I originally wrote this a few months ago but only just now finished it. Some of the details in the post may be a little out of date but they were accurate at the time. I’m now working on the next article in the series and will have that up within the next few days.
This is the first in a multi-part series of posts on building up your credit lines. I’ve been reviewing the credit lines I have open and working to improve my credit scores as much as possible to prepare to apply for a number of new credit cards. The benefit of this is to both grab a bunch of account opening bonuses as well as taking advantage of 0% balance transfer offers.
Since my bankruptcy in 2000 I’ve done a pretty good job (I think) of rebuilding my credit. I’ve paid everything on time and have slowly built up my credit lines. The only negative item on my credit is the chapter 7 and it is now over 7 years old and doesn’t appear to be affecting my credit score too much. When we were house shopping, my wife and I had no problem getting pre-approved for a mortgage amount I didn’t think we could afford. (FYI: We ended up buying a house that was less than half our pre-approval amount.) As much as I have built my credit lines, they are in my opinion still too small given my age/assets and income.
Since we’ll soon need to refinance some of our 0% credit card debt I’ve decided to expand my credit lines by applying for a number of new cards. For those of you who read FatWallet this is known as an App-O-Rama. A side-benefit of this process is that you typically capture a number of marketing bonuses offered to entice you to apply for specific cards. Mileage, points, cash and ipods are some examples of the rewards.
Typically, someone who does an app-o-rama applies for dozens of cards all at once on the same day in order to lessen the chances that the hard inquiries are seen by some of the credit card companies and used to deny their applications. It is not uncommon for practitioners to receive well over $100,000 in new credit. I don’t plan on being this aggressive so what I’ll be doing would be termed a mini app-o-rama. I plan on adding several cards, but not to the extremes that some do. I’m looking at this as a way to further build my credit, without doing too much short-term damage to my credit profile.
Having a large number of inquiries show up on your credit report will cause your credit score to dip significantly. For this reason, you should not attempt this if you plan on trying to finance a home in the next year or so. A number of other “bad things” can also happen, such as old credit lines getting closed when your new ones show up. I am not going to get into too much detail on these issues here, do a search on “app-o-rama” or “AOR” on Fatwallet for more details. Please, please don’t rush into anything until and unless you understand the potential consequences!
I’ve labeled this post Step 1 because there are a number of things that should be done before applying for a bunch of new credit.
Your Credit Report
First off, you should make sure your credit reports are as clean as possible, with little or no derogatories. I watch my credit reports like a hawk and am clean on that front. If you do have derogatories, especially current ones, pay the accounts up so they are current. You can also dispute any derogatory information on your report that you feel is inaccurate. By law, the creditor must then respond within 30 days or the item will be removed from your report.
Inquiries
Another thing to watch out for is the number of inquiries on your report that will be displayed to potential creditors (call hard inquiries). Inquiries are typically recored on your credit report for two years. Not only do these impact your credit score but having too many indicates to lenders that you may be getting deeper into debt than you can handle (even if you are or not.) If you have a lot of recent inquiries, you would be best to wait until some of them drop off your report before proceeding. I’ve got more inquiries than I’d like due to the process of setting up a new household. For whatever reason, the phone company (Verizon) and electric company (Ameren) both made hard inquiries to Transunion. I’ve also got two inquiries related to our mortgage (pre-approval and another from the mortgage company we ended up using) as well as a handful of older inquiries from last year’s attempt to apply for some cards. I will probably not wait the full two years it will take for these to drop off my report and it may have some affect on my applications but I think I am in good enough shape to do what I want.
Utilization
Another element to watch out for is the amount of utilization you have on your existing accounts. The old adage that banks only lend money to people who don’t need it is pretty much true. Opinions vary, but having your total utilization (total debt divided by the total of your credit lines) should generally be less than 50%. Utilization on individual accounts should typically be less than 70%. We’re carrying a large 0% balance transfer on one of my wife’s accounts that I am an authorized user on. This account is showing up on my report and is just under 90% utilized. I plan on paying this down to 70% utilization in the next few weeks in order to prepare my credit report. Keep in mind that creditors typically report to the beaureus once a month (usually around your statement date) so there is a lag between when you pay on accounts and when that information will show up. This fact can also be used in your favor if you want to transfer a large balance too a card just after it has reported. I am also an authorized user on a couple of my wife’s other cards which have small (paid off monthly) or 0 balances. The nice thing about this is that it shows a couple of large credit lines on my report with little or no utilization. This has the effect of making my overall utilization well under 50%.
Your current cards and line sizes
Several credit card companies have policies related to the maximum number of cards you can have from them. I’ve got several HSBC cards and several Capital One cards. My plan is to attempt to combine some of these limits into single cards which will have the effect of lowering my individual utilization and showing some larger credit lines on my report.
