My wife and I have just completed eliminating all of her debt except
for her student loans (approx. 10K). She will be going to law school
in August, 2005 so payment on these loans will be deferred at that
time. Part of the debt reduction was paying off a "credit assistance"
agency that negotiated reduced interest rates for her credit cards,
etc.

She currently has a very low FICO score (low 500s pre-debt
elimination) so we would like to improve this score as much as
possible between now and August while we are still living off of two
incomes.

My online research has garnered mixed answers as to how to go about
this. Some parties say to do nothing and that over time the score will
improve while others say to purposely incur some debt and pay it off
over time so as to establish a record of timely payments.

I am looking for a more definitive opinion based on our particular
situation. Please also keep in mind that with her score it maybe
difficult to obtain new credit (all of the other credit cards have
been cancelled by the agency) and that her score will have improved a
bit by virtue of reducing her debt load.

Thanks!

Everyone's advice on this topic will be just opinion.  You will not be
able to get hard facts because the FICO company does not reveal
_exactly_ what influences credit scores and how much.  However, my
recommendation would be to use credit wisely (incur some debt, but not
too much, and always make timely payments) and over time your score
will begin to rise.

I disagree with the idea of incurring small debt just for improving
score idea. I won't be surprised if this is a myth spread by the
lending companies.

Are you planning to take on a new loan in your wife's name? If so then
the score will matter otherwise, I would say don't worry about it.

Better handling of finances will definitely get you better score, but
in about 1-2 year period. You have to be organized, your bank/lender
has to report it to the agency and then the things add up this takes
time. I know what it means to you but patients help. Trying to speed
things up may cause problem :-)

For the record, this is not opinion...  Everytime I pull someones
credit report each bureau tells me exactly what's influencing their
credit score, go figure.

Actually, everytime you pull a credit report each bureau gives you the
four main reasons your credit score isn't higher.  You said you paid
down some debt, balance to high credit limit (a balance greater than
30% of the limit) has a huge impact on your scores.  Also, too many
bank or revolving accounts with balances will negatively affect your
score.  Now, a score of 500 must have delinquent accounts and/or
collection accounts/public records.  Time will heal this wound, but if
you paid off a lot of revolving debt, your scores will go up over the
next two months.  How much?  It really depends on the amount of
delinquency and other factors.

Oh, and credit assistance?  Lets just say a lot of banks would
consider it a bankruptcy.  One tip, don't do it.  Payoff your credit
cards at the end of everymonth, you will see your credit slowly rise.

~Someone who deals with this everyday