best way to build credit score?

Question

i took a class with Richdad poor dad a while ago and the guy said that you want to have as many credit cards as you can get.  i have heard that having too many credit cards hurt your score.

so my question to you is, what is the  best way to build it?  how long before i can spend 30k?

if i used my credit card to buy gas today should i make the payment the same day or should i wait longer?

Darrell Shepherd · Answer

Its been a while since I was knee deep in this stuff, but I believe this still rings true:

Your credit score is primarily 3 things.  How long you've been borrowing, How well you've paid it back (30, 60, 90 days late, collections, etc.) and your utilization (amount you can borrow vs how much you have borrowed).  There are other factors like inquiries and types of accounts, but the bulk of it is in that stuff.

Generally utilization is good under 30%.

Most report to the credit bureaus monthly, so what you do in between when they report doesn't matter.    Paying every time you charge something seems pretty silly.  Having no utilization will have a negative impact, but nothing crazy if you have other accounts you're paying on.  Not using credit at all will drop it a lot.

I don't know that the number of credit cards you have is as important as your total credit line.  If you make $30k/yr and have $200k in available credit some lenders will get nervous you'll max it out and wind up in Bankruptcy.  I've seen mortgage companies stip an approval to closing some credit lines.

If you've got some slow pays and collections, your best friend is time.  They have virtually no impact after 2 years or so.

Bill Gulley · Answer

Improve you credit? Keep your debts below 50% of your income and pay them as agreed.

Paying any debt early is not the best to establish credit, that is done by using credit and paying as agreed.

If you take any loan scheduled to be repaid in 5 years and you pay it off in 6 months, you didn't establish a credit history, you demonstrated the ability to payoff an obligation.

No lender is looking for folks to pay them off early, they are expecting you pay as agreed over the term. This demonstrates your ability to manage your money over the long term, not that you can sell an asset and pay them off.

Pay your CC bill when it's due. :)

Schelley Stamps · Answer

I represent a licensed credit repair company that guarantees a minimum 640 credit score, sometimes within 4-6 months! You need 3 open revolving lines of credit, IE "credit cards" & the best is to not use more than 30% of your limit, & pay down & carry 5-10% of your balance every month as you are building credit. Like buy gas, groceries, ect...things u would buy anyway. This keeps you as "active". The secured cards are good, but check fees & interest rates! They are starter cards, so upgrade when u get your score up, & try to then keep balances under 50%, & pay off or on time every month!

Jean Bolger · Answer

Yes, oddly enough a 0% card utilization brings your score down! And in my experience it seems best to pay just before the due date, not right away.

One trick, if you have some money and are really in need of boosting our score, is to find a credit union that offers a "share secured loan". Basically, you put money into what amounts to an escrow account and then they loan you an equal amount at a very low rate. You free up the funds you have on deposit as you pay down the loan.

This shows on your credit report as a loan rather than a revolving charge account so it helps you get some different types of credit on there. That also helps in the overall scoring.

Account Closed · Answer

@Derek LeBlanc

I am not 100% certain on this, but I don't believe you would be helping your score by paying it off same day.  I am under the impression that it would result in a 0% utilization if you have a $0 balance at billing.  I charge almost everything on my credit card, and I make a large payment prior to billing.  That way it falls between 0% and 10%.

Mike Barry · Answer

All great advice and insight much appreciated. I'm hoping someone can possibly give me some advice on helping improve my score more specifically utilization...

I recently put an engagement ring on a no interest credit card for 24 months. However this was before I understand the impact utilization has on my credit score. It bumped my overall utilization/limit to about 50% I would like to get this lower and was considering paying off a second no interest loan that I have about 8 months remaining on. I recently asked to raise the limit on this card which they did by $1,000 however my thought is by paying it off it will also help lower my utilization. Can anyone let me know if this is a wise idea or if paying this off early may do more harm then good?

Any advice is welcome! Thank you in advance!

Richard C. · Answer

Brandon, get an Amex.  Seriously.  Then go to creditboards and read about Amex backdating (they abbreviate it a "B*")

Brandon Hall · Answer

The reason they tout opening several lines of credit is because in doing so, you reduce your utilization. Your utilization = (Your credit balance)/(Credit available). Therefore if you have more credit available, you reduce your utilization.

Each company will report your credit activity with them once per month. It is advantageous for you to pay off all but 10-20% of the card a few days prior to your balance being reported. This means that your utilization will be under 30% which will positively impact your score because you can "manage your finances."

Utilization is the second most important factor in determining your score so it's important to know how it works. It makes up 30% of your overall score.

I've had a card for a year and five months. It is my first and only card. I charge everything to it but pay the majority of it off a few days prior to my credit report being submitted to the agencies. I have a 730-755 score and the major reason it isn't higher is due to my short payment history (which constitutes 35% of your score).

**One more thing: Having too many cards does not hurt your score, but apply for several cards in a short period of time WILL hurt your score. To the credit agencies, it will look as if you are struggling financially and need credit to survive.

http://www.bankrate.com/finance/credit-cards/when-...

http://www.myfico.com/crediteducation/whatsinyours...

Richard C. · Answer

Lowering the score based on disputes is illegal, and the CRAs and FICO don't do it.  What many lenders will do is refuse to lend while a dispute is in process.  This is because people used to fake out the system by disputing valid entries and then applying while they were in dispute, and thus discounted.

On the age of accounts issue, this is why Derek should obtain an American Express product as soon as possible.  AMEX will postdate every new credit line with them to the original "Cardmember Since" date.  So getting an AMEX at 20 is a really good credit move.

Patrick Britton · Answer

As a mortgage banker having dealt with a whole number of credit repair companies, all 3 CRAs as well as other credit restoration/support companies, I can tell you that you're best bet is to have the following:

1 - 2 installment loans which would include a mortgage, car loan, car insurance, student loans, etc.

3, yes 3 revolving credit lines (so 3 credit cards)

carrying a 20% - yes, yikes but I've been told by many, many sources this is correct

Keep in mind that the credit score you pull from creditkarma and freecreditreport.com will NOT be the same scores you get when a lender pulls your credit for mortgage purposes.  your mortgage scores are almost always LOWER.

Furthermore, things that hurt your credit would include lates, disputes, recent additions like getting a new credit card, closures of revolving credit lines, frequent pulls, length of time each tradeline or credit line has been in place.  the longer the better.

What some people do, and mathematically it makes sense, is to open a new credit account during a 0% for the first year promotional offer, transfer existing balances from a high interest card, and close the old account.  this may save some money in interest, but will hammer your score.

I had a prospective borrower come to me...her DTI was over 60%, she had no down payment, recently changed jobs, etc.  but her credit score was 819.  how?  she has 2 credit cards and a car loan, never late, since 2002.  the balances on the cards was right at 20% and according to her, never go above 30%.  the car loan had balance of 30%.

needless to say she's looking for a cheaper house.  but wow, what a score!

best way to build credit score?

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