Quote from @Ryan Tongue:
Quote from @Derek Brickley:
Hey Ryan! It's awesome you're thinking about this now. There are a few steps you can take (I did these steps before graduating and buying my first househack):
- If someone you know has an excellent credit history, you can ask them to add you as an authorized user to their account. This will help you "inherit" their good credit and age of account. Note that if they have poor history or if a payment is missed, it would reflect on you as well.
- If you don't think you would be buying in the next few months, opening another line of credit may be a good option. Typically the hard inquiry from those will only last a few months, and entirely drop off your credit after 2 years.
- You could also look into sites like Experian Boost that would report things you may currently pay (phone bill, utilities, streaming services) and that could also help there.
With your situation, even though you may have perfect payment history it is difficult to start because you don't have a large mix of accounts (credit cards, auto loans, mortgages, etc.) and the average length of accounts is small. An important note with your current card (or any others you may get) the magic number for utilization rate seems to float around 9%. So for example, if you have a credit line of $1,000, research would suggest that the optimal balance on that account for improving credit would be $90 or less. Make sure that there is a balance on the account every month though, as having $0 does not help you improve your payment history or utilization. Keep the balances low, and then pay the previous month's statement balance in full to prevent paying extremely high interest rates.
No affiliation or anything, but as a student I started with the Discover IT Cashback card. This was a great first card and was not difficult to qualify for. My next card I got while a student was the Chase Freedom Unlimited and gives 1.5% cashback with no annual fee, and getting Chase cards early on helps you avoid their 5/24 rule.
This is a lot but if you have any questions, feel free to reach out!
Hi Derek! I really appreciate the detailed response.I have a number of follow-up questions for you if you wouldn't mind answering them. I'll try to break them up:
- I'm already an authorized user on an account with exceptional credit. That being said, when I applied for a conventional loan 6 months ago I ran into an issue I'd love clarification on. Essentially, while my credit was in good shape, the lender still refused the loan based on the fact that the majority of my credit score could be attributed to the account that I'm an authorized user on. This has left me confused, as I'm now not sure whether being an authorized user on an account is a good or bad thing, or if it's situational.
- I think there's a chance I buy within the next 2 months, however unlikely. How would opening another line of credit now affect my ability to do that? It would be great if you could expand on hard inquiry as mentioned in your second bullet point. If you could even tell me what to search for so I can find out more myself that would be great.
- I currently have a Chase Freedom Flex that I use to pay for groceries, gas, utilities. I expect I utilize anywhere from 10-30% of my credit limit each month. Based on your suggestion to keep my usage down to the "magic number" of 9%, should I instead use debit on gas/groceries once I've hit 9% of my credit limit for the month?
Thanks again for responding to my previous post. If you're able to respond to this post too that would be super helpful.
Ryan
Yes happy to help! Starting with the top
- if you don’t mind me asking, what lender told you that about your authorized user account? When it comes down to it, that really wouldn’t matter. We have never had an issue with that before
- if you may consider buying in the next couple of months, I would encourage you to hold off on opening new lines of credit. There is no hard and fast rule, but generally speaking the hard pull from a new account (mortgage, auto loan, credit card, etc.) will only temporarily impact your score (maybe 3 months) and will drop off entirely in 2 years. That said another impact of opening a new lines now would be your ‘average age of accounts’. When you open a new line of credit, your average age of accounts will decrease and that will also have a temporary negative impact on your score.
- for the utilization rate, I’ll give my habit as an example for this. Say your credit line is $1,000. With the 9% guideline we want the balance that reports to be under $90. Now that doesn’t mean you can only spend $90, I might spend hundreds on the card over the course of the month to maximize credit card rewards. For me, my statement/closing date is the 18th of the month. So I can spend as much of my line as I want, but I just need to pay my balance down to below the $90 so that when the 18th rolls around the current balance is all that will be reported to the credit bureaus. So the key here would be to figure out what your statement date is and to pay down your balance below that 9% before then. Then after the statement date pay whatever the remaining balance was in full.
