Hacking FICO

My friend, Washington Native Troy Fisher’s personal account with Credit Hacking:
“My REI my credit was 580.  I lost a ton of equity potential just having cash, but not credit.  So then I started learning about credit and how to manage it.  How to turn it into a part of my income potential.  Last week I had 14 credit cards with ~$60k in available credit, This week I finally crossed that “Excellent” credit threshold and you know what happened it triggered a review from some of the credit card companies. I imagine even more of them are going to go through the process by the end of the year.  But yesterday I was rewarded with $8k in increased credit limits. That’s a 13% increase. Why is this important?  I am in the process of trying to purchase a midsized project ($1M-$5M). My whole journey last year (2017) was to build the portfolio to use for credit-line trading, and then seasoning in 2018, and profit in 2019.”

Basics

FICO is a score that a private company called Fair Issac created and got adopted as the primary way to determine if a person is a responsible borrower. It ranges from 350-850 where 850 is the best.
Think of the “Chinese Social Credit Score” but with less secretiveness and narrow scope.
The FICO puts an emphasis on a few items such as length of history, utilization rate, and other secret factors that are call proprietary. It is a bit flawed but is the best thing we have out there and everyone uses it.
There are a bunch of other FICO competitors out there such as the Samuel Rule Paydex scores (1-100 the higher the better). What is cool about paydex is its only based on how fast you pay, unlike freaking personal credit which has a host of factors from on-time payment, aging of accounts, utilization ratio, inquiries, etc,etc.
The FICO is an archic thing… we can hack it!

Why boost your credit score?

1) Your credit score makes you a better partner who can help deals get done (especially those mid-level $1M-5M deals). This is a little different than a Key Principal (KP) in a large syndicaiton where they usually get a 1-5% (or more!) equity cut for just signing on the dotted line.
2) If you are a flipper and have a $100k rehab budget you could be getting 1.5x-2.0x cash back by putting it on your credit cards. [Citi Double Cash card is what I use] You can push it higher with proper card use. $1500 is not a lot, but could save you from paying hard money costs.

Why do people need a good credit score, to begin with?

How? (One method)

First step is to figure out your credit score.
CreditKarma, NerdWallet, and WalletHub get these apps on your phone (now or you won’t do it) or go apply on your desktop if you are old school.
Start applying for 1 Credit card a month (Start with Chase Cards because of their 5/24 rule: Automatic denial if you have opened 5 credit cards in the last 24 months – don’t make the mistake of doing this backwards, and am no longer opening cards as I wait for this threshold to be met again. Of course these sort of nuances change from time to time. You can be up on the latest and greatest and read all the fourms on various credit and travel hacking websites or play it conservatively.

Will opening a credit card lower your credit?

Yes, a little bit. But the key is that more available credit and lower credit utilization actually increases your credit limit.

In Troy’s case, he got a 10pt drop for each new card he opened, but with a $5-10k credit availability his score went up 5-6 pts. Personally, I noticed a 5 point drop but its YMMV and notice I am not warranting anything in this post and just offering data points for entertainment value.

In the end, a lot of this stuff takes your credit score higher than it was when you started (eventually). Don’t be a bonehead and do this stuff right before you apply for a home loan or something like that. But if you play your cards right you can get yourself above the 750 mark and get the best interest rate. Some personal thoughts… if you live in a Primary market, don’t buy a home to live in, instead invest. And only invest to a certain point and jump into larger deals as a LP as you become higher net worth. I personally don’t really care what my credit is because I rent a home that I would not be able to afford if I bought it with a 20% down payment and I don’t get Fannie Mae loans that run my personal credit. I am in commercial loans that unwrite the asset and I am not even a Key Principal too. Take that FICO! Unfortunately, I realize that most people have not escaped the FICO paradigm so be smart about it people. If you are still buying turnkeys sorry you are still in the FICO paradigm.

PS: When you are out of the FICO paradigm you don’t even need W2 income. There are other reasons why you should not quit your job.

FICO Nuances

FICO puts a lot of emphasis on the length of history which is why you can sell $10K-$30k cards from the 1980s for big bucks.
To get the best scores of 850 you really need the majority of your cards at the 7-10 year mark.
But who cares from a lenders perspective when they put it into the magic computer a credit score over 750 can get you the best terms or top tier. You don’t even get a lame sticker for being higher.
After the first 12 months of opening cards, you could have 12-50k in available credit.
In 12-24 months you need to know which cards are actually going to pull credit to request a credit line increase (research is available on the websites mentioned above). This step may not be necessary if you have a life. If you want to do this ask for an increase on the non-hard pull cards when the hit a year, and take open new cards on the off months. In 2 years you could have 60-100k in credit limit.
One data point – you can tank your FICO scores by 80-100 points when you max out all your cards at 23.99% cash advance fee to go “all in,” on a deal. Watch you utilization rate.

Is Business Credit the same?

Business credit scores work differently, but you won’t be able to get business credit without having the personal credit to back it up. I started my business credit journey this year and acquired just shy of $15k in non-recourse business credit.  Here is past post on this topic.
When businesses are starting out, the bank will take into consideration both the personal credit (bankruptcy or late payments), length of history of the relationship, and liquidity/cash on hand.  Your best chances are going with a bank you have existing deposits and a longer relationship.  If the business card doesn’t get approved, you can always look into setting up a cash-secured one and show a good payment history for at least 12-18 months, you can then reapply after that.
Credit union cards typically have cash advance rates only 3-5% above prime which will be roughly 8.25-10.25% or half of the cost of the big banks plus they typically don’t cost any points (cash advance fee). PenFed promise card, unify CU Visa platinum, Obee CU Visa Platinum, BECU Visa Platinum, Navy Fed Visa platinum
Another idea from the inter-webs “A strategy we have used in the past is to pull 100k on our Heloc. Then balance transfer using 0% transfer fee, zero annual fee, 0% interest rate Credit cards. Essentially Paying off the heloc with the cards. Then we used the $100k as our down payment and renovation budget for a flip. This reduced our holding costs because the interest on the 100k was $0. Becu, bankAmericard, navy federal platinum, and suntrust prime rewards are a few cards that offer the terms stated above. Some say They only offer 0% interest if you balance transfer within the first 60 days of opening the account. most of them have terms of 12-18 months at 0%. Pull the cash. Park it in an FDIC insured money market account and earn money on free money while you search for your next deal.” Be careful that even though there is a marketed 0% intro rate there is usually a 3% balance transfer fee.

The Secret Weapon

Purchasing the privilege ($500-$1500) to be an “authorized user” on someones elses credit card especially a seasoned credit line (5+ years, $4000) has been know to boost poor credit scores by 120 pts.
This is called Tradelines – there are a few servicers who do this but I did some homework and found people who did this as a hobby and they recommended these guys.

 

 

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