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Building Credit

Building Credit

Opening and maintaining new accounts that report to the credit bureaus is key to building a solid credit rating. There are many different types of accounts that you can be approved for even if you have a poor credit rating. Typically, you will pay a higher interest rate, higher fees or you may have to secure the account with collateral such as money or assets in order to acquire accounts if your credit is less then perfect. You must understand that your credit history accounts for about 35% of your credit score; therefore you must open new accounts and pay the price if you ever want to increase your score. If you have bad credit, slow credit or no credit you may want to consider opening accounts that do not require established credit for approval.

Below we have outlined a few of the best accounts to help you in your quest to "season" your credit.

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Secured Loans:
Go to any bank or credit union, preferably the bank you already have a checking and/or savings account with. Banks operate differently. The most common secured loan is you (the borrower); giving the bank, (the lender); money, or the title to one of your assets (vehicle, equity or claim to your possessions like household goods) to borrow money. Tell the bank that you are trying to build your credit and that you want to open a secured account that you will be approved for that will help you build your credit score. Make sure the secured loan will report to the credit bureaus and have at least 12 minimum monthly payments. Once you have agreed on the collateral for the loan, you are given your money and have payments due before your collateral is returned. Make these payments on time and your credit will benefit.
Forced Savings Plans:
When you open a forced savings plan you are actually taking out a loan and the entire amount of the loan is deposited into a savings account. You are given set monthly payments. Each payment that is made unfreezes the amount you paid and earns interest. The on time payments are reported to the credit bureaus and you will end up with a nice little savings account when you finished.
Secured Credit Cards:
Most secured credit cards, debit cards or loaded value cards do not report to the credit bureaus, therefore they do nothing to improve your credit score so it is imperative that the cards you choose actually benefit you. We have included a link for the Top Cards. These cards are an exceptional value and we highly recommend that you get one if you are trying to build your credit score.
Finance Your Next Purchase:

Financing goods or services instead of paying cash is a smart thing to do if you are trying to build your credit. Paying on time will prove to prospective lenders that you can and probably will repay credit extended to you. Remember your credit report is a direct reflection of your spending habits and the risk factor of your probability of repaying the credit extended to you. You can finance furniture, jewelry, appliances, electronics, computers as well as almost anything you would normally pay cash for.

Again, opening new accounts that do not report to the credit bureaus does absolutely nothing to help your credit. Make sure that any new accounts you open report to the credit bureaus. When they do report, you are seasoning and building solid credit references that will be the foundation for future credit extended to you.

Piggybacking Technique

The golden-age of piggybacking isn’t over yet!!!

One of the best-kept secrets to instantly improve your credit score just stopped working as of February 2008 when Fair Isaac & Company better known as F.I.C.O. made significant changes to its credit scoring model. For many years people were able to benefit from other peoples credit by simply being added as an authorized user. The primary’s credit card account would suddenly appear on the authorized user’s credit reports and the scores would be recalculated with this aged positive account. This technique was referred to as piggy-backing. Creditors & Lenders were up in arms over this unfair advantage and quickly began protesting it with F.I.C.O. They protested this unfair advantage because it meant that they were going to fund loans and credit with credit scores that were not accurate and in the long run they were going to loose money. It is obvious that this is true because the extremely high rate of foreclosures and bankruptcies in recent years. Some people believe that this horrendous mortgage and bankruptcy crisis is due to unfair advantages like piggy-backing because people have obtained credit that otherwise could not have been obtained and are now defaulting.
Not only has the subprime meltdown made almost all credit harder to come by, Fair Isaac & Company has announced major changes to its formula. As a result, some actions that may not have hurt your score much in the past could cause your scores to go down or drop substantially, while other behaviors could help you boost your score more than it used to.
If you want some examples, take this for instance:

  • Keeping your balances high on your credit cards could hurt more.
  • Actively using your credit accounts is more important.
  • Having a mix of different credit accounts (revolving, installment,  auto or mortgage) will help you more because the new formula has a greater impact on your credit score simply because your ability to handle different types of credit.
  • Applying for new credit accounts may not affect you as much.

Some things about the latest revision to the score, referred to as F.I.C.O. 08, will stay the same. F.I.C.O. 08 will have the same 300 to 850 range as the classic F.I.C.O. score in widespread use today, with higher scores indicating lower risk of default will lower interest rates, cheaper insurance premiums, better deals on mobile phones and lower utility deposits, to name just a few of the ways credit scores are used.  F.I.C.O. says most consumers will see a slight increase in their F.I.C.O. 08 scores compared with their classic F.I.C.O numbers, but others will see a drop.

These changes, specifically being added as an authorized user no longer affect your score; so if you have accounts which you are an authorized user on, these accounts will be completely moot and will not be calculated your credit score.

There was a brisk and very brief business which sold a place on someone else’s credit card as an authorized user. If you were one of these people who paid to benefit from someone else’s credit, it no longer works.

There is however; a piggyback technique that does work and very few people know about it. The only way you can piggyback now is to get added as a “Joint” account holder, which definitely has its disadvantages but it can season and increase your credit scores and that is what really matters. Here is how it works:

1st - Find someone you trust. This person must have a credit card account with a major bank in good standing with a low or preferably no balance and be willing to add you as a “Joint” account holder.

2nd - Contact the credit card company and request to be added as “Joint” account holder.

3rd -  Monitor your credit reports to make sure it gets reported to the credit reporting agencies.

That’s it, you’re done. Provided you did everything correctly; this account you were added to should show up on your credit reports with one or more of the major credit reporting agencies Equifax, Trans-Union and Experian within 60 days or less. The next time a lender pulls your credit report for a credit application; F.I.C.O. will recalculate all (3) credit scores and include the joint account as if it was yours. The entire payment history will appear and get calculated into your new F.I.C.O. scores.

Please remember you can also piggyback new accounts by applying jointly but the secret about piggybacking is the fact that F.I.C.O.’s scoring model will take into consideration the years of previous payment history which took place before you were added to the account. For example, if you piggyback an account that was opened in 1990 you just added over 18 years of payment history that gets calculated into your scores. If you open a new account like a car loan, credit card, mortgage or installment loan by applying jointly; that is a new account which will actually affect your score negatively for at least awhile. Of course as time progresses, payments are made and the account ages; the account will begin to affect your credit in a more positive manner.

The disadvantages to piggybacking as a joint account holder are as follows:

  • You are equally responsible for the account.
  • You cannot remove your name from the account until it is paid and closed.
  • If the primary defaults you are responsible for the balance.
  • If the primary is late or defaults, it will affect your credit.

Make sure that the primary account holder is a responsible person and intends on paying the on time and keeping the balance low otherwise there is a good possibility that you will end up with problems. It’s almost as if the primary is cosigning on a loan for you but the primary can also get you in trouble so be very careful and use this to your benefit, not to your demise.

Follow these instructions and techniques and you will see your credit score skyrocket. When you are ready for your next home loan purchase or refinance, please keep us in mind. We have many lenders in our nationwide network and we will shop your loan for you. When lenders compete for your business you will get you the lowest rate and best possible terms; guaranteed. Also, please remember we offer affordable and effective credit improvement service.

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