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Credit Repair And The Power Of Secured Credit Cards

May 21, 2008
Time to Rebuild!

Are you starting the process of credit repair? The most important thing you can do, aside from removing erroneous information from your report, is to be sure you have sufficient open credit in good standing. A nationally recognized credit repair expert offers some valuable tips on rebuilding credit and optimizing your credit scores, quickly and efficiently.

The Big Credit Repair Mistake

One of the big mistakes people make as they begin a credit repair program is to neglect the credit rebuilding part of the credit repair process. Removing derogatory information, as important as it is, will only get you halfway to your goal. If you clean up your credit without opening new accounts your credit scores may go nowhere; in fact, your credit scores may fall leaving you no better off than you were before.

It's About the Score

People neglect to rebuild their credit for many reasons. Some people are under the impression they would be better off waiting until the derogatory information has be removed from their credit report before applying for new credit. This makes sense in a way. Unfortunately, the all-important FICO credit-scoring model will not cooperate with this logic.

Don't Be Left Out

In most cases the dispute process will result in the deletion of some of your tradeline history. This reshaping of your credit profile will be beneficial in the long run, but if you have limited credit the removal of any information can leave the FICO scoring model with a lack of useable data. And as a result your credit score will fall.

Credit Repair Common Sense

FICO is an acronym for Fair Isaac and Company, the creator of the credit scoring model that generates the scores lenders use in making lending decisions. Fair Isaac does not make the exact formula public, but there is so much common sense involved that if you take time to consider the purpose of the FICO score, you will understand how your activities are interpreted and extrapolated into this powerful number.

Big Brother is Watching You

Think of Fair Isaac as an impartial observer of your financial activities who is perpetually judging your ability to repay your debt. Fair Isaac looks at everything you are doing today and have done in the past. Fortunately for anyone in a credit repair program, recent activity is more important than past history. Every day is a new opportunity to prove your willingness and ability to repay your debt. And if you really want your credit score to improve you should become proactive about managing your credit starting right now.

The Magic of Secured Cards

Secured cards provide the perfect solution for anyone with little or no open credit. Unlike regular credit cards, you don't have to worry about your application being denied. Some people in a credit repair program may have acceptable credit scores and be able to get a regular non-secured credit card, but if you are not in that category secured credit cards are the perfect credit repair tool.

An Easy Path

A secured credit card will require a small savings deposit with the lending institution. Typically, you will be offered a line of credit equal to the amount of your deposit. In most cases once you have successfully managed your account for a period of time the saving deposit will be released and your card converted into a regular unsecured account. Most secured cards require a minimum deposit of either two hundred and three hundred dollars.

The Power is In Your Hands

You must manage your secured cards very carefully. Remember that you are communicating your financial responsibility with every purchase and payment decision you make. Making your payments on time is critical, but even more important is the way you manage your balance. These new cards are very powerful; a wrong decision can make your credit scores plummet even as you meticulously make your payments right on time.

Solid Credit Repair Gold

If you run your balance up to the limit you will communicate several things to Fair Isaac, and none of them are good. New credit is untested credit. Credit adds stress to your monthly budget, and without a track record Fair Isaac has no choice but to place you in a high-risk category, which means a lower score. But there is another side to this situation, and here is where you will strike solid credit repair gold. If you send the right message you will be quickly rewarded with higher scores.

Keeping Your Balance

The current FICO scoring model recognizes six different balance levels relative to your high credit limit, and you will be rewarded, or punished, accordingly. The balance-to-limit ratios recognized are 20, 40, 60, 80, 100, and finally - the deadly over 100% category. If you are in a credit repair program and eager to optimize your credit scores you should keep your balance below 20% of your high credit limit. You will be thrilled with the results.

Copyright 2007 James W. Kemish. All Content. All Rights Reserved.
About the Author
Jim Kemish, a well known credit repair expert and consumer advocate, is the president of Sky Blue Credit, a leading credit repair service since 1989. Jim is also the president of Power Mortgage, a Florida mortgage company.
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