Strategies for inmates to improve their credit score

Some people go to extremes to try and improve their credit scores, adopting tactics that can seem, well, a bit unusual. What's even odder is that a few of them actually work. Here's a look at six such ideas -- good, bad and in-between.

1. Pay what you don't owe

The strategy: Even though your balance is zero, you send your credit card company a check. "A friend of mine in the mortgage biz told me he would tell clients to pay extra to credit cards where they owe no money," says Antonio Filippone, a financial planner and instructor in Rockford, Ill.. "My understanding of why this might work is that your debt utilization ratio is very important to your score. If you owe $4,900 on a card with a $5,000 limit, you have a bad ratio, but if you owe -$1,000, the ratio is off the chart in your favor. Any extra applied to the card would eventually be sent back to you or you could just charge something to break even."

Does it work?  Not so much. Credit card companies are likelier to simply send you back the extra funds than add them to your line of credit. "Zero is the best you get on a balance," says Dorothy Barrick, a financial counselor at GreenPath Debt Solutions.

Possible drawbacks:You lose the use of those funds until the credit card company sends them back. And there are better alternatives: Either pay down some other debt that you do owe or simply ask your credit card company to increase your credit limit. Either of those actions actually will improve your score.

2. Open numerous credit and store card accounts

The strategy: The more credit accounts you have, the higher your available credit and the lower your utilization ratio. So when someone offers you the opportunity to apply for a store or credit card, always answer, "Yes, please!"

That's what Jen McDonough and her husband did -- for a while. "I had store cards for JCPenney, Sears and Pier 1," says McDonough, an Ironman triathlete and author of "Living Beyond Awesome." "When I opened my wallet, it was almost like a trophy case."

Does it work?  In the short run, no. In the long run, yes. "Short term, you've got all those credit inquiries on your credit report," GreenPath's Barrick says. Too many inquiries can act as a red flag. But after six months or so, "It will help your score because it builds up credit you're not using," she says. Indeed, McDonough reports that she got her score up to 789 this way.

Possible drawbacks: Out-of-control debt. That's what happened to McDonough and her husband after they used their good credit to move to a more expensive home and ran up about $15,000 in credit card debt. Then their son was diagnosed with a serious illness and, "We fell off the financial cliff," McDonough says. Today, they're paying down their last credit card and second mortgage, she reports. and aiming for a debt-free life.

But even if you don't get in over your head, there are drawbacks to having too many cards. For one thing, you have to use them all from time to time to keep the card active, and then somehow keep track of paying each one. "The model looks at how you use that available credit," says Becky Walzak, president of the Looking Glass Group. "If you don't use the cards, it's meaningless." Worse, unused cards can be a magnet for identity theft, since criminals may assume you're paying attention to the statements.

3. Pay down your credit cards with a home equity line of credit

The strategy: Use a home equity line of credit, home equity loan or second mortgage to pay off outstanding debt.

Does it work?  It depends. "People who have a home equity line of credit will use it to pay off their credit cards and think that's going to raise their scores," Walzak says. The problem is that they aren't paying off debt or changing their utilization ratio, they're just moving debt from one place to another.

On the other hand, you may succeed in improving your credit score if you take out a new home equity line of credit or loan to pay off other debts. That's because you'll be increasing your available credit and thus lowering your utilization ratio and because the FICO credit scoring formula looks at how you handle a mix of different kinds of debt. However, keep in mind that lenders look at more than just your score, they look at how much debt you're already carrying, so this tactic may actually impede your ability to get credit.

Possible drawbacks: With either approach, you're giving up equity in your home and trading unsecured debt for secured debt, which, if you ever run into financial trouble, can backfire on you if you ever have to file for bankruptcy. And with your credit cards paid off, you may be tempted to run up their balances again, which would leave you worse off than when you began.

4. Dispute a legitimate debt

The strategy: Have an outstanding debt that you know you owe but can't pay? Send a letter to the credit reporting agency to dispute it.

Does it work?Yes, temporarily. "The debt will come off the credit report for 30 to 60 days while the creditor validates its accuracy," Barrick says. "So people who decide they want to get a car may dispute a debt right beforehand. They know they have a window during which it will be removed from their credit reports, and their scores will go up right away. It's dishonest, but clever."
By the time the disputed debt reappears, the car loan or other new debt will already be in place. A related strategy is to ask a friend or relative for a short-term loan so you can pay a credit card down temporarily.

Possible drawbacks: There are no real drawbacks to disputing a legitimate debt, other than lost time and wasting your card issuer's time and energy spent researching it. But if you do it with the goal of taking out a new loan that creditors believe you can't handle -- consider the possibility that they may be right.

5. Pay your bills more than once a month

The strategy: To lower utilization, make an extra credit card payment mid-month, either estimating what you owe or checking your current balance online.

Does it work? Yes. If you pay your credit card balances in full, but wait till the end of the month to do so, high balances could look like high debt utilization in the meantime. "In order to look like you're not utilizing your credit as much as you are, pay the bill halfway through the month," advises Anthony Sprauve, director of communications for myFICO.com. He himself uses this strategy, he adds, because he has one card he's using to accumulate travel mileage, and it tends to have a high balance by the time the statement arrives.

Possible drawbacks: There aren't many. Sending out an extra payment once a month is an extra chore and ties up your funds for a couple of weeks, but that's about it.

6. Worm your way onto someone else's account

The strategy: Get someone with a stellar payment history to add you as an authorized user to his or her credit card.

Does it work?Yes, Barrick says. However, if the primary account holder hits a financial road bump and doesn't pay his bills, your credit may tank in tandem.

A related strategy is to try to get yourself removed from joint accounts that have negative records, though that may be even harder. "It depends on the lender," Barrick says. "If you've just gotten divorced and can show your divorce decree, sometimes they will remove you from a joint account, but typically they don't because when people apply jointly for credit, they don't say, 'I promise to pay you back -- unless I get divorced.'"

Possible drawbacks: If you're added to someone's account, you're dependent upon their bill-paying behavior. As an authorized user, you are not legally responsible for the debt, but ethically, if you charge on the account, you should pay for what you charge. So make sure it's someone you truly trust. "You're at the mercy of that other person," Barrick says.

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