@llecs wrote:IMO, you won't be better off score-wise after adding secured loans. I'd argue your credit would be worse in the eyes of lenders in a manual review because of the newer credit and higher DTI.
I recommend to repair, then rebuild. I'd focus on the baddies, let the CapOne age (not sure how old it is) and you'll be in a much better position without having to rely on secured CCs.
+1
I'll add that if you show 1-9% balance on your statement/cycle/CR-reporting date ($2-18 in your case), and pay off the bal by your due date (or just after your CR-reporting date), you'll have a much better chance of qualifying for at least a secured card at the completion of 3 billing cycles (about 4 months). I recommend researching and choosing a credit union or bank with cards that offer regular CLI over a short period of time (6 months or less).
Just never charge more than 30% of your balance at any time ($60 in your case), as this "high balance" shows on the CR and is not a good thing. And only charge when you have cash in hand/account, aiming for things you'd buy anyway, like gas (no need in spending on something you don't need just to post a balance). Do this for every card, and only show a statement balance on ONE card at a time per month, and you'll be a happy camper in a year's time or less.
Don't cancel the Cap1 CC until you can qualify for a 3rd card. You don't have to cancel, but the reason I recommend cancelling this particular card is because some lenders won't lend to you if they see you still have need of a card you used to establish credit, kind of like voluntarily attending classes in a grade you've already graduated from. I know BOA does this.
On the personal loans, I would do secured, not unsecured. I know you already mentioned this, but I'm taking into account that your credit will improve enough for an unsecured. That is, if you don't already have either an auto or mortgage loan. The reason is because this diversifies your profile, as well as improves your chances for the same type of lending in the future.
Here's what I'd do:
Get a personal loan AFTER you follow the CC advice above for at least 6 months, even if you get an additional card during that time. Why? Personal loans don't affect your score as much as revolving credit, so you want to emphasize that you know this in your credit file. Establish on-paper usage habits with the CC first!
Okay, next figure out how much you are able to save EVERY month for at least 6 months. This determines your interest. For example, if you are able to save $20 for sure each and every month without trouble, then your total amount over 6 months is $120. $20 is $.66 per day, which is how the interest on the loan will accrue. Why 6 months? You will be paying off the loan in 5, and you need that extra amount for wiggle room for unforeseen surprises that may cost you an extra month. Since you'll be paying off this loan well before the term, which is usually 4-6 years, you'll want to be absolutely sure there will be no early pay off penalties.
Budget within your existing bill-paying checking account, so automatic payments can be withdrawn and won't be confused with other bills. Open a separate checking account if you have to. Set aside the amount you're prepared to spend in interest into this account. Deposit the entire personal loan cash into this account and don't touch it for the life of the loan.
Do some research and comparing to acquire a personal loan in an amount matching, or just under, the interest you can pay over the 6-month time period. Calculate, or ask the lender to calculate, how much you would need to pay in principle-only payments, in addition to your normal monthly payment, to meet your goal of 5 months payoff. Set it all up to automatically withdraw, and just wait out the 5 months (or at least 3 months if you want to pay off earlier), keeping an eye on it just in case the bank has "accounting" or "technical" errors.
If you follow this plan, along with eliminating the baddies on your CR, you will have great credit in a year's time.
Now, go forth and prosper.
@Scharnhorst wrote:^ wow thank you so much for the time to write that out. I appreciate it very much
You're welcome.
Keep your eyes open for different methods and credit products, too. Then plan out your action over the course of 2 years. The first year is easy, as I outlined above. The second year may see your score jump, and this is when you must have a plan to avoid mistakes that could cost you time and money (app sprees, entering into a credit card loan with fees, etc.).
If you can get access, both NFCU and USAA have great products. NFCU is only good hearsay from me though, but I have experience with USAA's secured loan option. Therefore, I want to highlight some tips about it.
USAA has a personal loan backed by a lien you put on your used, paid for auto. To my surprise, I found out it shows up as an auto loan on the CR, and not a personal loan due to the lien, which is a g-r-e-a-t type of secured loan. The value of the auto, calculated by USAA, determines the ideal limit of the loan and interest rate. Your Equifax credit determines variations to this, if any. If you get this type of loan, it's usually a 5 year loan. If you pay it off in 3.5 years, you'll save half the interest cost.
This type of loan is not one you would pay off in a year if you can afford the interest, unless you treat the auto very lightly (hardly any driving or wear and tear), and use it for both your first and second loan. By this, I mean if your auto is worth $10K, you may get qualified for $2500 the first time around, but after 6 months of great payment history, you can refinance to a higher amount at lower interest, which will pay off and cancel the $2500 loan and start a new loan of, say, $5K. The reason for not paying off too early is that while your first loan is a credit building tool, your second is a larger loan and payment building tool.
Lenders like to see long payment history, so while you are meticulously tending to your CC usage and the removal of your CR baddies, you are also tending to your PL, showing you are maturing financially by making the minimum payments with an occasional larger principle-only payment, and showing long-term payment on record. Why show long periods of great payment over years? One day, you will want to borrow for a large purchase, such as a house, furniture, remodel, etc., and you need to prove on paper that not only are you developing and using borrowing power, but you can also be a long-term good customer.
Making a plan, putting it into writing, placing it where you can see it several times a month, and following through with action will make you successful at anything. Apply it to credit-building, and you will have stellar credit in no time.