Questions on Building Credit

[Anonymous]

This is my first post on this board, and I just wanted to say I have read through many of the other threads and found them very useful. Thanks for all the great advice

I turned 18 earlier this year, and am trying to start building a credit history as I hear potential employers check it, and it will be important for my first mortgage/auto loan. I have a few questions regarding how I can best build up my history. (And don't worry, I am well aware of the risks of young people using credit cards. I view cards as method (which is safer than cash or debit cards) to spend the money, and only the money, that I already have in my bank account)

My Current Situation:

- I opened a traditional credit card account (card #1) with one of my banks when I turned 18 (limit below $500). I charge about $600-700/month to this account every month, paying off the card completely at the end of every week. Requested and recieved 50% credit line increase after 6 months.

- I opened a traditional credit card account (card #2) with another one of my banks when I turned 18 (limit below $500).  I charge a few dollars once a month to keep the account active, and PIF every month. Requested and recieved 50% credit line increase after 6 months.

-This month, I was accepted for a charge card account, which I am very excited for.

My Goals: I want to have the best score possible when I graduate from college in four years. I don't care about my credit scores before then, I want to maximize them in the long run.

My Questions: Sorry if this is already covered somewhere, if it is a link would be great

1. Does long-term utilization matter, or only utilization for the month prior to someone pulling my FICO? (should I obsess over 0-1% utilization now, or only worry about it in the months prior to applying for a job/mortgage/auto loan?)
2. How do I want my utilization to report: 0% or 1%? I have read 0% is best, but if you have 0% for a long time it looks like you dont use your account. Should I try to have 0% utilization on my traditional card accounts, and have 1% utilization every 3 months? Is there some optimal strategy?
3. How should I allocate spending across my three card accounts to maximize my FICO score?
4. Is the reported spending on a charge account counted as part of my outstanding credit in terms of calculating the utilization rate?
5. Is there anything I could be doing to increase my scores in the long run? (for example, take out a 'fake/secured/whatever its called loan)

[Creditaddict]

My Questions: Sorry if this is already covered somewhere, if it is a link would be great 

1. Does long-term utilization matter, or only utilization for the month prior to someone pulling my FICO? (should I obsess over 0-1% utilization now, or only worry about it in the months prior to applying for a job/mortgage/auto loan?  Just the month prior to your scores being pulled
2. How do I want my utilization to report: 0% or 1%? I have read 0% is best, but if you have 0% for a long time it looks like you dont use your account. Should I try to have 0% utilization on my traditional card accounts, and have 1% utilization every 3 months? Is there some optimal strategy? I would not have a 0% util report, under 9% is optimal
3. How should I allocate spending across my three card accounts to maximize my FICO score?  Does not matter, I would use the one that rewards me the most and just keep the other 2 active with some regular charges
4. Is the reported spending on a charge account counted as part of my outstanding credit in terms of calculating the utilization rate? American Express Charge card?
5. Is there anything I could be doing to increase my scores in the long run? (for example, take out a 'fake/secured/whatever its called loan) a car loan would be the only thing more you could do to optimize score but if you don't need that, just building your credit accounts

[RobertEG]

You are doing an amazing job of both understanding credit scoring, and more importantly, do the right things for building!

Starting with the premise that you dont plan to apply for new credit for four years, then your immediate FICO score is not your prime focus.

Dont worry about the fine tweaking of 0% vs. 9% util. That comes later.  Just use each card every couple of months to keep the account active.Percent util has no historical memory... just your last month.

As far as recommendations for further actions, I would do nothing now.  You have three open CCs, and are thus already moving away from having a "lean" or "thin" credit file.  You are building an AAoA, but it is very low now.  Give it time.

I would let your low CLs cards mature, showing a good credit history for at least a year, and then focus on applying for a major bank card.  The longer you wait, I think the better will be your chances of getting a higher CL, unsecured, major bank card.  I would not seek more revolcing accoutns now.  Neither would I apply for an installment loan that you dont need.  You have just barely established a FICO score.  Wait for your score to estalish itself before turning to credit mix by addition of an installment loan.

[Wolf3]

Utilization only matters on the day the report is pulled.  Just ignore it for now.

Run all your expenses that you can through all three of your cards. PIF every month by the due date.  You want to build a relationship with the banks you have so they will increase your limits.  They prefer customers who use the card and pay the bills.

You have done excellent work so far, just let the history build you don't need to do anything else. 

[haulingthescoreup]

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@Wolf3 wrote:

Utilization only matters on the day the report is pulled.  Just ignore it for now.

Run all your expenses that you can through all three of your cards. PIF every month by the due date.  You want to build a relationship with the banks you have so they will increase your limits.  They prefer customers who use the card and pay the bills.

You have done excellent work so far, just let the history build you don't need to do anything else. 

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I'd advise creating a personal due date of at least seven days before the real due date. We've had too many members burned with late payment charges by timing their payments to arrive on the due date or the day before. And as a belt-and-suspenders safety measure, you can also arrange for an automatic payment of your minimum payment, if you have one. That way if life intervenes, you at least have that in, so that you don't get a late payment charge and have to watch your APR skyrocket, etc.

But I agree, use your cards a lot. Just do so for expenses that you already have money in the bank for, that you might otherwise pay for with cash, debit, or a check. That will keep you from getting entrapped by CC debt. Congrats on the nice start!