How to Improve Your Credit Score How to Maximize Your Financial Picture!

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1 US Capital Management does not provide legal advice; therefore, this information is not intended, or should be perceived, as offering legal counsel to our clients or anyone else. How to Improve Your Credit Score How to Maximize Your Financial Picture! This report is aimed at readers in the United States of America. If you live outside the USA, contact your credit rating organizations for more information. Hi, Brad Mirtes here. If you have a low credit score, I created How to Improve Your Credit Score just for you. A better score will have tremendous impact on your finances and quality of life. Repairing credit will take time and there are no quick fixes. As a matter of fact, watch out for the quick fix efforts as they are the most likely to disappoint. You ll need to repair your credit reports before you see an improvement in your credit score. Most Common Credit Mistakes Thinking that there is such a thing as free money. Not living within your means. Not making payments on time or early. Maxing out lines of credit. Trying to applying for more credit than you can afford. Not using the FreeCreditReport.com to c heck credit reporting. Not ensuring the accuracy of information to the reported by Experian, Equifax and TransUnion. So What Kind of Credit Risk Are You? Here is the breakdown of the credit risk categories. Excellent Credit Risk These folks get the best terms. Very Good Credit Risk Good Credit Risk Fair Credit Risk Bad Credit Risk These folks get snubbed everywhere. Just a Few Benefits of a Higher Credit Score! A higher score may allow you to obtain loans with more suitable terms. A higher score may help you get a better job. It s one of the parameters that employers use to determine your employability. A higher score may help you get lower car and home insurance rates.

2 Score Categories 35% Payment History this category has the greatest effect on improving your score. Payment History Tips The creditor s software doesn t care if you pay your bill daily, weekly, bi monthly or whatever as long as the correct amount of money is sitting on your account by the due date. This is where computers can be fooled into thinking you re much better with your credit by doing some simple things. Make your repayments more frequently (like weekly or fortnightly) Round your new repayment amount up to the nearest $5. By doing these little things, the software instantly recognizes that you re paying more than you need to and you re paying more frequently than required. This can improve your credit score and have the added benefit of making it harder for you to fall behind with payments in future. You want to show that you are responsible with high balances, so you'll want to have high credit limits but a low balance. It actually helps to have a high balance that you've paid off. The most effective way to improve your credit score in this area is by paying down your revolving (credit cards) debt. In fact, owing the same amount but having fewer open accounts may lower your score. 30% Amounts Owed this category can be easier to clean up than payment history, but it requires discipline and understanding and implementation of the tips below. Amounts Owed Tips Keep balances low on credit cards and other "revolving credit". High outstanding debt can affect a credit score. Pay off debt rather than moving it around. The most effective way to improve your credit score in this area is by paying down your revolving (credit cards) debt. In fact, owing the same amount but having fewer open accounts may lower your score. Don't close unused credit cards as a short term strategy to raise your score. Don't open a number of new credit cards that you don't need, just to increase your available credit. This approach could backfire and actually lower your credit score. 15% Duration of Credit History generally, a longer credit history will increase the score. However, even those with short credit histories may get high scores, depending on how the rest of the credit report looks. Duration of Credit History Tips If you have been managing credit for a short time, don't open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

3 10% New Credit Accounts opening several credit accounts in a short period of time could have a negative impact on the score. Also, requests or inquiries may have a negative impact on your score. New Credit Account Tips Do your rate shopping for a given loan within a focused period of time. FICO Scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. Re establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your credit score in the long term. Note that it's OK to request and check your own credit report. This won't affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers. Take a small loan and pay it back fast and consistently. That will also improve your credit score immediately. Get a loan from your credit union or banking establishment, then immediately (that day) turn around and open up a savings account. Make payments on the loan from the savings account. Do not use the money for anything else! This will help improve your credit as you pay off the loan. Be advised, however, that the interest you pay on the loan will typically be larger than the interest earned on the savings account. Thus, toward the end of the loan, you will empty the savings account and still owe something. But if you can cover the difference, your credit score should improve as a result. Don't open charge accounts with department stores. It hurts your score, for the short term. Open credit cards with a bank and never charge over 1/3 of your total credit line unless you can pay it down the same month. Don't cancel any of your credit cards! Pay them off, don't use them (or don't use more than you can pay off each month), but keep the accounts open. You want to have a long credit history with at least three "trade lines." Canceling a credit line can drop your score by 30 points or more and it can take years to recover those lost points. 10% Types of Credit in Use revolving credit accounts like credit cards and installment accounts (i.e. mortgages and car loans) play a part in determining your score. Types of Credit in Use Tips Apply for and open new credit accounts only as needed. Don't open accounts just to have a better credit mix it probably won't raise your credit score. Have credit cards but manage them responsibly. In general, having credit cards and installment loans (and paying timely payments) will rebuild your credit score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly. Note that closing an account doesn't make it go away. A closed account will still show up on your credit report, and may be considered by the score.

4 15 Strategic Things That Will Improve Your Score and Secure Your Accounts! I have laid out 15 strategic moves you can do to improve your credit score and secure your accounts. 1. Check Your Credit Report Request a free copy of your credit report and check it for errors. Federal law allows individuals the opportunity to check the credit report on a yearly basis for FREE. This is usually done by month using the first letter of your last name. JAN: A B, FEB: C D, MAR: E F, APR: G H, MAY: I J, JUN: K M, JUL: N P, AUG: Q R, SEP: S U, OCT: V W, NOV: X Y Z. Go to: and enter the required information and you ll be given access to your credit reports. Your credit report will, most likely, contain errors. Dispute every entry that is NOT accurate. There are usually enough errors on a credit report to instantly change your score by 75 points or more. Below is an example of the letter you ll need to send to all three credit reporting agencies. When you dispute a debt the credit report agency has 30 days to receive a response from the creditor to validate the debt. If after 30 days they do not receive a response the Credit reporting agency by law will remove the entry from your report. Remember, there are three agencies, so you have to write to all three. Negative items must be removed from your credit report if they are inaccurate or incomplete. A sample credit report will be provided to assist you with reading your report. A letter followed by a number indicates the type of account and the rating. If you have an account that is rated as an I1 that is an individual account that is paid on time. If you have an account that has a J1, that is a joint account. An I5 could mean trouble. Highlight everything that isn't a 1 and everything that is turned over to collections. [Company Name] [Street Address] [City, State, Zip Code] Dear Sir or Madam: I am writing to dispute the following information in my file. I have circled the items I dispute on the attached copy of the report I received. This item [identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.] is [inaccurate or incomplete] because [describe what is inaccurate or incomplete and why]. I am requesting that the item be removed [or request another specific change] to correct the information. Enclosed are copies of [use this sentence if applicable and describe any enclosed documentation, such as payment records and court documents] supporting my position. Please reinvestigate this [these] matter[s] and [delete or correct] the disputed item[s] as soon as possible. Sincerely, Your name 2. Setup Payment Reminders or Automatic Payments On time payments are one of the biggest contributing factors to your credit score. Use the banks or text messages to remind you when a payment is due. Also, consider enrolling in automatic payments through your credit card and loan providers. Beware, these auto payments may only make the minimum payment. Paying on time, a.k.a payment history, accounts for 35% of your credit score. 3. Reduce the Amount of Debt You Owe This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement than improving your credit score. The first thing you need to do is stop using your credit cards. Use your credit report to make a list of all of your accounts and then go online or check recent statements to determine how

5 much you owe on each account and what interest rate they are charging you. Come up with a payment plan that puts most of your available budget for debt payments towards the highest interest cards first, while maintaining minimum payments on your other accounts. 4. Stop using your credit cards as much. This is another way of saying to live within your means. While you get your credit card debt under control, it's a good idea to rely chiefly on good, hard cash in order to pay off some of your debts. If you use credit in order to pay off debt, you're not really making a dent in your debt; you're just shifting your debt around. See if you can't get an advance from a family member or friend. Offer to pay interest, of course, and definitely draw up a contract so that the debt becomes a legally binding agreement. Use some of this cash to begin to pay off your debt. Know that canceling your credit cards won't cancel your debt. You can cancel your credit card, but your debts will still follow you around, like death and taxes. Don't cancel the credit card with your oldest line of credit. Canceling a card with the oldest line of credit may make your credit history appear younger, thereby hurting your overall credit score. 5. Get a secured credit card. If you need to build up your credit history. Secured credit cards work kind of like debit cards. You deposit a $300 sum with the bank, for example, and you'll have $300 credit limit on your secured card. Then use the card until you reach your limit. Replenish the balance and repeat until your credit score has risen. Look for a secured credit card that charges 0% interest for the first 6 months, with no annual fees. These will ensure that you get the best bang for your buck. Beware of the high interest rate and various fees often associated with a secured card. Pay in full, on time, every month to avoid most of those fees. 6. Join a credit union. They're more likely to give you loans in the future than a regular bank. 7. Aim for a low credit utilization ratio. This is a fancy word for how much debt you put on each of your credit cards. If the limit of your credit card is $3,000 and your card has a balance of $1,500, you're using exactly half of your available limit, meaning that card has a credit utilization of 50%. A credit utilization of 20% or lower is something that you should aim for. You can actually shift your credit around to massage your credit utilization. Say you have two credit cards one with a large limit and small balance, and another with a small limit and large balance. Shift the debt from the small limit/big balance card over to the large limit card. The debt won't make as much of a dent in the card with the larger limit. 8. Add good credit accounts to your credit files. When you add good credit trade line accounts to your credit profiles, you increase your credit score. If you add good credit accounts and have even one bad credit account deleted from your credit reports, your credit score could increase by as much as 80 points with just these two actions. 9. Reach out to your creditors. Preferably, do this quickly, not after months of harassing calls. It is best done as soon as you realize you won't be able to make the requested payments. Most creditors are not as cutthroat as you think, and they will work with you to schedule smaller payments that fit your budget. After all, they'd much rather receive $20 payments for the next year than risk getting nothing in bankruptcy court. This is where having a written budget can really pay off. Tell the creditor that you've worked out a budget, can afford to pay them $X per

6 month or weekly, and offer to send them a copy of your budget. They're much more likely to accept your offer of lower payments if you can show good faith. 10. Decide whether to avalanche or snowball your debt. Total debt outstanding constitutes 30% of your credit score, so it's time to get your rating restored. Once you've decided how much you can pay against your debts, and negotiated any lowered payments, you must choose whether you're going to attack your debts one by one or piecemeal. Avalanching your debt, means paying off your debt one by one, often starting with the debt that has the highest interest rate. Start off with the most money you can possibly afford. Use that money to pay off debt with the highest interest rate. When that piece of debt is fully paid off, start paying off the debt with the next highest interest rate until all your debt is destroyed. Snowballing your debt means paying off the lowest balance debts first and closing them out before moving on to increasingly bigger debts. Snowballing can create an emotional victory early on, motivating the borrower to continue on his or her quest to financial independence. If you can afford it, try to avalanche your debts instead of snowballing them. If you can focus on paying the highestinterest debt first, you'll actually find that you'll pay off your debt quicker, you'll save more money, and you'll get a better credit score at the end of the day. Although there's a psychological sense of gain in snowballing your debts, there's the very real financial gain of getting creditors off your back and reclaiming your credit score. 11. Consider borrowing against your life insurance in order to chip away at your debt. If you have a life insurance policy, think about borrowing against it. Borrowing from your life insurance policy will get you lower than commercial rates, giving you some wiggle room while you begin the serious push to financial independence. Yes, you will be technically borrowing money from yourself, but it's a sound choice if you're left with no other option. Just be sure to repay the debt, as the debt. Plus, a little extra will be subtracted from the insurance policy payable to the beneficiary if you do happen to die. 12. Open two bank accounts. "What am I doing opening another bank account if I'm trying to get out of debt?" you may ask. Keeping two bank accounts, one for everyday expenses and one for repaying debt, is a smart way to force yourself to only spend so much. This eventually helps you dig your way out from a ditch of debt. Transfer all the money you need for everyday expenses, like groceries, gas, mortgage, school supplies, etc. into one bank account, based on your budget (see below). Only put enough money in here to satisfy your basic budget, so that you force yourself to use only the amount of money that you have set aside. It's okay to set aside money in this account for emergencies and savings, as long as they are actually used that way. In the second bank account, transfer all the rest of your monthly income. Use all the money in this account to pay off your debt, ideally by avalanching. At the end of each month, this bank account should only have a nominal amount say $50 in it. This means that the spending is going towards getting you out of debt. 13. Once you pay off your debt, make sure you get a settlement letter. Send a copy of it to the credit bureaus so they can update your credit report immediately. This should have an effect on your credit score and your ability to borrow money.

7 14. Create a budget. Following a budget seems to scare many people, perhaps out of fear of complexity or a fear that a budget curtails spontaneous spending. Budgets are neither hard nor constricting; in fact, a well laid out and consistently followed budget can give you both peace of mind and freedom to spend more eventually. All you need to do is to get started. There are many free budget tools available online, in software packages and through apps. The simpler the tool, the better for you and the increased likelihood you'll stick with it. Calculate your income and your expenditures. The best way to figure your expenses is to track your spending for 30 days. Find out how much money is going to leisure activities and going out to eat. Then figure out how much money you can set aside each month to whittle down your debt. Break your spending into individual categories, and then figure out which categories are essential and which ones aren't. Budget the essential categories first and then the inessential categories second. Stick by your budget. Your budget won't be very useful if you don't stick with it. Knowing when to stop spending is a really hard skill to master, but it's one you'll need to master if you want your credit score to fly high once again. Do everything in your ability to abide by the budget like a law. 15. Future Protection Use Credit Lock or Freeze. All three credit reporting agencies offer the option of freezing the credit account. For a nominal fee they will freeze the account so that no one may access it. This is particularly helpful to avoid fraud on the account. There are paid services that will charge monthly to do the same. To summarize, "fixing" a credit score is more about fixing errors in your credit history (if they exist) and then following the guidelines above to maintain consistent, good credit history. Raising your score after a poor mark on your report or building credit for the first time will take patience and discipline. I hope that these tips and steps improve your FICO credit score. Professionally yours, Bradley A. Mirtes Managing Member US Capital Management, LLC This document contains actual excerpts from Fair Isaac, TransUnion, Equifax and Experian. US Capital Management thanks CoreLogic Credco, Fair Isaac, Equifax, Experian and TransUnion for their assistance in producing this document. BEACON is a registered trademark of Equifax, Inc., Atlanta, GA. FICO is a registered trademark of Fair Isaac and Company, Inc. US Capital Management does not provide legal advice; therefore, this information is not intended, or should be perceived, as offering legal counsel to our readers.