College student's plan of action. Help me out.

[jforsyth]

I was wondering if I could get some advice on my future using credit cards.

Little bit about myself:

I'm 19 and finishing up my first year of college. I got my first credit card in January 2010. It's a Bank of America Preferred WorldPoints MasterCard with a credit line of $700.

I always use less than 9% of my credit line ($63). I usually just buy a tank of gas with my card and then I pay it off in full every month way ahead of time.Then I just use my debit card/cash for the rest of the month.

Obviously, with only $700 in credit to my name on 1 account, I want a larger CL and some more cards.

About how long should I wait before I:

1. Request a CLI online on my BofA MasterCard? (this is a soft pull, correct?)

2. Apply for more cards? (I've been looking at the BofA Rewards Visa and the Citi Diamond Preferred MasterCard...are these out of my league even if I wait a year?)

Also, I have a question about % Utilization. If I use <9% every month, but then pay it off in full and NEVER carry a balance, is my utilization ~9% or 0%? Does FICO calculate your Utilization based off of what you use each month even if you pay it all off, or just what you carry as a balance from month to month?

Any help would be appreciated! I'm new to this stuff so don't judge too much if I've made some dumb comments

[Anonymous]

If you always PIF before your statement cuts each month, your statement will say you owe $0 and therefore your utilization is 0%.  You could theoretically use all $700 of your CL during the month and as long as you pay it all off before the statement cuts, your util will still show as 0%.  There is debate about whether it's good or bad to always show 0% utilization.  Each individual's specific case (ie do they have an auto loan? student loans? other CC?) will help determine whether it's ideal to have a CC report at 0% or <9% util.  If you do let a balance show up on your statement, it's important to have that balance <9% of your CR, or $63 as you said, in order to optimize your credit score.

I know that's a bit confusing, but hopefully it helped somewhat.  If not, perhaps someone else can explain it more clearly!

Also, in the past I have heard that people recommend waiting at least 6 months between acquiring cards.  I didn't follow this recommendation, and instead got 4 cards in 3 months.  My score definitely took a temporary hit, but I was 23 and in grad school, and I knew that I didn't need a new auto loan or mortgage anytime soon.  Here I am 2 years later and my score is 759 and I have a total of 8 CC/store cards.  In order for anyone to make recommendations about whether you can get those other cards, we'd need to know what your current scores are.  Hope this helps!

[Uborrow-Upay]

Hi, jforsyth!  Welcome to the forum!

Just wanted to mention that with the new laws that took effect on Feb 22nd of this year, anyone under age 21 must either have a co-signer or provide proof of financial responsibility (such as income) to obtain a new credit card.

This may or may not influence your situation.

(And now, I'm off to make my Kentucky Derby wagers.  I hope the horse laugh isn't on me)

[haulingthescoreup]

I'd start using the BofA card a lot more. Right now, you're not giving them a lot of a track record upon which to predict risk, even with the current cost of gasoline.

You can still PIF before the statement posts if you like, but I would advise aiming to hit 50% or so of that $700 CL in charges each month. Even if you pay off the balance twice a month, you should let BofA see that you are using the thing for more than a tank of gas per month. Obviously, this is only if you actually have that level of expenses (groceries, cell phone bill, etc) each month, and that you budget for them and have no problem paying them off. If you're still getting a feel for the potential dangers of credit, you might want to phase this in gradually. But showing that you can handle credit will increase your odds in getting future credit limit increases. If you live off-campus, some apartment complexes let you pay rent with a CC, which is an option. Well, if your rent is less than $700, lol.

Don't forget that making the FICO scoring formula happy isn't always the same thing as making a lender happy. All this tweaking that we do in paying our balances before they report (which I do) doesn't matter a hill of beans to lenders. That's strictly for scoring. We're always looking for a guinea pig with only one revolving account to first let it report $0, pull a score, and then let it report 9% or less (~$60 in your case) and pull a score again (same bureau each time.) When there's only one account, it's pretty hard to have half or fewer with balances! So we don't know if the ding for 0 accounts with balances is worse than the ding for all accounts with balances.

Does your college/ university have a credit union? That would be a great second step for you. I'd still wait until July 2010 after your 6th statement posts to have that straight 6 months of clean history reporting.

Since you're still a college student, will you need a co-signature (guarantor) for additional cards? That's a nasty little provision that was snuck into the new Credit CARD Act, newly effective, that says that borrowers under age 21 need to have a co-signer or prove adequate income for new credit. That might throw a wrench into future plans. If someone (a parent, etc.) co-signs on a credit app with you, they are a joint owner, and they can't be removed without closing the account. Their credit is potentially at risk if you mishandle the new card. (And vice versa, of course.) Something to keep in mind while considering options.

[jforsyth]

Thanks for the tips guys.

I don't think the new CC law will affect me. I make about $10,000 per year: about $5k during the summer and $5k during the school year.

I know a $10k income won't exactly be appetizing for lenders, but hopefully that'll make it so that I won't need a co-signer.

I'll definitely hold off until my 6th statement posts to make any moves.

At that point I'll just press the CLI button on BofA online banking (I won't fill out the form if it comes up), wait another month or two paying off my balance in full, then pay for my FICO scores and make a decision from there.

Thanks again guys.

[Wolf3]

IMO, It is more important that you establish some solid history with BofA.   I would use the BofA card as much as possible (up to 90% if you're careful) and PIF by due date.   Make yourself a good customer and show them you can handle the CL. 

Your FICO score is only useful when you are applying for credit.   So if you plan your applications, you can play all the utilization tricks for a couple months before applying to optimize.

Since your income is higher in summer.   I would plan to add new credit each summer.   Select those banks/CU/Stores that you want to do business with, not just anybody who think you might qaulify for.