About Me and Disclaimer

I am 26 years old with above-average intelligence and a better-than-average job, but a fairly average life. I do not work in the banking or finance industries. I have never managed anybody else's money nor even seen anybody else's credit score. All of my experience in this area comes solely through things that I have read, following my own credit score monthly for the past 3 years, and common sense.

I am going to blog anonymously, although I may have left a few tidbits elsewhere. I will go into detail about my credit situation, including my score, components of my score, credit cards that I have, etc. For obvious reasons, I will not identify myself by name, and other information about myself will necessarily be vague.

I make no guarantees that anything I write about will apply to your own life or credit score. I am not a credit, banking, or personal finance professional, and this blog in no way constitutes an advisor-advisee relationship between me and you. Nothing that I write here should be construed as financial or legal advice. I am not a lawyer (no, really, I'm not). What you do with your own money is your own business and your own responsibility. While I endeavor to make this blog as factual and correct as possible, I have limited experience and will definitely make mistakes. The author of this blog bears no responsibility for any actions you may take based on information presented on this blog.

I am more than happy to hear from readers about their own experiences. The more data points that we have, the better we will be able to understand the credit scoring system. I will have an e-mail address specifically for blog use soon. Until then, please leave comments on the blog.

I will run Google AdWords and possibly various other advertising systems on this blog. I in no way endorse any of the ads presented. In fact, most of them are bound to be snake oil salesmen promoting all kinds of junk related to credit. I usually don't even see the ads myself, as I use Firefox with Adblock, which blocks almost all ads. If I link to a book on Amazon, usually it will be something that I have read or heard good things about.

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%.

Intro to Credit Gaming - Part I

The first thing to know is what goes into your credit score. According to Wikipedia, FICO components are:

• 35% payment history (on-time vs. past due) -- goes back 7 years
• 30% ratio of current debt to credit limit
• 15% length of credit history
• 10% types of credit used
• 10% recent credit requests and recently obtained credit

These percentages are given as a rough starting point and should not be taken as gospel, but I doubt they are ever too far off from the actual calculation. The first thing you should notice is that there are two "big boys" which each are roughly equal to the other components combined. These major players are Payment History and Debt/Limit Ratio. As these are the largest components of your credit score by far, they are where you should focus your efforts. I will cover the first point now and save the others for later.
Always, always, always pay on time. If an account is no more than 30 days past due, it is not considered late. My current credit report shows no missed/late payments on any of my accounts, ever. I came close a couple of times. Once, I was basically unemployed, so my mom bailed me out on a car payment that I couldn't make for the month. It was nearly 30 days past due, and she didn't want me to ruin my credit score. Thank goodness! However, there is some question as to how badly a single late payment can hurt your score. I have read that one or two scattered missed payments won't really hurt you substantially (at least once enough time has passed, say 6 months or a year), but a recurring pattern will really do you in.
If you cannot pay on time, minimize the number of missed payments. This was my strategy before my mom bailed me out: I was able to pay all of my 4 credit cards' minimum payments that month, but I was going to miss the car payment. If I had skipped all of the credit card payments, I would have been able to afford the car payment. So rather than have 4 missed payments on my credit report, I aimed for just 1. Obviously I never saw how this played out, and I can't really do a test to verify this advice, but it seems fairly obvious.
Next time: Credit Limit to Debt Ratio!

Future Topics

I have a number of Personal Finance related topics that have been floating in my mind for months. I have been reading a few PF blogs for the past couple of months and have read probably 5 books related to the topic in the past few months as well. This entry will serve as a repository where I can dump quick ideas for future entries. If you have a suggestion or want to see an article on a particular idea, let me know! Whenever I write an article on the topic, I will turn it into a link here.

• The Diamond Scam
• Gaming Your Credit Score:
  • Paying on Time
  • Maintaining Low Balance to Limit Ratio
  • Monthly Timing
  • Establishing Credit NOW
  • Taking Advantage of Parents' Income
  • Using Bank Lines of Credit
• Using credit cards to your advantage
  • Rewards
  • Perks
  • Rebates
  • Avoiding Yearly Fees
• Changing your Eating Out Habit
  • Fast Food
  • Sit-down Restaurants
• Buying a Car
  • Financing a "Good Deal"
  • Never Ever Lease... Except
• Self-Employment and its Benefits
  • As it pertains to loans
  • As it pertains to taxes
• Getting Good Deals
  • Websites
  • Return Policies
  • "Pay less than eBay"
• Maintaining Your Finances
  • Obsession vs. Control
  • It's Not That Hard To Balance Your Checkbook
• Insurance
  • Never a Particularly Good Deal
  • Car Insurance
  • Health Insurance
  • Renter's Insurance
• Exercise
• College Life
  • Student Loans

Welcome to Gaming the Credit System!

This is a personal finance blog with an emphasis on your credit score and how to improve it. Any time that something is scored and the scoring method is known to the participant in the system, the system can be gamed.

By that, I mean that you can utilize your limited resources effectively to maximize your score. If you're playing a "Space Invaders" type video game and you know that shooting the red guys will get you twice the points of shooting the blue guys, you know to shoot the red guys first (assuming your only goal is to maximize your score).

The rules for credit scoring are well known. Therefore, the ways to maximize your credit score are also well known. There are simple and easy things that you can do to bump up your credit score almost immediately.

A little background about me: I am 26 years old and have a FICO score of 772. I will give more details into my life and finances later, as they come up in my posts.