Real Estate Investor · Austin, TX · Member since 2010 · 26 posts · 2 votes
I did a search and the existing Credit Score building threads are from before the last few batches of rule changes so I thought I would start a new one. So all those who understand credit scores:
Starting from scratch, what is the fastest way to build up to a score which qualifies for prime rates?
(By from scratch I mean a kid turning 18 with no accounts/debts or cards yet or an immigrant from a place with no credit scores or credit reporting agency).
How high dose your score need to be to hit that "Prime" threshold?
PS: Yes, I understand that there are ways to invest without having good credit or using the credit you have but a good score makes it easier and/or cheaper to do many things.
Since I was 18 I have had a credit care with a $250 limit, which I only used occasionally and paid the balance in full every month.
At 20 I canceled that card and got a card with a $1,000 limit. I still very rarely use it and if I do it is paid in full at the end of the month. I have no other debts.
I use the credit card for the sole purpose of building credit. I am sure there are better ways I could have built my credit, but this has worked out for me.
It is pretty easy to get a credit card, charge something, and pay it off each month. The credit card companies USED to be allowed on college campuses! That should start someone on the right path toward building credit. A co-signed car loan or home loan may be another option.
The “prime†threshold varies by lender and over time. 720+ is generally a solid bet for “grade A†paper, but 760+ is better. I am not sure how long it takes to get there, but with a solid payment history and some length it shouldn’t take too long.
Credit for property purchases has more to do with the capacity to service the debt and repay the loan. A good credit score points to a solid character from the three c’s, but it won’t guarantee a loan. Lenders generally use this as a checkbox and an item to price the risk for the loan and thus the interest rate.
1) Secured major CC's.
2) Store Cards with Low Limits
3) If its a trustworthy person, perhaps being add as an AU (Authorized User) on a parent CC. The AU doesn't even need to have a card, but most will report.
The best way is to simply take out small loans, secured loans and lines of credit and pay them as agreed! No late payments and no defaults.
I'm not saying borrow money for the sake of borrowing....but almost. Good credit scores also involve your capacity to pay, having a job or established business income and paying your obligations. It takes time. There is no short cut IMO that is ethical.
Signing up with a company to establish credit for you usually involves taking out lines of credit in less than an ethical manner and anyone who can actuallt read a credit report (beyond the score) can spot fluff and turn you down anyway.
Your credit score is a reflection of your good name and your word. A good reputation is not made in a day. Good luck....
Length, type, utilization, and history are all things that go into the scoring. There are a ton of thread on myfico.com about this where people obsess about optimizing their scores and figuring out the models that change all of the time. If you just pay your bills and are prudent with leverage your score should grow over time.
If you gave us a better idea about the time horizon and what you are trying to do it would help more.
Very good information and I have been reading throgh the link provided.
Good point Financexaminer. No need to invent transactions just for credit padding. Just do the things you need in the best way you can while keeping your score in mind.
Best case scenario for a person in an "ordinary" job ($25K to $40K per year) and who dose all the right things. How long before his score gets into the 720 to 760 range?
"Right things", based on information gleaned so far-:
1. fixed savings to back 1st card.
2. Automatic payments to avoid anything being late.
3. Consistent payment dates.
4. Credit card and lines of credit at 10% of capacity.
Should the Credit card balance be paid in full each month (before interest becomes due) or should you carry a small balance? I have seen conflicting advise on this.
I am certainly not an expert, but I don’t think you gain or lose score for carrying a small balance.
The salary should not matter except that it needs to be sufficient to service the debt you carry if you have a balance. I would suggest not carrying a balance at all and just paying things off in full. I have used credit cards for float for 13 years and never paid a dime in interest and my score is pretty good…could be for other reasons though.
All good responses here. Time is one of the biggest factors in increasing your credit score. Everything said on this thread I have done. My credit score is a 720 and it won't go much higher because I have never had a mortgage. A mortgage accounts for nearly 40% of your FICO score. So, the quicker you can get a mortgage assumming you want one, the quicker your FICO score will go up. Young people like us are considered more risky. The credit bureaus want our credit to gradually increase. Too much credit too fast will have the opposite effect. It will look like you ran out of liquidity/cash and you are supplementing your debt service by applying or getting new extensions of credit.
Time is a big factor in obtaining credit scores above 720.
Having said that I have helped people starting out with no credit get into the 700 range in about 6 months. That's about as high as you can go in short period of time.
A very important rule of thumb - Once you open a revolving account (such as a credit card) never close it. The length of time that account is open will continually figure positively on your credit score. You also have to keep it active. I suggest using it every month or two for a small purchase that you can pay in full when the bill comes.
Credit Card advice - you do not have to carry balances on your credit cards to achieve good credit. Carrying credit card debt and good credit are not the same thing. You can achieve a good credit score by using your credit card as a convenient way to make purchases that you then pay off at the end of the month.
Since I was 18 I have had a credit care with a $250 limit, which I only used occasionally and paid the balance in full every month.
At 20 I canceled that card and got a card with a $1,000 limit. I still very rarely use it and if I do it is paid in full at the end of the month. I have no other debts.
I use the credit card for the sole purpose of building credit. I am sure there are better ways I could have built my credit, but this has worked out for me.
Since I was 18 I have had a credit care with a $250 limit, which I only used occasionally and paid the balance in full every month.
At 20 I canceled that card and got a card with a $1,000 limit. I still very rarely use it and if I do it is paid in full at the end of the month. I have no other debts.
I use the credit card for the sole purpose of building credit. I am sure there are better ways I could have built my credit, but this has worked out for me.
I can absolutely guarantee that if you had kept the card that you got when you were 18 and added the second card, your credit score would be higher. But, as they say, that's water under the bridge now.