Intro to Credit Gaming - Part II

Continued from Intro to Credit Gaming - Part I

Keep your balance to limit ratio low. (In saying this, I am talking about aggregate balances and aggregate limits across all of your credit cards, lines of credit, etc.) This can happen in two ways: A) Keep your balance low in absolute terms (always recommended but not always possible); and B) Raise your credit limit. If you already have a credit card, you can call customer service and request a credit line increase. They may or may not do it, but even a small increase can drastically change things.

This ratio is not linearly applied to your credit score. In other words, there are "tipping points" when things start getting worse and worse. For example, the difference between 0% and 25% is pretty small, but the difference between 25% and 50% is large, and the difference between 50% and 90% is massive. If you are carrying a balance that is over 90% of your credit limit, your credit score will be severely depressed. For example, if you have $20k of credit limit and you've taken up $19k in debt, you are at 95%. This kind of ratio looks like the "kiss of death" to lenders, and you look like you are headed for bankruptcy. If you can open up ANY sort of new credit line (even something with a bad interest rate -- don't use it, just open it) or extend your limit by even a small amount (and of course don't utilize that extended credit), it can improve your score.

On the other end of the scale, you can preemptively increase your limits when you are not facing credit problems. Sometimes the CC companies will do it with just a simple call and request. If they are a bit more reluctant, they might require justification. You can do this pretty easily if you can give a reasonable excuse for it when you call. Tell them that you are buying a new $2000 computer and want to put it on your card. They will have no way of tying the credit increase to your $2000 purchase, so they will increase your limit and you won't actually have to spend the money. You can even do this online with some credit cards. Just enter a reasonable-sounding justification, and you will likely get the increase almost automatically.

Often the company will increase your limit as part of their regular (annual, semi-annual, quarterly, etc.) account review. Discover Card raised my limit almost yearly for the first 3 years with no prompting on my end. But if you do not use your card at all, you will not get these limit increases. Charging it up close to the credit limit and then paying it down every month will often do the trick. For example, if you have a card with a $2500 limit, charge it up to $2000 a couple of months in a row and pay it off. The company will smell blood and raise your limit, trying to get you to charge more.

This method is very effective. If you ask for a credit increase, it might add an inquiry to your credit report, depending on the policies of the company. But the decrease due to the inquiry is quite minor compared to the improvement to your ratio. (More on the effect of credit inquiries later.)

Opening up a new credit account is just as effective as increasing the limits on an existing account. I have a real-life example of this. During the same period of unemployment I mentioned above, I was nearly at the end of my credit rope. I had 3 CC's with about $8k in total debt (within $500 of the credit limits). I finally got a job that was quite well-paying, but I was going to have a bit of trouble making the payments until my first paycheck (which would be delayed nearly a month from my start date). I called American Express, who had been pestering me to apply for a Blue card (I already had a Gold charge card), and they offered me a Blue with a $10k limit. I was dumbfounded (the limit on this one card was equal to more than the limits on all my other cards combined), but I did it and transferred all of my old balances to the new card with room to spare and a 0% APR on the transfers for 12 months. (I got the entire thing paid off easily within the 12 months.) My credit score (which I monitor monthly... will discuss in a later post) shot up from the 550 range to the 660 range by the next month. That's a 110-point change by changing my ratio from over 90% to under 50%.