
If a personal loan isn't an option, you can consider paying off your cards with a loan from your 401k or other retirement plan. Retirement-plan loans typically don't show up on your credit reports and aren't a factor in your credit scores. As far as the credit bureaus are concerned, that debt just disappeared.
It didn't really, of course. You'll still owe the money, just to a different account. And retirement-plan loans are risky: If you lose your job, you may have to pay back any outstanding balance quickly, or the loan will turn into a withdrawal -- and that's very, very bad. Not only will a withdrawal trigger a hefty tax bill, but you'll lose all the future tax-deferred compounding that money could have earned. If you're in your 30s, a $10,000 withdrawal could cost you $100,000 or more in lost future retirement income. If you're in your 20s, you could be out $200,000 or more.
There's another downside: If you're in over your head with debt, your credit card bills could be erased in bankruptcy court. A retirement-plan loan isn't eligible for the same treatment. In essence, you're taking money that would be protected from creditors to pay a debt that would otherwise be wiped out.
Caveat: Consider a retirement-plan loan only if your job is stable and you're not a financial basket case.
Cheat No. 4: Spread your debt around
The FICO formula looks at how much of your total available credit you're using, but it also looks at the credit utilization of each individual account. A big balance on a single card can hurt you more than the same debt distributed over several cards.
So spread your debt around. You don't want to open a bunch of accounts at once, because that can hurt your scores, but see if you can transfer some of your debt to your other cards.
Caveat: Your ultimate goal should be to pay off your debt, not keep moving it around. And if you've already maxed out all your cards, it's way too late for this tip; you should be talking to a legitimate credit counselor (you can get referrals from the National Foundation for Credit Counseling) and a bankruptcy attorney (referrals from the National Association of Consumer Bankruptcy Attorneys).
Cheat No. 5: 'Bribe' your creditors
The FICO formula treats a collection account as a "severe negative derogatory," in credit-scoring parlance. That means "seriously bad news" for your credit scores.
Many collection agencies, however, can be persuaded to wipe a collection from your credit reports with the right motivation. That means cash.
This is a technique called "pay for deletion," where the borrower settles the debt, usually with a lump-sum payment, in exchange for its deletion as a collection account.
You may not have to pay 100 cents on the dollar to settle the debt, because chances are good the collection agency paid only a few pennies on the dollar to buy it. But whatever deal you negotiate, make sure to get the agency's promise -- in advance and in writing -- that the account will be deleted from your credit files and that the collection agency won't sell any unpaid portion of the debt to another collector. (You may wind up with a tax bill for any "forgiven" portion of the debt, however.)
Caveat: Erasing a collection account won't erase what the original creditor has to say about you. If the account was charged off before it was turned over to collections, for example, the charge-off will remain on your credit reports and have a larger negative impact on your scores than the collection did. But even so, getting rid of the collection certainly won't hurt your scores and could help them considerably.
Cheat No. 6: Disavow all knowledge
About a third of us have a collection on our credit reports, and many of those are for piddly amounts: a small doctor bill, an unpaid parking ticket, a tiny balance on a cellphone account. Those small amounts can have outsized effects on our credit scores.
The good news is that collection agencies think those amounts are piddly as well and may not bother to verify the information if you dispute it. Typically, this works for collections that are small (less than $100) and old (close to the seven-year mark where it will fall off your reports anyway). After pulling your free credit reports at AnnualCreditReport.com, you can try disputing small, old collections as "not mine" and see what happens.
Caveat: A collection agency might fail to verify an account within the required 30 days after you dispute it, but the company could report the account again later. You'll need to keep checking your reports to see if it pops back up. Also, this technique is unlikely to work on larger and more recent accounts. It really is meant for those who screwed up in a minor way once, long ago, and just want to hurry the black mark off their reports.
Cheat No. 7: Erase the evidence
Defaulting on a federal student loan has serious consequences. Your tax refunds can be seized and your wages subjected to garnishment, and you're shut out of future student aid. Student-loan collectors don't need to get a court order to make this stuff happen; they can just do it.
If you can get back on track with your payments, however, you have an option not available to most other borrowers: Your default can be erased from your credit reports and thus your credit scores.
How do you make this miracle happen? It's called rehabilitation, and it's available on a one-time basis with federal student loans only. If you default again, you won't be eligible for rehabilitation. Private student loans aren't eligible.
To rehabilitate most federal student loans, you're required to make nine out of 10 consecutive payments on time. ("On time" means within 20 days of the due date.) With Perkins loans, you must make nine out of nine consecutive payments on time. The required monthly payment must be "reasonable and affordable," as worked out between the borrower and the student-loan collector.
Caveat: You'll have to pay collection costs of up to 18.5% of the unpaid principal balance, as well as accrued interest, which can be substantial if the loan has been in default for a while. But even if you didn't enter into rehabilitation, you'd still owe that interest, plus collection costs that are likely to be higher.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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Typical nonsense to encourage people to cheat? For what purpose? So you can bury yourself further in debt?
The banks are heartless. So are the politicians who took us off the gold standard and continue to defend them now. What a ponsie scheme that was.
Lets install a money system that will eventually devalue itself to nothing over time(that's what inflation is)
And instead of paying people higher wages that equal the inflation rate, we can just loan them more money to help continue their illusion of prosperity, and they can just pay us back with interest. So then we can start cutting back on the quality and size of products, charging more and more for things worth less and less, while they continue to pay with money worth less and less and bury themself in debt.
A Message To The Banks & Their Shills (The Credit Bureaus)...
GO TO HELL !!!
For those of you good people out there,do you remember the days when you could pay your car loan,credit card,or mortgage late and still have a AAA credt rating ? As long as you paid your bill within 30 days of the due date,you could. You would still incur a late fee,but it did not appear on your credit report like it does today. Now,that being said,some years ago, the credit card banks had figured out how they could start screwing you to the wall by changing the 30 day rule. They sent you a little booklet
( legal notice ) telling you that if your payment is not received by the due date,that this would be considered A DEFAULT and you would now be paying a higher interest rate. And our good friends in congress let them get away with it at your expense. Could you imagine the mortgage banks being allowed to do the same thing ? I hope you all realize, with the current credit scoring formula, WE HAVE LOST ALL CONTROL OF OUR FINANCIAL LIVES. With the Fico system, If you decide to close out a credit card,this hurts your score. If you pay your bills on time,and you use more than 50% of your credit limit on a card, this hurts your score. Etc,etc,and etc. We are just a number,or should I say a prisoner of the system. Remember folks, we have so much consumer power if we would only use it .
Do you want cars that get much higher gas mileage ? Then don't by a car unless you absolutely need one. It would not take very long for the auto industry to get the message. Do yourself a favor and visit this website. ethosthemovie don't forget to put the www in front. We all need to WAKE UP !!!!!!!!!!!!!!!!!!!!!!!!
Just like so many people here have said - credit is just a hoax - a scam - to screw you out of as much money as possible. These days they are even trying to link it to your insurance payments, job offers, etc... what a joke !!!!! If they really wanted a true credit system then they woul dhave different levels of crerdit - automobil, home, consumer, student, etc.. and one would not reflect against or for the other. Think about leasing a home for 15 years then trying to by a home and they say sorry you do not have enough credit or you are a risk. Well I was not a risk for 15 years paying that landlord all that money but I do not get credit for that.
The other day I pulled my crerdit and found a collections on there for a Colombia House DVD account that I never even signed up for or utilized. They cannot provide me with the contract or the order forms all they say is "well it came from your address and name over 10 years ago and you have to pay it or we will leave it on your credit report". Basically trying to extort money from me from this illegal action. how can a collections company put something on your account that is not a financial contract with legally binding sugnatures or that is not linked through your ss# ???? Mind boggling !!!!!
My mother has always had perfect credit (over 40 years now) and the credit card companies started closing her accounts for non-use without even telling her, jacking up the rates for non-use within 30 days, shoot she even went and purchased a new car and since she has not used that much credit in the last few years they jacked her interest rate up to 11% even though her score was in the upper 700's.
So I went out and cancelled all but one credit card - which I do not need- but they do not charge me any interest (YEA-USAA!!) and I just use it to have something on my report. Paid off all my bills while I was in Afghanistan and will only use credit for buying a home, land, car, and maybe my kids future college bills. All the other if I cannot pay cash for it - then I do not need it - that simple !!!!!
GOOD LUCK EVERYONE dealing with the credit nazi's.
Has anybody else noticed that if you have a medical procedure that is not 100% covered by insurance, you will get your statement from the insurance company stating what they paid but never get a bill from the hospital or medical group? They just let it sit and go to collections.
My wife and I talked to a credit counselor and he told us this is more and more common. You never get a bill, they just ignore it until it goes to collections. I'm not sure what benefit this is supposed to have for them, unless they figure they're paying a collection group anyway so they might as well let them do the work and not have to employ as many people in the billing department.
This is flat out wrong and needs to be addressed.
There is too much need put on a credit score. I checked mine the other day and it was fine, but the bank still would not lend me any money. The banks can use any reason they want not to lend you money,,,,,,They can shove their credit score.
I do know the big banks have too much power and they need to be controlled/regulated more than they are.
For example, I don't pay any interest on my credit card debt, but I charge as much as possible because, with cash-back, it averages 2% less than paying with cash. I pay off my statement balance completely every month. But there's always some balance there because I do NOT pay off my entire balance because there's no interest charged on the amount that hasn't gotten to the statement level (usually charges made within the couple of weeks between your statement being issued and the due date). In January I paid my and my nephew's music class tuition to Johns Hopkins University and it was due on March 11. There was a couple dollars worth of bank interest even at 0.6% so I didn't pay it off any earlier than the card company asked me to do so.
But that means I usually have a few hundred to a few thousand showing up a "credit card debt" even though the money's sitting in the bank ready to pay it all off!
I'm glad I don't need to borrow money anymore!
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