Open New Accounts for Credit Repair Success!
You Need New Accounts Your credit repair success depends on the presence of positive accounts on your credit report. Many people jump into a credit repair program thinking only of disputing the derog...
You Need New Accounts
Your credit repair success depends on the presence of positive accounts on your credit report. Many people jump into a credit repair program thinking only of disputing the derogatory items on their report. Removing reporting errors is an important and even exciting part of any credit repair effort, but unless you have current open accounts that are registering timely payments each month your FICO credit scores will languish and you will be left wondering what went wrong.
The logic behind the need for open active accounts is simple. Your credit score is designed to provide prospective lenders with a predictive measure of the likelihood of you being a good lending risk. The credit scoring algorithm searches through your credit file for proof that you are a capable and responsible borrower. It wants to see that you are alive and well and paying your bills. If the scoring software scans your file and cannot find any proof or your payment abilities you will not be rewarded with a good score regardless of how successful your credit repair program has been in deleting the problem accounts.
Secured Credit Cards
Recent events in the credit markets have left lenders less willing to take chances. If your credit is not great there is little chance that you will get approved for a credit card. This is the situation that many people face when starting a credit repair program. But there is a solution. Just get secured credit cards. Secured credit cards require that you open a small savings account to back up the amount of the credit line of the card. For credit repair purposes the size of the card is not important. I often suggest to clients that they open secured cards with the minimum amount required as the score benefit is based on proper management rather than size. The optimal number of cards for rebuilding your scores is two.
Avoid these Common Errors
Once your secured credit cards are active you should use them. There are two common mistakes that people make with new secured credit cards that will limit the benefit and even end up hurting your score. The first error is not using the card. It is not enough to open the account; inactive accounts are soon ignored for credit score calculation. The second error people make, and the most damaging for your credit repair effort, is using the full amount of the card. This can be tempting (and easy) to do with a card that has such a small limit, but a maxed out credit card can lower your credit score by over 100 points. The right way to use these new cards is to keep a small balance, but do not use more than 20% of the available credit line.
The Mechanics of Your Score
Here is some information that will shed some light on your credit repair effort and help you manage your credit for the best possible results. The FICO credit scoring software analyzes the relationship between your account balances and their respective limits. The levels of card usage recognized are 20, 40, 60, 80, and 100. The lower your usage, the higher will be your score. You might find it helpful to think of the lower two tiers as giving bonus points, 60 percent usage as being neutral, and the two top levels as the penalty zone. Take this seriously. As mentioned earlier, a maxed out card can cost you over 100 points on your score.
You are in Control
Have you maxed out your credit cards and seen your score fall? Donít worry. There is some good news about revolving balances and your credit repair. Your credit score will recover instantly when you pay your balances back down. This means that, theoretically, you could keep your balances at the cards limit until you needed your credit scores to be at their best. If you decide to manage your cards in this manner, just be conscious that it can take up to 60 days for your new reduced balance to be reported on your credit report, so make sure to pay those balances down well in advance!
Credit Repair Services
Do you need credit repair help? Many people benefit greatly from having a professional credit repair service examine their reports and build a comprehensive plan for cleaning and restoring their credit. A professional service will make sure that every available strategy for score improvement has been considered. Itís worth a look. You will discover that professional credit repair is extremely affordable. Good luck!
Copyright © 2008 Edward White. All Content. All Rights Reserved.
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ABOUT THE AUTHOR
Ed White is a credit repair expert and financial consultant. In addition to his own private practice he consults for one of the nationís leading credit repair services. Ed is a graduate of the University of Pennsylvania and has a degree in economics.