Currently have a credit score of just under 700 which isn't great obviously and I was wondering how to build up a better score before I buy a house in a couple years. I have had a small loan from college that is paid off and two credit cards (both that are paid off and the end of each month). What are some tips to build credit? I have heard you aren't supposed to pass some percentage of your credit limit on cards. What else can I do? I am about to get a very small loan for a new daily that I can easily pay off quickly to help boast it.
Borrow, pay off ASAP. Wash, rinse, repeat. I have very good credit and this was how I did it. It is good to know the company you are borrowing from reports often. Capital One reported and it worked wonders.
When we looked to buy a house, I was impressed with what they were willing to loan us. When they look, they wont just look at your score, but they will look at what you currently are borrowing. When you want to apply for home loans, have everything paid off.
On the credit cards, make sure that the billed amount (which gets reported to the credit bureaus as the credit utilization) doesn't exceed 1/3rd of the credit limit. For a boost, try keeping it under 10%. The credit bureaus don't see/care if you are carrying a monthly balance or pay the bill in full every month.
This doesn't mean that you can't use more of the available credit as long as your lender only reports the amount that you're billed for. You might have to make interim payments to keep the ratios below the thresholds.
Also credit mix is supposed to be good, so a car loan should help. I'd still try to push the credit score above ~720 before looking at a car loan though, otherwise you might end up paying through the nose for the privilege of adding another loan to the mix.
In reply to BoxheadTim:
Credit union said 9% on a $1500 3 year loan. So that would be a touch over $200 over the life of the loan. And I will pay it off early so it isn't going to cost me much.
That sounds more like a personal loan/signature loan than a car loan. Not sure if that does make any difference in your credit score calculation, though.
BoxheadTim wrote: That sounds more like a personal loan/signature loan than a car loan. Not sure if that does make any difference in your credit score calculation, though.
They said car loan but I will ask again.
How long should it take to build up my score? I have had one of those cards for 2 years and the other for less then a year.
Limit the amount of inquiries (each time you apply for credit, especially revolving credit). Use cards monthly and carry small balances on cards month over month, but never exceed 50% of allotted limit. Do NOT cancel old cards; the age of credit is a factor. Basically they like seeing responsible (pay on time) use of seasoned (not brand new) credit without overextending.
IIRC carrying balances or not doesn't matter much. Using as little of your available credit as possible and paying on time does.
And yes, age is a factor. You should see your credit improve as the average age of your credit lines goes up.
None of the CUs I'm a member of with write a car loan for $1500, they mostly start at around $5k, plus they tend to have much lower interest rates (like in the 2% range).
I'm surprised anybody would write a $1500 three year car loan on a used car Sounds more like a signature loan.
Will a signature loan change the affect on my credit score compared to a car loan?
I mean I could pay the car in whole but I figured that since I would be paying this off early the little bit of money extra I would pay would be worth it to see a bump in the credit score.
Also would another credit card hurt or help my score? I have one from my local Credit union but the rewards suck and I barely use unless a place won't take Amex. I was considering a cash back card and just leave the one from the credit union in the lock box.
Getting another credit card both has a positive effect (more available credit) and a negative effect (another hard inquiry on your report, average age of credit lines goes down further). In the long term it's probably beneficial, in the short term not so much.
Yep--Installment (loan) inquiries are not as damaging as revolving inquires--so, based on the goal, having the loan should be a positive thing, assuming payments are on time.
Having another card may be good too--again, with the get-a-house goal being some time down the road. Try and get the limits increased on any cards that you have as well...its good to have a fair bit of available credit, you just don't want to see a whole lot of it "consumed" when you go to get the mortgage inquiry.
I think I would limit myself to a pair of credit cards, and it sounds like you're already there. A real car loan would probably be smart.
There's some good advice in here; http://money.cnn.com/2013/08/19/pf/credit-score-killers/
Curious, in the article pres589 linked, it said that "increasing your overall available credit can also be a red flag."
Does this apply if they come to you offering to increase your limit?
(as opposed to requesting it)
In reply to SnowMongoose:
Let's say your credit card limit gets raised by the card company and you keep your same spending levels as they were before. At that point you're not utilizing the same ratio of credit, so that's going to be an issue. There's also the whole "why is this guy sitting on so much available credit?" question that seems to get asked when your credit history is reviewed. Which isn't fair to you but this is the banking industry.
I think the best thing to do is keep your eye on your statements and if your credit limit gets played with, ask the card company to drop it back down.
Increasing the limit via inquiries is NOT good in the short term. Increasing the available credit either through a request on an existing card, OR buy accepting an offer from an existing card IS good.
Think of your revolving credit as a pie chart...you want a relatively big, aged pie with only a small bit consumed. But is IS good to use each card regularly (spend/pay)--it shows responsible use.
a real car loan will help quite a bit. I was a bit shocked when I paid off all my CC's and my car loan and my score didn't go up much. Then I bought a new car and my score jumped 20 points. Having a car loan is actually a good thing for a credit score (assuming your debt to income ratio doesn't get skewed by it)
The Debt-to-income ratio is not on your credit bureau--they don't know your income. What they DO know is the ratio of used debt to availible debt...and as for revolving debt, keeping this in the 30-40%...no more than 50% is critcal to not having a negative impact on the score.
There is two kind of debt: Revolving (cards) and installmet (loans). The only real key to installment debt is making timely payments (you can'treally have 'too many' loans)...the other 'rules' apply to the revolving type.
Wait 700 is a bad score? I'm in deep E36 M3 then.
700 is solid. North of 740 is what to aim for.
So I am going to get this small loan and see the affect on the credit score. I would like to get north of 780 but I don't know I will be able to do that in the next couple years. At this point I really don't want to have a full car loan on me but maybe next year for the wife.
Somewhat related; what's the best method to check your overall credit score? Like if I wanted to check mine a few times a year, what is the best way to do that? I know not to check it too often or that has a negative effect as well (isn't this game fun??).
93EXCivic wrote: So I am going to get this small loan and see the affect on the credit score. I would like to get north of 780 but I don't know I will be able to do that in the next couple years. At this point I really don't want to have a full car loan on me but maybe next year for the wife.
Think of it this way, the few thousand you pay in interest on a vehicle, will easily repay itself in your better credit score when you go to get a home loan.
Small movements in your interest rate can be 10s of thousands over the course of a mortgage.
pres589 wrote: Somewhat related; what's the best method to check your overall credit score? Like if I wanted to check mine a few times a year, what is the best way to do that? I know not to check it too often or that has a negative effect as well (isn't this game fun??).
www.creditkarma.com (tied to TransUnion) is free and has good pointers.
Besides TransUnion, there are credit repositories at Experian and Equifax. There are also different credit models used within each repository. When you get a mortgage, all three get pulled and the middle of the three scores is what is used. When you buy a car, motorcycle etc., most lenders just pull one score--where I live, it's the TU score (but again, there are different models even within TU, so one bank's TU pull might be a few points different than another's TU pull). The bottom line is that if your credit is good, its good...and if you have done something to foul it up, it'll catch up with you.
One of the big things that I saw was late/missed utility bills--in Wisconsin (where I live), the power company reports to TU, but not Equifax or Experian. You have 30 days from a due date to make any credit payment before it goes on a bureau...then it'e either 30, 60, 90 days late. Collections...medical, cell phone, cable-company etc. are also concerns to be aware of...but as I said, if you make the payments on everything, there should be no issue.
z31maniac wrote:93EXCivic wrote: So I am going to get this small loan and see the affect on the credit score. I would like to get north of 780 but I don't know I will be able to do that in the next couple years. At this point I really don't want to have a full car loan on me but maybe next year for the wife.Think of it this way, the few thousand you pay in interest on a vehicle, will easily repay itself in your better credit score when you go to get a home loan. Small movements in your interest rate can be 10s of thousands over the course of a mortgage.
Good point. Well my wife just interviewed for a full time teaching position instead of a part-time teacher's aide. So if she get maybe this year we can get her a new car.
You'll need to log in to post.
