Basic credit questions

[Anonymous]

Hi guys, my name is Ryan just got my first two credit cards about a month ago. I am 20 years old, about to start graduate school in August, and want to maximize my credit score/reputation. I have never dealt with credit cards before so I have a few basic questions if anyone would be so kind to help me out.

I financially support myself and pay for my own school, so my plan is to pay off all my balances in full each month. I just got my first two statements and my utilization rate is 9%. Right now I have a 716 Transunion and 716 Equifax according to Credit Karma (assuming that's reliable?), and my FICO score is 705 according to Discover. All of these scores are based off no credit history except for a $10k student loan I took out for undergrad. It is currently in deferment until I finish graduate school, but a few days ago I paid $2,000 on it early. I won't need any loans for grad school.

I've been reading this forum a little bit and learning about how to maximize my credit score/reputation. Here are some questions I have:

1. Regarding utilization, do most credit card companies report balances at the statement date? How exactly does utilization work when paying off the balance in full? I'm worried if I pay off the balance before the company reports to the credit bureaus, they'll report a $0 balance.
2. Will the $2,000 student loan payment help or hurt my scores? Does the fact that I'm paying on it when it's not due change anything?
3. If you were in my situation what would you do to maximize my score? I.e. what else should I be doing to get those scores up?

Thanks in advance.

[takeshi74]

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@Anonymous wrote:

Right now I have a 716 Transunion and 716 Equifax according to Credit Karma (assuming that's reliable?),

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Depends on how you intend to use the score.  You cannot use a score generated by one model to determine a score generated by a different model.  If you have creditor that acutally uses the VantageScores that CK provides then it is relevant to that creditor.  If the creditor uses a different model -- probably one of the FICO's then the score they will pull for you will probably be different.  Even with FICO there are a number of different models used by creditors.  See also the Understanding FICO Scoring subofurm and its stickies.

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@Anonymous wrote:

and my FICO score is 705 according to Discover.

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Your TU FICO 8 is what Discover provides and it  is 705.  As you can see there's a difference between TU FICO 8 and TU VantageScore 3.0.  It is not a fixed offset so don't assume that your TU FICO 8 will always be 11 points lower than your TU VantageScore 3.0.

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@Anonymous wrote:

Regarding utilization, do most credit card companies report balances at the statement date?

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 Most do but some report at other times.  If you need to know when your cards report then verify this information.  If you have you reports you can look at the last report date for each account.  You can also call your creditors to verify.

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@Anonymous wrote:

How exactly does utilization work when paying off the balance in full? I'm worried if I pay off the balance before the company reports to the credit bureaus, they'll report a $0 balance.

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It's all a matter of when you pay versus the report date.  On the report date the balance as of that date is reported.  If you want that balance to report then pay in full after the report date but by the due date.  If you want no balance to report then pay off the balance prior to the report date.  If you want a lower balance to report then reduce the balance prior to the report date.

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@Anonymous wrote:

Will the $2,000 student loan payment help or hurt my scores?

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The payment itself doesn't really matter aside from reducing your loan to balance ratio but it's not entirely clear how much on an impact that has on your credit as installment debt is assessed differently than revolving debt. Your revolving utilization, on the other hand, has a significant impact. The student loan itself does provide a benefit to your mix of credit.

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@Anonymous wrote:

If you were in my situation what would you do to maximize my score? I.e. what else should I be doing to get those scores up?

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I don't think there's a whole lot for you to do. Read up and understand the standard factors and general recommendations and use that to make your decisions versus relying on "What would you do?" questions. This is just a starting point:

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

Given that Payment History is the biggest slice you must have 100% on time payments and do whatever it takes to avoid derogs. Revolving utilization falls under Amounts Owed, the second biggest slice. General advice is do not exceed 30% though lower is better as long as you don't have all 0 balances reporting. When applying for new credit you might want to optimize by allowing only balance to report at 10% or less to eke out every possible point. Most other factors just take time and responsible usage to build. Another general recommendation is at least 2-3 cards for scoring purposes with your profile sounds thin and you've just added 2 new cards so you may want to give it some time before adding the 3rd.

700 isn't bad for where you are. Have the right mindset as building is a long, slow process.

[Anonymous]

Hello Gator.  Takeshi74 gave you some great advice.  I agree 100% with all of it.

Your student loan is in a great place for a while.  It's in deferment, which may mean that the US gov is paying the interest on it.  You should find out the answer to that, simply because it's a hallmark of good financial management to understand every account you have in entirety.  Regardless it is at about 80% of the original amount, which is a fine start.  No need to make any payments until you are out of school.

As Takeshi74 observed, the best thing you can do is to start reading good well written introductions to credit scoring so you can understand better how it all fits together.

As far as Karma goes, it's one of the best free tools out there.  It's great for monitoring two of the three credit bureaus -- it's sweet for enabling folks to look at their full credit reports as often as once a week.  Takeshi74 is right that you will want a 3rd card at some point, but resist all of Karma's tendency to push you to get lots of cards.  That's how the site makes its money: by getting a cut from the credit card companies for every person that makes an application via the CK site.  You can also feel that pressure from people on credit blogs, some of whom you'll see have 20 cards or more.  You only need three -- more won't help your score though it's not a bad idea to eventually have a few more for certain reasons.

If you are interested in another free tool that will give you a Vantage 3 score for the remaining credit bureau, you might look at Credit.com.

The good news is: you have a low-interest installment loan and 2 credit cards already very early in life.  Keep the installment loan open for several more years, get a third card down the road, learn more about credit scoring, pay your bills in full each month and you will eventually have very high scores.  It's pretty simple.

[Anonymous]

You're 20 years old and starting grad school? And taking care of it yourself? I am VERY impressed!

[Anonymous]

Takeshi74, thank you for that advice. I didn't know there were variations of the FICO score. I'll look into them. I don't have plans to miss any payments.

CreditGuyInDixie, yes they are federal subsidized & unsubsidized loans. I won't have to pay them back for a while but I'm fortunate to have money left over after paying bills which I can use to pay them down while I'm in school. When I was growing up my mom absolutely hated any type of debt and she made sure I felt the same way.

For now I'm just going to stick to Credit Karma since it's free. I've gathered that as long as I make sure my report is good, good scores will follow. Thanks for letting me know it's reliable.

Captool: Thank you very much for saying that. My parents are middle class, blue collar workers so I started college while in high school and have relied on scholarships/fellowships to get where I am today. I also have a job to pay any bills that my scholarships don't cover. I'm really blessed to be able to go through undergrad and grad school with $10k debt... It's scary how many of my classmates are content with taking out $60k+ loans to make it through school...

Thanks again for the advice guys

[Anonymous]

Hi all, I traded in my car July 19,2014. I am wondering the loan is about to turn a year old, should my score go up at this point or is it still considered a new account? 

[ojefferyo]

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@Anonymous_0723 wrote:

Hi all, I traded in my car July 19,2014. I am wondering the loan is about to turn a year old, should my score go up at this point or is it still considered a new account? 

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You'll get more reply for this matter in the auto section. 

[Anonymous]

Hey Gator, you are very welcome.  And glad you are here visiting the Forum!

I am glad you have inherited your mom's allergy to debt.  Awesome.  As it touches your student loans, do whatever is best for you.  But since they are all low interest loans and the govt  is paying all of that interest (on at least one of the loans), you may want to resist your natural urge to pay them off at your first opportunity. There's something to be said for establishing a 5-6 history on a couple installment loans, establsihing that you can make regular payments on ithem.  The two "real" credit needs people have in life are typically buying a car and buying a house.  And showing that you were able to manage installment loans looks much better to those two kinds of lenders than somebody who has never done that.  That's not the only way to think about your loans -- just something to consider.

Best of luck...  :-)