Increase Your Credit Score After Losing Your Job
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Larry Chiang offers a window into how business really works. If you liked "10 Things They Don't Teach You at Business School ", "Raise Your FICO While You're An MBA Student", "My 10 Best B-Schools and How They Can Help You Too", "How to Work a Cocktail Party", and "Working a Twitter Party, Take 2", you'll like his newest submission: "Increase Your Credit Score After Losing Your Job".
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Before he's done, you'll have an arsenal of business tactics strait from the street.
By Larry Chiang
Keeping a high FICO is possible after getting laid off.
Job loss and employment volatility top the reasons Americans cite for losing a 100+ points on their FICO. After Tribune Company declared bankruptcy, the business climate is expected to get worse. A clear example is on the graph, 'Loans in Limbo' where 90 day delinquencies spiked according to this week's American Banker.
FICO is the super secret algorithm the credit industry uses to determine how risky you are to lend money to. It controls your personal cost of capital. There is nothing more important than keeping your FICO from falling when you lose your job (next to finding another job).
Here is a summary of how to keep your FICO high after you lose your job.
-1- Damage Control.
Compartmentalization help submarines not sink when they take on water. Remember, ships only sink when enough compartments get flooded. My favorite default is a 2nd mortgage.
Some people rob Peter to pay Paul. If you've ever taken a loan to pay a loan, then you KNOW what I'm talking about. Don't borrow to pay. Also, never trade a securitized debt (first or second mortgage) for a credit card debt.
-2- Holidaze Control.
Don't think a $150 pair of jeans won't hurt your existing $9k in credit card debt. Debt momentum is an all-too-human mistake during Christmas.
-3- No Hail Mary's.
A Hail Mary is a miraculous debt solution that up and bites you on the butt. It could be in the form of a radio ad or email promising "overnight debt relief". No one on the radio is going to help you with your credit card debt by charging you $2k upfront.
The answer to the Hail Mary is reading the "Ultimate Credit Handbook" by Gerri Detweiler. I turned that book's knowledge into UCMS.com, Duck9.com and CreditCard.org. It costs $3.25 used (including shipping) at Amazon.
-4- Thermometer of Debt.
Put up how much you owe on your fridge. This helps minimize the momentum effect of debt (see #2). It also gets you family on-board where your debt is front-and-center.
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-5- Written Complaints.
We write in our credit complaints versus calling or emailing them in. Writing preserves our rights. Remember, FCBA stands for "Fair Credit Billing Act", not the 'Fair Credit Bitching Act'.
Extra credit is where we cc our written complaints to CreditCard.org or email the letter to problems@CreditCard.org
-6- Battle Urban Credit Myths.
Get your credit report. No, it does not hurt to check your credit. There are three types of inquiries. Only one hurts.
The three types of inquiries are credit, advertiser and consumer. Only credit inquiries ding your FICO.
Another urban myth is free credit reports are available at AnnualCreditReport.com and NOT at freeCreditReport.con
-7- Fake a Loan.
Pay back a "fake" loan on a car you already own. How?! You borrow $1500 on a car you've paid off already. Eighteen $95 payments will raise your credit at a pretty low cost and raise your FICO 40+ points if you currrently have no car loan.
 Gordon Gecko mentors Bud Fox on keeping an eye on cash (Photo courtesy of Paramount) |
-8- Never Trust a Debt Collector.
Pay the original company you owe with a check that says 'paid off as per account #___". Pay the debt collector at your own risk because the credit bureaus get confused as to whether your debt obligation was met. The solution is to pay the original note holder with a paper check that serves as clear contract and paper trail.
-9- Underconsume or Be J.O.B. (Just Over Broke)
The best way to keep a high FICO after losing your job is maintaining a capital reserve.
Gordon Gecko in Wall Street said, "If you don't keep cash, you can't piss in the tall weeds with the big dogs".
I underconsume even though I own 100% of Duck9 by shopping only at outlet malls. Below, I am garbed head-to-toe in the best Perry Ellis outlet mall in Napa has to offer.
Larry models outlet mall clothes |
Good luck out there and text me during my office hours: 11:11am/pm give or take 15 minutes. This article is at http://tinyurl.com/FICOjob so tweet it @larrychiang! I am also on Facebook in the Austin TX network... why Texas?! It is because I started 'Austin Secret Society of Entrepreneurs' (#asse9). If you see a typo or grammatical error, email me! larry@larrychiang.com :-)
Larry Chiang is the founder of Duck9, which educates college students on how to establish and maintain a FICO score over 750. He has testified before Congress and World Bank on credit.
He is a frequent contributor to Business Week's blog on "What They Don't Teach You at Business School". For fun, he crashes parties he hosts, eats at Fraiche Yogurt in Palo Alto and plays basketball on college campuses.
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