Please read carefully – this may be the most powerful, least publicized FICO scoring trick there is, and there is more than meets the eye. Are you ready? New accounts opened after a period of bad credit are given special weight by FICO. The implications are fantastic for anyone in a credit repair program who wants to see dramatic results. And who does not?
Getting Back on the Horse
New accounts opened after a period of credit trouble are given far more weight than pre-existing accounts. If you have pre-existing accounts that have survived your plight, by all means manage them well, they are great assets; old accounts with a long history should not be abandoned. But for a major credit score boost, now is the time to show FICO that you are ready to get back on the proverbial horse by opening new accounts.
Choose Your Weapons
The right types of accounts to open for credit repair are revolving accounts, specifically mainstream cards. MasterCard and Visa are the best bet. Discover and American Express will work, but they are more difficult to obtain and not universally accepted.
Secured Cards are Perfect
If your credit is really bad, and you will not get approved for regular cards, you should get secured cards. Secured cards are perfect for credit repair. The best of the breed will report to all three bureaus, will not indicate a secured status on your reports, and will require only a small security deposit to get started, typically three-hundred dollars.
Over 100 Points
What can you expect? If your scores are in the mid-500s, and you open two secured cards today and manage them properly (see the notes on revolving balances below) your scores should be in the mid-six 600s within six months of the date the new cards first report. In plain English, your two secured cards will be worth over 100 points.
Your Balances Matter
Managing your new accounts is a critical factor in reaping the full score benefit. It is simple, but requires some discipline. For the big score boost, your balances must be less than 20 percent of the available limit. For example, if you get a card with a 300 dollar limit, your balance should be under 60 dollars.
Living Your Life
In truth, you can do anything you want with your cards from day to day. You can even run your balances up to the limit. If you are monitoring your scores you will see them take a nosedive, but get the balances back under the 20 percent mark and you will recover.
Look Good When You Should
When the creditor reports the reduced balance your scores will pop right back up; no long term harm done. Credit cards can be a really valuable credit repair tool, but you have to live your life too. If the need arises, use your cards without guilt. Just pay them down, and keep them down for at least 60 days (the length of time it may take for your reduced balance to get reported) before you need your scores to look their best.