Hack Your Credit Score

Seven years ago, I got back from a Peer-to-Peer (P2P) Lending conference and realized there was an interesting way you could “hack” your credit score.

At the time, Prosper.com had a model that allowed people to bid down loans so that the borrower got the best rate that the market place had to offer. If you worked with a friend, you could give him $1000 and tell him to use the money to bid on your loan at 1%. You’d get that same $1000 back to you through the marketplace. You’d use that money to pay off the loan. In the end, you’d be paying 1% ($10) plus Prosper fees (0.5% at the time I think), but would be reporting that you’ve been doing an excellent job paying back the loan to the credit reporting agencies. You’d look very responsible and the cost wasn’t that high.

Alas, Prosper’s model changed and I don’t think this is possible any more.

You might be able to do something similar to this hack at Lending Club, but the rates are predetermined by your credit score. So if you have bad credit, you aren’t going to get a great rate and it will end up costing you more. It could cost you 10-12% if your credit is bad. Would it be worth $100-120? It’s hard to say. One plus is that you wouldn’t have to find a friend to bid it down. Just get a loan at the fixed rate that Lending Club sets and use the loan money to pay it back.

Hack Your Credit Score with a Store Card

It has been years since I applied for a store card. By “years”, I think I might be able to say decades… as in two. It’s probably close to that since I got a Structure card in college.

If memory serves and if what I hear on the street is true, it is still very, very easy to get a store credit card. It seems like stores throw them at you. Of course the terms on store cards are typically terrible. If you pay off your card in full each month, most (usually all) of those terrible terms don’t come into play. However, you build good credit by showing a consistent record of paying debt on time.

Hack Your Credit Score with a Secured Card

If you have bad credit one way to re-establish good credit is with a secured card. It works a little like the P2P example above. You load a plastic card up with $500 in advance (notice that I didn’t call it a credit card, since you aren’t using credit, rather your own money.)

Secured Cards can be “bad things” with excessive fees and many consumer protection groups have gone after some. Bankrate has a good list of questions you should ask. I would focus on two:

1. What are the fees associated?
2. “Ask if the issuer will flag the report to the credit bureaus as a secured card. Consumer Action points out that such a flag could be a deterrent to rebuilding credit.”

If the card is flagged as a secured card you may lose the benefit. That means you are paying the fees for nothing. Alternatively, you want to stay away from excessive fees in the first place.

I can’t stress it enough that secured cards can be dangerous. I’d use this option only if I couldn’t get a regular credit card.

Build Credit by Paying Your Rent

Building credit by paying your rent relatively new and I’m not sure how much it helps. However, it probably doesn’t hurt. A bunch of companies have sprung up to provide this service. I did a quick search and I found Rent Track, WilliamPaid, and Rental Kharma.

I didn’t look into all those companies, but one of my recent prospective tenants wanted to use a service called ClearNow. The company facilitates the payment of rent online. I agreed if he was willing to pay the $15 monthly fee they charge. They don’t heavily push the building credit angle, but they mention it in a FAQ. It looks like you need to jump through hoops to get the reporting done.

I’m going to image that most companies work in a similar way. You pay a fee and the reporting is made. By now you’ll probably notice the running theme. If you have bad credit, it is likely to cost you a few dollars to get into something that is going to improve it. Many people don’t want to take the risk for free.

Check Your Credit

However, you decide to try to hack your credit, one thing you should do is look to make sure it is actually working. You can pay for all kinds of credit services, but Credit Karma gives you free credit scores. If you want to learn more, read my review.