Credit is an enigma to most people.  If it was less mystifying, perhaps there would be far fewer people with 500 credit scores and a whole lot more with 800 scores.  The harsh reality is that very few people know exactly how good -- or how bad -- their credit may be.  Fewer still know how to remedy their credit problems.

Over the years, several customers have informed me that their credit rating was "terrible", and they were stunned when I revealed that they actually possessed great credit scores (>680 FICO).  Conversely, I have had other customers with abysmal credit scores (<580 FICO) tell me, in all seriousness, that they had "great credit" because they always paid cash.  Yeah, right!  If cash is "king", then credit is truly their "higher power".

Good credit invariably prevails when it comes to making major purchases such as homes and vehicles.  If you have paid your bills promptly and kept your nose clean, you are blessed with the most favorable of interest rates and terms.  On the other hand, if you have accumulated a string of late payments, collections, judgments, or more serious blemishes, you will pay dearly for your indiscretions.

Bad credit can cost a fortune!  Bad credit can add seven or eight thousand dollars in additional interest on a $20,000 vehicle loan.  Bad credit can just as easily add an extra $150,000 to $200,000 in interest to a thirty-year mortgage on a $200,000 home.  Not even Bill Gates or Warren Buffet can afford to squander that kind of money!

I advise prospective home buyers that they need to have at least two major credit cards and two minor credit cards at the foundation of their credit.  Installment loans and a timely rental or mortgage payment history will build upon this foundation.  Most mortgage lenders require five established tradelines to document a borrower's creditworthiness, with a minimum of two year's history being optimal.  Don't worry, I offer numerous programs that work with non-traditional credit histories for those with no credit or limited credit profiles.

The best plan is to utilize your revolving credit (credit cards) prudently.  This is best accomplished by paying off all credit card balances monthly or at the very least keeping your current balance below 50% of your credit limit -- below 30% is even better.  Follow this simple plan and you will never accrue unmanageable credit card debt that will bleed your earnings dry.

Below are a few tricks that will help you restore and maintain the health of your credit history.

Trick #1:  Never "max out" any of your credit cards.  Whenever you find it difficult to pay off your credit card debt, at the very least, you must reduce each credit card balance to less than half of its available credit limit.  Allowing credit card balances to rise above 50% of the available credit limit has a negative impact on your credit score each month that the balance remains high.  When you approach (or exceed) 100% of your limit, it will cost you dearly in points every month that you are near or above your limit.

Trick #2:  Never, ever allow any credit card balance to exceed its available credit limit.  Your credit scores will take a major beating every month that a credit card's current balance remains above its credit limit.  This inverse condition can easily strip over 100 points from your credit score in a few months.  To avoid this ticklish situation, ask your credit guarantor to increase your available credit long before you approach the limit of your credit line.

Trick #3:  Here is an interesting twist on Trick #2.  Ask each of your credit card companies to increase your available credit limits without pulling credit.  Many credit guarantors will increase your credit limit based solely on your past record of timely payments.  This will effectively decrease your debt ratio and instantly improve your credit scores by 20 points or more.

In my article "Care and Feeding of the 800 Credit Score", I revealed observations of customers with exceptionally high credit scores.  Each of these credit-savvy individuals had one or more revolving accounts with available credit limits of $10,000 to $30,000 -- yet each carried current balances of less than a few hundred dollars.  This powerful and foolproof strategy dramatically improves credit scores and keeps credit scores forever high!

Trick #4:  Never close an inactive revolving credit account unless it reflects abused credit.  Closing an inactive credit account does absolutely nothing to improve your creditworthiness.  In fact, arbitrarily closing an account may actually harm your overall credit rating by deceasing the average time that your accounts have been open.

Only close a zero-balance credit account when the account has been inactive for several years and may be of no further use (see previous paragraph) -- especially if the account includes derogatory information.  Whenever an account contains derogatory payment information, it will continue to have an adverse affect on your credit scores as long as it remains on your credit report.  Get rid of it!  However, your request to close the account must be conditional, based upon having the credit guarantor agree to remove the tradeline from all three credit repositories.  Removal, in this instance, will cause your credit scores to improve markedly.

Whenever an armchair credit counselor or rookie loan officer advises you to indiscriminately close any or all of your open tradelines -- quietly turn and run away fast!  This misguided soul is displaying their ignorance of what constitutes good credit and how to maintain it.

Trick #5:  Just say "NO!" to the minimum payment trap.  The credit card industry has cleverly designed their products to make lot of money -- mountains of money -- all at unwitting cardholders' expense!  Whenever someone places himself or herself in this untenable position, it can easily double or triple the cost of everything that they foolishly purchase with their credit cards.  Minimum payments are intended to keep the cardholder paying against their account balance for the rest of their adult life.

Trick #6:  Keep good credit in the family. This one is priceless!  If you have a family member who has maintained an impeccable payment history for ten years or more, you can become the beneficiary of their good credit.  Have your family member ask the credit guarantor to add your name to their credit card account as an Authorized User.  Make certain that you provide your social security number to the credit card company, so that proper credit can be given to you for your benefactor's timely payments.  This will initially increase your score by 20 to 40 points, and will grant you the benefit of your relative's low debt ratio and flawless payment history.

Parents are encouraged to pass their credit legacy along to their college-aged children.  I have witnessed the credit reports of college students with scores in the mid-700s due to this powerful credit strategy.  Students are thus prepared to purchase their own home on the merits of their strong credit standing and their college diploma -- within days of graduation!

Trick #7:  If you have no credit or seriously damaged credit, you will not be able to obtain an unsecured credit card.  Even if you are fortunate to qualify for one, the interest rate and annual fees are likely to be punishing.

You can obtain a secured credit card whenever you are unable to qualify for an unsecured card.  The security will be your deposit of $200 to $1,000 (at your discretion) in an account with the credit guarantor.  Once you have proven your trust through your ability to make timely payments, you will be able to obtain an unsecured credit card.  In the mean time, you will be establishing a credit history that will help to buy the finer things in life.

Trick #8:  Another tricky way to establish credit is through a major bank.  Ask your personal banker for a signature-only note with the sole intension of placing the borrowed money into one of the bank's Certificate of Deposit for the full term of the note.  When the CD matures, you agree to pay off the note and begin the process again.  Increase the size of the loan and CD as required.  This will produce a series of timely payments to a respected lending institution that dutifully reports your payment activity to all three credit repositories.  The cost is minimal, but the impact on your future borrowing capacity can be immeasurable.

Trick #9:  When settling unpaid collections, you must tell the collection agency that you will settle only if they agree in writing to delete the tradeline from all three credit repositories.  Make certain that you receive a letter on their letterhead testifying to this mutual agreement before sending your check!  Use the letter to reinforce your position in the event that the creditor or collector fails to live up to their part of the bargain.

A paid collection on your credit report is no better than an unpaid one.  In fact, payment of an old collection will actually reduce your credit scores, since it will reflect "recent activity" on a derogative account.  Only complete removal of a collection will increase your scores.

Trick #10:  Maintaining timely mortgage (or rental) payment histories is critical to obtaining the best possible mortgage interest rate and term.  A single 30-day late payment within the past two years will move you one credit grade lower for your next mortgage, and multiple late payments will drop your credit grade even further.  The true penalty for making late payments is not the token 5% late fee, rather it is expressed as tens of thousands of dollars in additional long-term interest.  Ouch!

Furthermore, mortgage servicers maintain detailed payment histories that reflect precisely the date each payment is received and posted.  When you possess "average" credit and consistently pay your mortgage ten or twelve days late; you may not pay any late fees, but you may still be at risk of paying higher interest on a future mortgage or equity line!  Certainly, if you pay your mortgage payment after the grace period expires; you are expected to pay a late fee, but you will never have a late payment appear on your credit report, as long as the payment is credited before the end of month.

Trick #10?:  Automate your mortgage payment utilizing your checking account, credit card, or home equity line in order to maintain a flawless mortgage history.  Automate your credit card payments along with your utility bills to make certain that your credit scores never slip.  This is another "secret" of those with high credit scores.

Trick #11:  Never allow an auto dealer roll the unpaid balance of your trade-in into a new vehicle lease or loan.  Sell your vehicle privately to get top-dollar, then pay at least 10% toward the cost of the new vehicle.  If you cannot do that, may I suggest that you pass up the dubious "opportunity" of driving a shiny new car or truck.  You simply cannot afford one.

I was shocked to learn that nearly 70% of new vehicle purchases and leases have placed their fiscally naive owners and lessees "upside-down" in their loans and leases.  In other words, the drivers of two-thirds of new vehicles on the road today owe substantially more than what their vehicles are worth.  This amounts to a massive demonstration of financial ignorance on the part of complicit drivers, and a conspicuous display of immorality (if not criminal wrongdoing) on the part of the dealers and lenders involved in this colossal conspiracy.  Please, avoid becoming a party to this insanity.

You may wish to consider purchasing your next vehicle with money from a Home Equity Line of Credit.  Why?  Because the interest o a HELOC is tax-deductible!  The auto loan is not.

Trick #12:  Credit inquiries deduct points from a person's credit score.  Why?  Because whenever a creditor is not paid they check their customer's credit to see how many others Inquiries only determine 10% of a credit score, and the negative effects of an excessive number of inquiries vanish after twelve months but may remain on your report for up to two years.

The actual number of points deducted from your credit score will vary from as few as 3 points to as many as 25, depending upon the nature of the inquiry, the number of recent inquiries, and the overall credit standing of the person being queried.  Individuals with poor credit or shallow credit histories will be hit the hardest, and those with relatively robust credit profiles will hold up well and rebound more quickly.

A sad-but-true joke about diehard rate shoppers is that they risk lowering their credit scores by 50 to 100 points before finding the biggest liar.  So, if you feel compelled to "shop" for a mortgage or auto loan, please confine your whimsical shopping spree to a very brief period and a limited number of lenders (chosen with extreme caution) in order to avoid a catastrophic dent in your credit score.  Shop interest rates at your own peril!  What makes more sense is identifying a trustworthy mortgage lender and sticking with them alone.  Leave rate shopping to the professionals who will not continuously pull and re-pull your credit scores!

Please note that mortgage interest rates are subject to daily -- even hourly -- changes in bond rates and mortgage-backed securities pricing.  Therefore, unless rate comparisons are collected simultaneously, they are seldom "comparable" by any stretch of the imagination.