HELOC + ESPP (or 0% Credit Cards) = FREE MONEY (15% to 60%+ returns)!

For anyone that has available Equity in their home and an unused potential in their employers ESPP program should really pay attention! For those that are playing the shell game with 0% credit card interest rate arbitrage and ask, "Hmmm, where could I get a guaranteed 10% or 15% return?", well read on, how about a 40% or even 60% annual return! I've been giving away some free money and I'm not happy about that. I'm correcting that, toot-sweet! I hope all of you will review your circumstances and consider doing likewise, if it makes sense and you have availability to your ESPP that you aren't currently funding to it's max potential.

I have available equity, like most people, that I just realized I could be putting to work. Recently I've pulled back on my ESPP contributions, for at least the last year now, in favor of maxing out my 401k. Of course that's a good option, but I've been thinking and came up with a novel idea. So, no more wasting the potential of my ESPP. Here's a simple example. My employer offers an ESPP that plan with 15% discount on stocks every quarter. So, that's a 60% annualized return. Take a look and see how that works out:

• Jan-Mar: Contribute 0-15% of your income and purchase your companies stock at 10% discount. At which time you can sell immed for 10% gain or hold and sell at a later date. Let's look at an example of $50K (take home pay) after taxes. This would break down to about 4200/month after taxes. Example: 15% of $4200 = $630. contributed montly x 3 months = $1890. Sell immed to lock in 15% gain of 283.00.
• Apr-Jun: same thing as above. Total contributions of $1890.00. 2nd 15% gain of 283.00.
• Jul-Sep: same thing as above. Total contributions of $1890.00. 3rd 15% gain of $283.00.
• Oct-Dec: same thing as above. Total contributions of $1890.00. 4th 15% gain of $283.00.
• Total contributions for year: $1890 from Heloc x 4 (i.e. recycled 4 times)
• Total of 15% quarterly returns: $1132.00
• Total return on initial $1890 HELOC contribution: 60% annual return!!! Now that rocks!

Now, please correct me if you think I missed a point, as I'm just thinking about all of this and planning to implement shortly. I plan on starting this Jan 08, so I'll see how it actually works out. Here's how the quarterly draw and money management would work:

• Jan 08: Draw $1890.00 from your HELOC Account that you'll be contributing from your payroll for Jan-Mar contribution period. Deposit that amount in your checking account that you normally use for bills, etc. Make min payments to HELOC every month.
• Jan 08: Max out your payroll contributions so that $1890 is drawn from payroll during Jan-Mar 08 contribution period
• Apr 08: Stock is purchased with your contribution. Sell this stock immed, or put stop loss to increase potential returns even more!
• Apr 08: Deposit the $1890.00 from your stock sale proceeds into your checking account that you normally use for bills, etc.
  remaining $283.00 is your 1st 15% return (use in your checking if you want to help bridge between subsequent stock purchase and sell periods or apply payment to HELOC to reduce principal).
• Apr 08: Max out your payroll contributions so that $1890 is drawn from payroll during Apr-Jun 08 contribution period
• Jul 08: Stock is purchased with your contribution. Sell this stock immediately, or put a stop loss on it to increase your potential returns even more.
• Jul 08: Deposit the $1890 from your stock sale proceeds into your checking account that you normally use for bills, etc. The remaining $283.00 is your 2nd 15% return (use it in your checking if you want to help bridge between the subsequent stock purchase and sell periods or apply payment to HELOC)
• Jul 08: Max out your payroll contributions so that $1890 is drawn from payroll during Jul-Sep 08 contribution period
• Oct 08: Stock is purchased with your contribution. Sell this stock immediately or use a stop loss to increase potential returns.
• Oct 08: Deposit the $1890 from your stock sale proceeds into your checking account that you normally use for bills, etc. The remaining $283.00 is your 3rd 15% return (use it in your checking if desired or apply payment to HELOC).
• Oct 08: Max out your payroll contributions so that $1890 is drawn from payroll during Oct-Dec 08 contribution period
• Dec 08: Stock is purchased with your contribution. Sell this stock immediately or use a stop loss to increase potential returns.
• Dec 08: Deposit the proceeds into checking. Wash ... rinse ... repeat for next year if desired
• Dec 08: pay off remainder of HELOC balance on original $1890 plus interest.
• Dec 08: Count your returns of $283 x 4 = $1132 (i.e. 60% profit, less any interest paid on HELOC probably no more than 8% or 9%).

Considerations and things to think about:

• The one drawback with this strategy is that you can't get an endless stream of high percentage returns (i.e. your limited to your 15%, etc. max payroll deduction amount). But, that doesn't mean you can't offer to loan money to any of your coworkers and teach them how to do it (especially if they don't have HELOC money avail). That's still leaves a great return on investment if you split it with your coworkers. Anyone know if there's any problem with going this route? Obviously the drawback is that your coworker might not be that on top of money, like you :-)...
• If you're not currently maxing out your 401k, then you should definitely do your best to try and max out your 401k contributions
• By concentrating your efforts on maxing out your 401k, then you will likely not have funds to max out your ESPP potential, in that case you should look at using your HELOC to fund your ESPP to it's max potential as above
• Many ESPPs have even more advantages for you to make gains beyond their 10% or 15% (or whatever their discount stock purchase % is). Some companies allow you to purchase at an even lower price, based on lowest price of 1st date or contribution period or last date. So, if the stock price at the beginning was 50% lower than the end, you get to purchase at 50% + your discount percentage 10% or 15%, etc. from the current stock price. This makes even more gains!!! The Wonderful World of Employee Stocks, Part 3: Don't Poo-Poo Your ESPP
• As mentioned above, profiting from 0% credit card offers makes a lot more sense now. Traditional methods discuss putting the money in savings accounts and using that gain, well ... how about the percentage gains above!More on How to Make Money with 0% Credit Card Transfers (And Five Reasons Not to Try). The only thing I'd caution against with 0% Credit Card offers, is that they are real tricky to manage, and I'd still advise going with the more sane cheap money avail to you through HELOC, if you have it.

You'll find this post on the following carnivals:

Money, Finance and Fancy: The Carnival of Personal Finance #132, Whimsical Christmas Edition

118th Carnival of Debt Reduction - Winter Solstice Edition

Carnivals of Fun For Personal Finance Posts #2

This week a there have been some great personal finance carnivals out there. I encourage you all to stop by and take a look at all the great posts. I guarantee you'll have hours of enjoyable reading and find some new favorite posts. Teaspoon Finance is proud to have a post participating in the following Carnivals. The Teaspoon Finance post participating this week at these carnivals was: Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

Carnival of Personal Finance
This weeks Carnival of Personal Finance #114 is hosted at The Simple Dollar. Trent at The Simple Dollar spent a ton of time reviewing the 60+ posts submitted and choosing his editors choice posts. I confess that I haven't had a chance to read all the posts, yet. I plan to by this weekend. I did go through and read all the titles that caught my eye and from those, read many many of the posts. From those, I found 2 that are my favorites from the Carnival of Personal Finance #114. I covered these in: Carnivals of Fun For Personal Finance Posts.

101st Carnival of Debt Reduction
This weeks 101st Carnival of Debt Reduction is hosted at I've Paid For This Twice Already... Paidtwice reviewed 25 posts submitted and I'm very excited that Paidtwice picked Teaspoon Finance's post as their favorite!

My favorite article this week was from Teaspoon, with Do You Have an Emergency Fund? - If Cash is King, Then Don’t Neglect His Good Looking Brother, the Prince of Credit! posted at Teaspoon Finance . Honestly, I loved this article, despite the fact that I don’t agree with the whole basic concept presented in it. It is a well-written, very well-thought out discussion and drew me in despite the fact that it is contrary to my opinion. Enjoy!

I've reviewed many of the posts at Paidtwice and I'm sure you're going to find some great info and new insights into personal finance in one or more of the 25 posts. I had fun going through the posts at Paidtwice. I actually read every one of these carnival posts! Here's my selection of 3 favorites that I enjoyed most:

• glblguy with Key Steps You Can Take Now To Get Out of Debt posted at Gather Little By Little
  OK, I love posts that have tidbits of wonderful wisdom that I may or may not have heard before and intended to implement, but haven't. They're like little reminders to say "Um, you know I'm right, now when are you gonna put me to work?". This post has a great little tactic that I've read about before and loved, fully intended on implementing, but never have. I'm losing money every day by not even trying! Please don't let this happen to you. Get over there and read this post. Oh, what's the wonderful little tidbit? It's listed as #3. Reduce your interest rate. Now go learn and become enlightened by this and more :-p...
• David at My Two Dollars brings the next installment of his excellent “Get out of Credit Card Debt” Series, The Start Digging Out Of Credit Card Debt Challenge - Week Five.
  David also gets my attention as a favorite for a couple of reasons. First, same as above, he touches on that little tip of reducing your interest rates in this week five of the series. The other thing I like is that this is part 5 in a series of great info and several steps to help reduce credit card debt. I'll be keeping an eye out for future installments. I love info in bite sized chunks and David puts that together in this series. From this week five post, you'll find his links to previous weeks. I definitely encourage you to start reading from week one, read them all and look to see what items you want to start taking a bite and chewing on for yourself or a loved one! Definitely read week two for a scripted example of asking for rate reductions. Any system is great, as long as you pick a system or process and go with it. I love David's methods, even though in this latest mortgage meltdown I like approaching from a different angle (i.e. reducing debt in a little more costly method to save big on refi's, as it has maximum short term impact on FICO scores, for those that need to do a refi soon). No matter what, go out and lower your rates, I hope to this month!
• FMF presents Your Bad Credit Could Cost You $1 Million posted at Free Money Finance
  Love this post! Check it out and learn the importance of keeping your credit healthy. I've never quite seen it in this perspective. I really love this whole concept of monetizing opportunity costs of bad credit.
  

Wow, that was some fun reading! I think there's one or two more carnival's to go and I'm out of energy for now. I'll have to get with them much later today. I encourage you to stop by the carnival sites and read through and find some new favorite posts of your own.

I'll be following up with additional Carnivals that Teaspoon Finance was a part of with my post: Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

That's right, credit can be just as valuable a tool as cash, when it comes to keeping an emergency fund. The next time you're thinking seriously about your financial house, take some time and think of the scenarios and options discussed here as possible tools to help you achieve your goals. Hopefully you'll think about having a Credit Emergency Fund from now on.

What are the benefits of pursuing an all Credit Emergency Fund? How about:

• Being able to max out your yearly 401K contributions
• Maxing out your company ESPP program for huge returns and free money!
• Getting immediate huge high-interest rate returns by paying off your high-interest credit cards
• Investing in stocks, bonds and mutual funds that return a higher rate of return than emergency fund savings accounts for your retirement
• Investing in real estate and business ventures

I'd like you to think about the possibility of having a credit-only emergency fund. Yea, I know, sounds scary ... just think about it. Grab a cup of coffee and just think about the info in this post. I'm sure that if you don't decide to get rid of your cash emergency fund, you'll at least think about it a little differently
;-).

First on the list is outstanding credit card debt. Do you have a sizeable amount of high-interest credit card debt? If you can answer yes to this, then here's reason number one to get rid of your emergency fund. Put it to work! That's right you can be a financial Warren Buffet and make 13%, 15%, possibly even 25%+ this year on your money. You must be absolutely positively sure that you are on track with your credit card spending habits before trying this method. Because if it was your out of control spending habits that got you this large credit card debt, then paying it off without fixing your spending habits isn't going to help. You'll simply end up with a Credit Emergency Fund of credit cards that are just charged back up with bad spending habits. That's a no no!

You may have been diligently building an emergency fund for a rainy day. That fund has been sitting there earning 3%, 4%, maybe 5%+ if you've jumped into some of the great online savings accounts out there. Here's a chance to get a guaranteed high-interest return on that money. Knock out all that pulse pounding high-interest credit card debt. Don't cancel any credit cards. If you still have outstanding debt after this move, then continue to work to reduce it. A great post on pfadvice.com puts credit card debt vs. emergency funds into perspective with this piece of advice:

...While this may give you some peace of mind, it’s a false peace of mind - you will never really have a true emergency fund until all your credit card debt is paid off…it’s as simple as that.

Second in the lineup, your HELOC. Think about using your HELOC as an emergency Fund. This is an excellent source of cheap money. Dr. Don, at Bankrate.com says to make sure of these points:

If you decide to take this route, it's important to have the credit line in place before you need it.

If the HELOC comes with a credit card, you want to avoid the temptation to use the credit card for nonemergency purchases. ... Activate the card but put it somewhere safe and out of reach, like in your safe-deposit box.

If you plan to use the HELOC for any other reason, make sure you get a large enough line to cover both needs. If you're planning to use the HELOC to finance an automobile, for example, you'd want to still have enough room on your credit line to handle a short-term financial emergency.

This is an excellent option, if you already have a HELOC open and available credit line to cover as an emergency fund. Most HELOCS with credit cards offer the same interest rate for cash withdrawals from ATMs, so this is just as convenient if you need actual cash. You can get it at the same low rate as the HELOC money.

Third in the lineup is Credit Cards. But, this time I'm talking about credit union credit cards. As I've been building up my personal Credit Emergency Fund of credit cards, I've noticed a couple of really wonderful things about credit union credit cards:

• They often are easier to get approved than normal credit cards
• They often give higher credit limits than normal credit cards
• They often give much lower interest rates than normal credit cards
• They often give you the same low interest rate for cash advances at ATMs as they do for regular purchases!
• They are now easier than ever to qualify for membership
• Once you are part of that credit union, They often have offerings for great rates on loans (car, home, equity, etc.)

I love the fact that I can get cheap money from my HELOC checks and credit card. But, second in line to that cheap money is the cheap money I can get from credit union credit cards from any ATM. You may have been bitten by huge minimum fees and even larger interest rates on cash advances from ATMs on regular credit cards. Just not the case with most credit union cards (check your membership info for details). So, in emergencies, these are second in line after my HELOC line of credit!

You can find out about credit unions in your area with one of these sites: http://www.joinacu.org/ or http://www.ncua.gov/indexdata.html . Now days you can generally join any credit union in your state, as most have the minimum requirement of being a resident of the state that they operate in.

Fourth in the Lineup are your Credit Cards, again. This time regular non-credit-union credit cards. Obviously HELOC credit cards and checks are probably going to be your cheapest source of money. They should therefore be your first tier in your new Credit Emergency Fund. In her MSN Money Article: $0 Emergency Fund, Liz Pulliam Weston, mentions another interesting fact about regular credit card usage for emergency funds that I didn't think about:

...And credit cards have a feature that home equity lines lack: If you wind up filing for bankruptcy, balances on unsecured debts like credit cards may be erased, while secured debts like mortgages and HELOCs can't be discharged.

Hopefully no one will have to use that feature, but it's nice to know there's some advantage to using credit card debt versus your HELOC credit.

Now after all of that, I hope you see the many advantages of building your Credit Emergency Fund and put your old cash emergency fund to work making some more cash! If you ever feel the need to hang on to big wads of emergency cash, then you have cheap cash avail to you from your HELOC credit cards or credit union credit cards at really cheap rates. You'll never have to worry about going into one of those loan offices that charge you 99.25% on your money for a short term cash loan (seriously, they're charging consumers that rate)!

FICO Roller Coaster - Part 1: FICO Freshen Up in 3 steps

In this series I'll do my best to touch on the following topics:

• FICO Freshen Up - Quick actions to pump up your FICO in the next 30 to 90 days
  
• FICO OCD - Ongoing credit monitoring of your files and scores
  
• FICO Battle - Long term battle plan when your reports & scores are in some serious need of cleanup & boost
  

Part 1: FICO Freshen Up - Quick actions to pump up your FICO in the next 30 to 90 days

OK, in this series (in 3 not so short steps), I'll cover a great gameplan to hopefully make some substantial improvements to your FICO score in the next 30 to 90 days. I've gone through many different levels of understanding about FICO scores. From what the heck they are, what's good, what's bad, to learning some great methods for boosting and keeping mine in the healthy range and the oh so important difference between FAKO and FICO. A great site that I've learned a bunch from in the last year is www.creditboards.com. This site has great set of discussion forums on all different aspects of personal finance. They're main board is probably the Credit Forum. Tons of knowledgeable people pitch in to help their fellow posters deal with the daunting hardships of credit card debt, personal finance tips and tricks, mortgage finance hunting, money management, and more, much more. I highly recommend this site if you want to dive in for a week or more of reading posts and FAQs on how to improve your credit score picture. What I'm touching on here is only the tip of the iceberg. There's so much more to learn there.

Before I got educated at this site, I was playing the 0% balance transfer shell game to reduce the interest hit of my outstanding balances. While this makes good financial sense, if done without attention to FICO, it can wreak short term havoc on your FICO score. Before creditboards.com I did learn about FICO scores and in general how to monitor them and was very fuzzy on how to really make them move. I figured if I kept paying off the balances, that the scores had to go up and they did.

Short and sweet steps

1. FICO Checkup - Pull your reports and scores and see where you stand. Use MyFico.com for FICO scores, rather than FAKO's.
   
2. FICO Boost & Payplan - Pay balances and perform balance transfers (using existing cards only ... no new card requests for balance transfers) to achieve an even utilization ratio.
   
3. FICO Monitoring - Monitor your FICO and Report progress as you paydown until you're ready for your mortgage/loan

Details, details, details to the steps

1. FICO Checkup - Pull your reports and scores and see where you stand. Use MyFico.com for FICO scores, rather than FAKO's.
   
   What is a good FICO? What's the difference between FICO and FAKO? What's a FICO middle score?
   
   FICO scores range from 300 to 850. When lenders look at your scores they generally are looking at your middle FICO score. This is the the middle score of your 3 available FICO scores. There are 3 credit bureau organizations that mortgage brokers and most other creditors get your FICO scores from. These are: Equifax, Experian, and Transunion. So, if you had scores of 660, 680 and 700 the score that your Mortgage broker woudl be quoting your rates at would be the middle score of 680. It's funny, but your score can vary in range from any of these three credit bureaus.
   
   How FICO score affects mortgage rates
   

   	760 to 850 tier		5.78%
   	700-759 tier		6.002%
   	660-699 tier		6.286%
   	620-659 tier		7.096%
   	580-619 tier		8.583%
   	500-579 tier		9.494%

   (as of March 2007 for 30 Year fixed $300,000 mortgage)
   
   (from article: How credit scores affect mortgage rates)
   
   A good FICO is basically a FICO that allows you to get a prime rate mortgage. Scores below 660 start to penalize you on getting the conventional prime rate mortgage rates. The general consensus is that a 660 and above gets you rates starting in the prime rate range. As your middle scores move up from 660+, you are on different tiers of improving mortgage rates. With the best generally considered from 760+. So, once you've reached a middle score of 760, it's great to keep improving so that future hits to your FICO won't have a great impact. But, you might not necessarily see any rate improvements.
   
   So, what the heck is a FAKO? This one threw me for a loop for a couple years. For the last 5 years or so, I thought I had a handle on improving my scores. I could never figure out how the heck the mortgage brokers got such different scores than the ones I was pulling to monitor my credit. I mean I was diligently pulling my credit reports and monitoring them and my scores from all 3 bureaus at www.TrueCredit.com. Then when I'd apply for a car loan, mortgage, refi, investment property, etc. I'd confidently tell the broker that my middle score should be 670 (etc.). They'd say, well it looks like it's actually 675 or sometimes in the bad direction 665. I'd say, what are three scored you have for me and they'd say for example: 660, 675, 696. I'd say: well, I just pulled them yesterday and they are 670, 675, and 705. They'd say, those are consumer FICO's. We pull a different set of FICOs for banks.
   
   Geeze, I felt somewhat beaten down by the process. But, I was getting my scores in the general upward velocity and vicinity that I wanted them to be. I just couldn't understand why my scores I'd pull and theirs were so different. Well, on www.creditboards.com I learned that if you want to monitor your scores and report, use www.truecredit.com many folks do that to great success. But, once a year/quarter/before refi/etc. pull your score from myfico.com. This is the consumer end of equifax.com and they publish the real FICO scores that the banks get. The scores that www.TrueCredit.com gives you are FAKO scores, they have their own algorithms to give approx scores for the 3 credit bureaus, but they aren't the exact algorithms that MyFico.com uses and that all banks actually get. So, there you have it FAKOs are great for monitoring general trend and vicinity of your actions on your scores, but when you really want to know what scores your creditors/brokers will be pulling you should pull it from MyFico.com .
   
   Now, I'm sure I heard a couple of people pipe up and say: why even pull truecredit.com reports and scores? Just use MyFico.com all the time. Well, it comes down to money my friends ... cold hard cash. www.TrueCredit.com and there are others that you can learn about on www.creditboards.com charges a pretty nominal fee for the year to allow you to pull your updated credit file and scores on a daily basis (yep, updates daily) as well as daily alerts sent to your email when things on your report changes (great for monitoring for Identity Theft). Whereas pulling from MyFico.com costs about $45.00 ($40.00 if you can find promo coupons and there generally are some posted on creditboards.com).
   
   Now that the basics are out of the way, what was step one again? Oh yea, let's pull our FICO and FAKO's and see where we are. You have a couple different options here. First, if you've just recently applied for a Mortgage, Refi, Car Loan, etc. where they pulled your credit report and scores from all 3 bureaus, then ask them to please tell you what your scores are from each of the bureaus and note these. This is basically free if you do it this way :-). Also, ask them if they would please send you your three credit reports (if you can't get these, that's ok, we'll want to pull them anyways).
   
   So, if you didn't get your scores or reports the freebie way, there are still some economical avenues. You can go online and get your credit reports pulled down for free within 60 days of being declined for credit. Just follow the online links in this post: Links to the Free Online CRA Credit Reports For adverse action or declines (i.e. also free if you are unemployed, on welfare, or have any reason to believe your reports are wrong due to fraud).
   
   You are entitled to pull your Credit Report from all 3 bureaus for free once a year. You can choose to pull a report from one at a time every 4 months (just a suggestion) for free to keep you covered for the entire year when you're monitoring or you can choose to pull them all at the same time from www.annualcreditreport.com.
   
2. FICO Boost & Payplan - Pay balances and perform balance transfers (using existing cards only ... no new card requests for balance transfers) to achieve an even utilization ratio
   
   OK, you got your reports and you know where your starting scores are. 30% of your credit score is made up of the amount you owe. In particular your overall and individual credit line utilization rates figure big time into your credit score. So, if you lower your utilization rate, you increase your fico scores. Payoff your debts and your scores increase. How to calculate your utilization rate? It's the ratio of your debt to credit limit. Or: Utilization = Debt/Available Credit Limit. Example: Platinum Visa with $10,000 limit and $4,000 balance; Utilization = $4,000/$10,000 = .40 (or 40%). The rule of thumb is that you want to have none of your cards above a 50% utilization. This is a signal to your creditors that you are maxing out a credit line and can't manage your available credit limits.
   
   This one killed me, remember when I said I'd balance transfer to my 0% card offers. Well that was giving me a 80-90% utilization on individual cards (but not changing my overall utilization). The result is my FICO score would tank and I couldn't figure out why. Do a search on 'Utilization' at http://www.creditboards.com/ for lots more examples and explanations. Suffice it to say that one of the most powerful methods of increasing your FICO scores quickly is to equalize your credit card utilization ratios.
   
   Your action plan is to build up a spreadsheet (paper or electronic) and calculate all of your existing utilization ratios for all your open credit card accounts. Apply your monthly payments to reduce highest utilization ratios first. Apply minimum payments to all others.
   
   You can also utilize existing balance transfer offers you have (on your existing cards only, don't open new accounts). Use these to move the balances around to equalize the utilization ratios. Example:
   
   before...
   

   Card Balance Credit Limit Utilization Card1 12000 15000 80% Card2 0 (BT Avail) 5000 0% Card3 5000 10000 50% Card4 0 (BT Avail) 10000 0% Card5 10000 12000 83%

   
   
   after 1 month (with avail balance transfers + $1000 monthly payment)...
   

   Card Balance Credit Limit Utilization Paid/BT Card1 7500 15000 50% 4000BT + $500 Card2 2500 (BT) 5000 50% -2500 BT Card3 5000 10000 50% Min Pymt Card4 5000 (BT) 10000 50% 5000 BT Card5 6000 12000 50% 3500BT + $500

   
   
   after 2 months (with only $1000 monthly payment avail)

   Card Balance Credit Limit Utilization Paid Card1 7225 15000 48.17% 275 Card2 2400 5000 48% 100 Card3 4800 10000 48% 200 Card4 4800 10000 48% 200 Card5 5775 12000 48.13% 225

   
   
   
   Note: The above method is not the most cost effective way to deal with it. If you have no need to have a great FICO score right away. Then play the 0% balance transfer game any way you want to reduce interest rates and attack attack attack your credit card balances with all your avaialble cash payments. Attack the balances with highest interest rates first for the best savings. Once they're all paid off you'll have stellar FICO Scores as your utilization will be close to 0%.
   
   Caution: No matter what you do, do not close accounts as you do this. You could seriously tank your FICO scores! Read up on Creditboards.com about closing accounts. Take a look back at the charts at Myfico.com for what makes up your scores (remember, these are the folks that created the algorithm for all our scoring, so they know). Payment History makes up 35% and Length of Credit History makes up another 15% of your FICO Score. So, closing an account you aren't going to use anymore could hurt you (especially if it's an old account). As long as you're not paying a fee for it throw it in a sockdrawer or in a baggie of water and throw it in the freezer. It's not going to be used that way and is always there if you need it AND it won't kill your FICO Score.
   
3. FICO Monitoring - Monitor your FICO and Report progress as you paydown until you're ready for your mortgage/loan
   
   Go online to http://www.truecredit.com/ or another monitoring service that you're familiar with and monitor your score and credit reports. I like to use truecredit.com and I have the plan to pull unlimited scores and reports daily. It's like $10 or $14/month. You might check with your credit union, employer, etc. to see if they have any recommended credit monitoring options.
   
   What I do is pull my score weekly or daily if I'm looking for score changes and report updates. I also save my reports and scores daily to hard drive (in html format). This allows me to look from one pull to the next to determine what had an effect on moving the scores. Remember, these are FAKO scores, but the general movement and trend is what you're looking for. You should see your scores going up as your new balances are posted. You can check on your report to see if it reflects the new balances for your most recent payments. You'll notice that as soon as a new balance hits, you'll see an upward movement in your score for that day :-). As you attack those balances and drive that Utlization ration to under 20% you'll notice a huge spike in your scores over that time.
   
   Once you've done about all you can before you'd like to engage in a mortgage broker, etc. Then pull your Myfico.com scores and you'll know exactly where you stand with what your rates can buy you.
   
   How FICO score affects mortgage rates
   (as of March 2007 for 30 Year fixed $300,000 mortgage)
   

   	760 to 850 tier		5.78%
   	700-759 tier		6.002%
   	660-699 tier		6.286%
   	620-659 tier		7.096%
   	580-619 tier		8.583%
   	500-579 tier		9.494%

   
   (from article: How credit scores affect mortgage rates)

More to come in the upcoming parts to this series. We'll dive into how you can triage and attack the information in your credit report to take away bad references, derogatories, etc. For more information in the meantime on this topic, check out a great primer on credit building by Psychdoc at creditboards: PsychDoc's Credit Repair School