Home Buying for Brokeasses Part 4: Necessary evil

contrary to intuition or to common-sense expectation (but often nevertheless true).

Yes kiddies, counterintuitive is the word of the day. Let's use it in a sentence, shall we?

Rebuilding your credit and debt by taking on more debt and credit is counterintuitive, yet necessary.  You heard right. Now that you're on a tight budget, have paid down a big chunk of debt and are in control of any remaining debt, it's time to take on some brand spanking NEW debt. Seriously?


Flashback to the tail end of last summer. My credit score sat parked at a paltry 590, still 50 points shy from the ideal (bargain basement) 640 I needed. I needed a bit of a boost to get me headed in the right direction. So I did some reading and this "more credit" counterintuitive measure is actually pretty standard. This is from a recent USA Today article:

A whopping 30% of your credit score is heavily influenced by your credit utilization ratio. This is the amount of credit you’re using on your credit cards compared with the total amount of credit available to you. For instance, if you have a card with a $5,000 credit limit and your balance is $2,000, your credit utilization ratio would be 40%.
— USA Today

This higher your "credit utilization ratio," the better your credit score. So, get a few new credit card accounts going, right? Not quite. There's a big catch. 

Experts recommend keeping your credit utilization ratio below 30% at all times; in an effort to follow this guideline, many people open additional credit cards that they don’t plan on using. They reason that this will increase their amount of available credit and drive their credit utilization ratio down.

This strategy is potentially problematic for a few reasons, not the least of which is that it could result in an unnecessary expense. If the card you apply for carries an annual fee, you’ll end up paying a charge just to keep the card open.
— USA Today

So there's the rub. More credit cards = more fees. Also, operating at level where your credit card score is under 600 opens you up to only the lowest common denominator of credit cards. Offshoot banks you've never heard and store cards is all you're likely to be qualified for. The store card limits in this credit range are small, usually about $200.00-$300.00. The offshoot Mastercards and Visas you'll qualify for will also have very small limits, $150.00-$500.00, depending, and nearly ALL of them have deposit fees and/or extremely high interest rates.

Bearing all this in mind, I decided to go for it because I'm super impatient, and needed to have some kind of forward momentum. I signed myself up for two clothing store cards and a Capital One Classic Platinum Mastercard (it's not nearly as fancy as it sounds, I assure you). Only after the fact did I realize I was taking a big risk, 'cause here's another wrinkle in the credit score scheme: your credit score has the potential to drop each time a company or agency checks your report out. So make sure you check out the card's credit requirements BEFORE you apply to make sure you won't get turned down. And NEVER accept a store discount for applying at the register. That's the kind of impulsive decision that likely got you into this mess in the first place. I know it's part of what got ME here. In 2011, I "instantly applied" for an Amazon credit card. I was turned down, of course, but the inquiry into my credit is still there to haunt me years later. Like VD.

The trick with credit cards is, as USA Today pointed out, to keep your credit card utilization in check. To use credit cards as tools to rebuild your credit and improve your standing in the eyes of the Mortgage Gods.

And for me, it worked. My credit score ticked up again. In a big way. Within a few months alone, I was (almost) there. I hit a median score of 630! Close enough to my target to start shopping for a mortgage. Finally!


So counterintuitive bullshit or not, improving your credit score means having open credit accounts, all in good standing. A common strategy is to open additional accounts, put a few bucks on them, and grow your credit utilization ratio to acceptable levels. This worked for me and may work for you. Just be careful what cards you apply for (remember the VD), and be aware that you may have to pay yearly fees to keep cards in good standing. In the end, this idea is a total racket, a shell game most smart people wouldn't even entertain playing. But playing their game...and playing it smart... can be an extremely beneficial part of the home buying process.

In the next chapter of Home Buying for Brokeasses, I hit a massive snag when it comes to mortgage shopping. Of course. 'Cause why not.

Obligatory disclaimer: Always keep in mind that I am no way, shape or form a financial expert. All my advice and suggestions should be taken with many grains of salt. Everything I write is based solely on what worked for me. Consider seeking professional credit counseling before making any big financial moves.