Pimp Your Credit Score (Without Hurting Your Reputation)

Starting With Something -- or Nothing

Mason Arnold of Austin, Texas, calls his financial situation "pretty stretched." Arnold, founder of Greenling Organic Delivery, says he has a lot of savings but is preparing to spend a large portion of it on his business -- "One I hope will start paying back soon."

Arnold has some equity in real-estate properties, but his low credit score disqualifies him for a home-equity line of credit. "And I might not qualify for refinancing," he says.

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Setting Yourself Up

Todd Huettner, president of real-estate lender Huettner Capital in Denver, believes Arnold has one very large concern. "Mason needs a plan to succeed, or he's simply setting himself up for failure," Huettner says. "Every new business should have 12 months or more of expenses in the bank to weather any financial storms or surprises," Huettner says. In other words: You need more than just enough funds to start your business.

To plan for setbacks, Huettner offers these quick-pimping tips:

' Correct errors on your credit report, and pay down revolving debt. These two actions will improve your score faster than any others.

' Remember that a credit report is a snapshot in time; monitor your credit usage (and what your report says about you) accordingly.

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Raiding Your IRA

When Michael Karabinos of Richmond, Virginia, was ready to buy a home, a lender told him to come back after he'd "worked out" his credit. "I cut up all my cards except my gas card and began applying the 'snowball method' to pay off debt, moving balances to lower-interest cards," Karabinos says.

Karabinos also dipped into his IRA. "My logic was that the penalties were still less of a loss than taking several more years to pay off that debt." Karabinos considers his methods worthwhile: by the time he was finished cleaning his credit house, "All three of my credit scores were above 700 and we bought a house easily."

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Good News, Bad News

Ellie Kay, author of Living Rich for Less, gives kudos to Karabinos for working out his credit, but faults him on digging into his IRA and cutting up cards he's held for years. "He got his score up to 700, which is right on the threshold for a good score," Kay says. "The longer you've had a card, the better it looks."

And watch out for when you transfer balances to lower-interest cards. "If you move a balance to a card because it has the lowest APR, but the total charged on that card goes to 75 percent usage of the total credit available, your credit score takes a hit," Kay says.

Credit quick-pimping tips from Kay:

' Keep your money in your IRA until retirement.

' Heed the three P's of pimping your credit scores: pay debt on time; pay more than the minimum; and be aware of how proportionality affects your score.

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Shredded Cards, Shredded Credit

Clint Rawlings is the owner of A Better Shredder, a secure-information destruction service near Washington, D.C. Given his business of protecting against identity theft, it's ironic that Rawlings doesn't have any personal records to tear up: these days, he doesn't use credit cards.

"I used credit cards before I had my own business," Rawlings says. In this economy, though, he says, "Big businesses don't have the money to pay the small businesses (like mine) on time, if at all. And then the small companies can't pay their bills on time." Wary of late charges and high interest on credit cards, Rawlings uses only checks, cash, and a debit card.

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Trying to Rebuild

Carla Morelli, president of money-management firm FreyerMartin, admires Rawlings's desire to live within his means, but warns that he's going to have trouble if he ever applies for new credit. "Twenty-five percent of your credit score is composed of the types of credit used and the length of credit history," Morelli says -- and Rawlings's score will reflect the "lopsided" credit profile he created by eliminating the proof that he can manage his credit.

Credit quick-pimping tips from Morelli:

' If you don't use credit cards, know that rebuilding a credit profile takes time, and your score will initially drop due to inquiries.

' If you have a preference for cash, but don't want to compromise your credit score, keep three to four cards open, charge a regular small purchase on each, and pay them off each month.

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More on Credit & Debt:

' How to Avoid a Credit Catastrophe

' Pimp Your Credit Score Without Hurting Your Reputation

' Are You Clueless About Credit Scores?

' 8 Ways to Give Your Credit Score a Spring Cleaning

' 10 Credit-Report Myths -- Busted!




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