1 great hack for improving credit
Adding an authorized user is a GREAT hack to improve your credit score. It can increase your chances to get higher “funding,” qualifying for a house, an auto loan or whatever your credit goal is.
So, what exactly is an “Authorized User?”
An Authorized Users is someone who holds a credit line but is not the actual primary account holder.
Here’s an example:
Say you are married and you own a credit card with a $10,000 limit with a $500 balance. You add your wife with no credit history as an “Authorized User” with your credit card company so she can use your credit card etc. Now your past credit card history will show up on her credit as well just as it is on yours.
How can the authorized user improve my credit?
Well, in the above example, the wife didn’t have much credit at all but her goal is to try to qualify for loans or credit cards in the future on her own. Since she has no credit, adding the authorized user will actually benefit the wife. The $10,000 limit will actually show up on her credit report now. This process is also called “piggybacking.”
There is a misconception that adding authorized users to one’s file will automatically make the credit sky rocket with super powers and now you qualify for $150,000 in loans etc.
Don’t get me wrong, they do help or give a credit boost but you have to be somewhat realistic, they’re not magic! Of course, banks can tell if an account is an authorized user or if it is actually your account (primary account) so keep that in mind.
BUT it does increase your credit score and improve history in the above example because she didn’t have much credit history. Since the husband only owes $500, this low balance is a great low utilization. Banks will now see her credit report which will show the $10,000 credit card and be more prone to extending her credit now or approving her loan.
On the contrary, if the husband owed $10,000, than the credit card would be considered maxed out. If her goal was to try to get “funding,” even though the husband has not missed one payment, it would actually hurt her credit since the balance or utilization is so high. Banks see this as being “maxed out” so they most likely would not like to extend her credit or approve her for a loan.
Revolving and installment accounts are 30% of your credit score so depending on how many accounts you have, an authorized user can greatly improve your credit and increase your score.
Some important things to know before adding authorized users to your account.
- Be sure you know what the balance is or make sure that its under 30% of the credit card limit. No use in adding an authorized user to your file if its over 50% or maxed out.
- Before adding Citi, Capital One, Discover authorized users please note these credit card companies now require that you send in ID and SSN copies sent in. So if you have a CPN file, they won’t be added.
- This sounds sort of obvious but you’ll be surprised, ask the account holder if there are any late payments on their card before you add because if you’re not careful and do add an Authorized User to your account with a late payment, now it’s your late payment too!
If you are adding an Authorized User to get higher funding, add 1 to 2 AUs (authorized users) that are at least 2 years old and minimum of $8000 credit limit. Anything less would make that much of a impact. The bigger the limit, the better!
How to get an 800+ credit score
Not that many people know because it is so rare but your FICO score is able to reach 850. Today we live in a world of instant gratification. GIMME NOW! …….. CHARGE IT!……By having a little self control you too can be in the 800+ credit club
Having a high credit score can drastically save you hundreds of thousands over the years in money from interest from mortgages, credit cards or purchasing a vehicle etc.
- ON TIME PAYMENTS – Just paying on time is 35% of your score. NEVER make a late payment. The higher your credit score, the more it can drop with a late payment. It takes a long time to build a high credit score but one late payment can bring you crashing down. I know, I know life’s not fair… ;(
- UTILIZATION – This is mostly taken into consideration from your revolving debt (credit cards & line of credit). The standard everyone knows is to have your utilization at 30% or less but if you really want to increase your score, have it less than 10%.
Example: For a $10,000 credit card to have a utilization of 30% or less you need it under a $3,000 balance. Under a 10% or less utilization is a $1,000 balance or less.
- INQUIRIES – Inquiries are only 5% of your score. Although this is a smaller factor it’s still important. 72% of people with 800 credit haven’t applied for “credit” in a year. I bet you didn’t know that fact!
- MIX OF CREDIT – This is most likely the most important and less understood to obtain an 800+ credit score. FICO wants to see that you have a credit mix of BOTH revolving and installment loans.
Revolving are credit cards or line of credit. Installments vary from personal loans, auto loans, mortgages, student loans etc.
If you just have one form of credit on your credit report such as just credit cards only, you’re most likely not going to be in the 800 club. A mix shows FICO you’re responsible with EVERY form of credit therefore a higher score like an 800+.
- NUMBER OF ACCOUNTS – The average 800 credit score has 5 credit cards ALONG WITH a credit mix of a couple of installment loans (mortgage, auto, student loan, personal loan etc)
- NEGATIVES – I think it is pretty understood to not have any derogatories/late payments/public records to be in the 800s. Not even one. If you have a derogatory or late you’re probably going to get knocked down to the 700 club and that’s if you’re lucky.
- AGE OF ACCOUNTS – Think twice before you cancel your longest credit card! The longer the better is how FICO sees it.
The oldest “average” credit card an 800+ person has is a $19,000 limit credit card and is 10 years old. Some people cut up and cancel their credit cards to get out of debt which is fine but remember FICO wants to see that you’re responsible with this so they give more points to people who have long credit history with credit cards.