Tips for building credit

[Melchiah]

I'd be tempted to believe you are either bullshitting, or have been seriously bullshitted yourself. There is no way you have a 690 with a foreclosure.

[Shuemue]

I'd be tempted to believe you are either bullshitting, or have been seriously bullshitted yourself. There is no way you have a 690 with a foreclosure.

Since when are major financial institutions competent or logical?

[Skyylya]

sounds like lots of people who don't really understand credit throwing stuff around. A few accurate things but mostly it's what people hear and don't actually know.

Best way to build your credit is to use your cards responsibly and keep your balances between 10-30% and be on time with your payments. Keep your hard inquiries to a minimum and diversify your credit.

Don't have all revolving charge accounts, don't have all term loans or installment loans. If you have the option try to have a balance of both. If you have a card you aren't using do NOT close it as you might shorten your credit history which can adversly affect your credit. i.e. you open your first card in 2000 and your second in 2004 and you so you'd have a credit history about 8 years long, if you close your first one your credit history will only be 4 years long which can/will lower your score.

The only thing that raises your score is maintaining a balance over time and paying responsibly. Other factors are taken into consideration a lot but as far as raising your score time is the biggest factor, it's not a quick fix to raise your score. You don't want to charge and pay off in full every month as it is the act of 'carrying' a balance responsibly that drives your credit up. charging and paying off in full every month is relatively the same as not using it at all which won't really help you in the long run, although it won't hurt either.

If you want to learn about how to keep good credit go to one of the three main reporting agencies, I use http://www.truecredit.com through transunion since it's pretty easy and only costs 14.95 a month to get updates on all 3.

In case anyone is wondering I work for Chase in a position that requires me to understand how credit works and affects people as it directly relates to my clients. It's also much more complex than any one of us could put into easy text.

Also your credit score isn't the only number out there on you, there are dozens of differently calculated scores that are taken into consideration when a lender is deciding if they are going to approve you for an account and how much and your actual credit score while the most used one by consumers is not the most important one to a lender.

[Nystul]

Don't pay it off immediately...the banks want to make money off you, so you need to let them.

Loaning a car is a good way, also taking out loans and paying them off, even for things you may not need them for helps.

Since I was 18 until this year (22 now) I did all my purchases via credit, spent around 50,000 or so, and paid that all off in time. My cards have no debt now and I just do debit or cash. I did it all that way because I never took a loan out for a car, or had time to deal with small loans. My credit score is near maxed so that'll work, it just takes some time.

That's just plain wrong. Banks don't dictate your credit score; all they do is relay information to the credit bureau (i.e. he didn't pay his statement on time, etc.) You will NEVER benefit more to pay anything other than the maximum (balancing the account).

Nope. Not true. Holding a balance shows you are capable of holding stuff on credit. Your credit score- the whole point of it- is supposed to be a measure of how well you can manage paying something off over time, how well you manage having credit extended to you. They want to see that you can hold a balance, pay things off over time and not let it get out of control. Therefore, paying off in full every month doesn't show them this and it doesn't work for you (it doesn't work against you either, it just doesn't help). I've always been told that they want you to keep 10-30% of the balance on the card. It's not because it makes the banks money, it's because they want to see you working with a balance on a day to day basis.

[Pharaun]

One thing that I haven't seen mentioned is that closing revolving lines of credit (i.e. credit cards or open ended lines of credit) can actually be bad for your score. Your score is calculated using your total available credit amount, and closing any any of those lowers your available credit and as a result lowers your score.

As for the OPs question about why he didn't get approved for more, most local financial institutions, you know the place where you have your savings or checking account, require between 3-5 open lines of credit before they are willing to loan you more than $500 or so. Your best bet is to go get some other cards, Capital One, Citi, or even some store cards Best Buy, Kohls, etc. You don't even have to use them, just keep them open, and that will help build your credit history.

[Quicklet]

Short summary of the main components used to calculated your FICO score:

- Making payments on time
- Debt to Credit Ratio (the lower, the better)
- Average & Longest Open Credit Accounts
- Amount of credit you've applied for recently (more than 1-2 new accounts/year will tend to lower your score)
- Having different types of credit (car loan, credit card account, mortgage, etc.) helps

Now, by far the worst thing you can do is not make payments on time. However, paying off your balance in full will not hurt your score in any significant way. A big factor that you can't really do much about if you're in your 20s is average length of a credit account. Whichever cards you've had the longest, make sure you keep those open even if you barely use them, because just keeping them open will help maintain both your debt-to-credit ratio and your average account length. A "good" average account length is at least 5+ years, so keep that in mind, as your score will naturally go up if you just don't get yourself into too much debt, make your payments, etc.

As far as how much you should use/pay credit cards, while it won't have a major impact on your credit score if you pay on time, it can affect how often your credit limit is raised on those cards. If you use too little, they may not see a reason to increase your limit. If you're maxing it out every month, they may get worried you won't be able to make the payments (even if you haven't had any history of late payments).

Building credit takes time, even though you can lose it all much more quickly, so just follow the basics and be patient, as it literally takes years to build an ideal credit history. Keep in mind that even if your credit history is not very established, as long as you don't have any late payments or other bad marks on your history, you can make up (somewhat) for a lack of credit history just by having more money for a down payment or by showing that you earn enough income for whatever amount of credit you're applying for. If you're really concerned about what you can do, I would recommend paying one of the 3 major credit bureaus to see your FICO score, and usually they will tell you why it's what it is and what factors you need to work on.

[archibaldcrane]

I've paid off my credit card in full every month for 9 years. I have two cards - one that I opened when I was 18 and still have open but never use, and the other that I currently use - average charge of $700/mo or so, paid in full every month. My other sources of credit are $42k in student loans that I've paid every month for the past 3.5 years, and a few little random cards that I've cancelled (Best Buy, Express) as well as an "auto loan" that I took out for 13k and then paid in full the next month.

I just checked my credit score on freecreditreport.com and paid the $30 to get all 3 bureaus' scores:

792 Experian (98.61 percentile)
765 Equifax (78.47 percentile)
765 Transunion (78.47 percentile)

So basically the only thing I've "kept a balance" on in my entire 9 years of building a credit history is on my school loans, which I'd be a moron to pay off quickly anyway since I locked them into a 20-year consolidated repayment with a 2.625% fixed interest rate.

I find it hard to believe when people say "if you don't carry a balance on your credit card from month to month it doesn't help your credit score!"

Experian's 792 credit score would beg to differ. (is it weird that I take pride in that score?)

[Skyylya]

it's demographically based which bureau gets used more than others, and it's not guaranteed someone will take all three into consideration.

In my area it seems to be equifax that's used most even though my experian and transunion are like 30-40 points higher.

In your case you have good credit scores but that is mostly due to longevity, not necessarily whether you paid it off on time every month or not, i'm sure you've maintained a balance for more than 1 month at some point. Student loan debt is taken into consideration differently than normal installment accounts, like medical loans are considered different and don't hurt as much as well.

If you keep doing what you're doing and kept about a 10% balance at all times you'd be probably around 810-840 within a year assuming you kept your inquiries down and kept everything else responsible.


The most important thing for people that have bad credit. Pay off accounts in collections, don't settle. lower overall credit card debt to under 30% of available on whatever cards you have high balances on. Stop doing things that give you hard inquiries and most important pay your stuff on time. Paying things on time doesn't necessarily drive your score up, but it will keep it from going down which is equally important. Don't close accounts or open new ones to do balance transfers as that will not always help you.

[archibaldcrane]

If you keep doing what you're doing and kept about a 10% balance at all times you'd be probably around 810-840 within a year assuming you kept your inquiries down and kept everything else responsible.

830 is the highest score you can have.

[ozz]

If you keep doing what you're doing and kept about a 10% balance at all times you'd be probably around 810-840 within a year assuming you kept your inquiries down and kept everything else responsible.

830 is the highest score you can have.

what are you, retarded? highest is 850

[archibaldcrane]

what are you, retarded? highest is 850

I'm only saying what the credit report I'm staring at right now that I ordered today tells me, which is:

Your PLUS Score is: 792 on a scale of 330 - 830.

All 3 bureaus listed give a scale of 330-830.
However:

There are many scoring models used in the marketplace. The type of score used, and its associated risk levels, may vary from lender to lender.

Which bureau uses a 850-cap scale?

It's awesome that I'm retarded though.

[Pharaun]

They all go to 850, I know because I've received training on credit reports/scores for my job. I also know because I've seen credit scores over 830. Of course this doesn't mean you're retarded, it just means you got some bad information.

*edit* I also noticed that they score they gave you isn't the one that most, if not all, financial institutions use. They didn't give you your FICO score, they gave a you a score based on a different model. I'm guessing that the PLUS model only goes up to 830.

[ozz]

lenders use the FICO model, which caps at 850
most online reporting sites give you the score from each bureau's own model, but if you're applying for a loan, the lender uses FICO to determine your score and worthiness


basically, your 830-capped score is worthless