Building Credit - Next Steps?

[Anonymous]

Me: New to myFICO, 1 year on CreditKarma. Love learning from you all! 27 year old looking to build credit in anticipation of mortgage in +/- 10 yrs.

Scores: 730 TransUnion/738 Equifax according to Credit Karma

Income: $39,000 annual

Current Cards: 2 open cards with $3,000 limit (NBT Bank Student Rewards Card; 2 years 5 months old) and $10,000 (Capital One Quicksilver; 9 months old).

Details: Utilization 1-9% always (I pay it off in full before it hits 10%). 100% payment history on time and in full. 0 derogatory marks. 3 total accounts (2 credit cards, 1 student loan already paid and closed). 2 credit inquiries (1 to get the Quicksilver card, and 1 to get a Credit Limit Increase to $3,000 on student card). AVERAGE AGE CREDIT HISTORY 1 year 7 months.

According to Credit Karma, I should increase my number of accounts and age of credit history. I recognize my age of credit is #1 thing keeping my score low. Is there anything I can do to keep raising my score in addition to just waiting out the years? Would applying for a new card (thinking Discover it to maximize rewards) help? If so, should I wait until my credit inquiries drop off first?

Score simulator on Credit Karma says opening a new card would either bring my score down 4 points ($10,000 limit) or raise it 18 points (Less than $10,000 limit) depending on my limit.

Thank you for any and all help!

[RonM21]

I'm not sure what more you can do other than continue to grow what you have into higher limits cc wise. You're already doing well in the key areas it seems, and there really isn't anything bad on your report that can be fjxed and cause a boost in score. If you get a new card it shouldn't really hurt you and will add more to your overall limit. You are well on your way!!!!!!

[takeshi74]

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@Anonymous wrote:

Scores: 730 TransUnion/738 Equifax according to Credit Karma

Keep in mind that the VantageScores provided by Credit Karma are only relevant to creditors that use VantageScore.  Most use a FICO model.  You cannot use a score generated by one model to determine a score generated by a different model.  You can monitor broad trends with your VantageScores but if you want to know what number a creditor will pull for you then you need to know the model & CRA and then pull that specific score.  Don't overlook your Experian report and scores as CK only covers TU and EQ.

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@Anonymous wrote:

According to Credit Karma, I should increase my number of accounts and age of credit history.

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Be very careful with interpreting CK's information.  Many people misread what it states and assume that they must reach 21+ accounts.  That's not what Credit Karma states.  Credit Karma indicates that there is a correlation between number of accounts and score -- that those with high scores tend to have more accounts.  However, remember that correlation and causation are not the same thing.

That said, having more accounts does thicken your credit profile and help to make your AAoA impacted less when adding a new account.  General advice is at least 2-3 cards for scoring purposes.  Beyond that it's up to you to determine number of cards.

Your overall financial health will always trump score.  Don't open accounts just for scoring.  Open them as your financial needs dictate.  With your young and thin profile you're going to be limited in how many new accounts you can add in a given timeframe anyway.  If your youngest account is 5 months old then give it at least a month (just a generic guideline but you really have to determine this based on how creditors respond to applications) before you add another account.

Opening a new account will drop your AAoA.  You have to find the balance between opening the new accounts you need/want versus what your credit profile will support versus impact to AAoA.  You can't make an omelette without breaking eggs and you can't build your profile without dropping your AAoA while building.  However, you don't want to go crazy with opening new accounts and kill you AAoA.  It's not just your AAoA but new account will have an impact on your credit profile as well as creditors will consider new accounts as a risk factor.

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@Anonymous wrote:

Details: Utilization 1-9% always (I pay it off in full before it hits 10%).

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Just generally keep it under 30%.  You don't have to sweat keeping it under 10% unless you're applying for new credit, requesting a CLI, etc.  Revolving Utilization is determined based on balances and limits as indicated on your reports.  Prior utilization does not matter.  You can drop revolving utilization when needed.

That said, there are those who choose to keep it as low as possible all the time so it's your call.  If you are managing your reported revolving utilization you don't need to constantly pay.  All you have to do is pay down the balance prior to report date with enough time for the payment to clear.

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@Anonymous wrote:

100% payment history on time and in full. 0 derogatory marks.

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These are musts given the impact of Payment History and derogs.  Do whatever it takes to ensure that all payments are on time.

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

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@Anonymous wrote:

I recognize my age of credit is #1 thing keeping my score low. Is there anything I can do to keep raising my score in addition to just waiting out the years? Would applying for a new card (thinking Discover it to maximize rewards) help?

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Nothing but time will increase your AAoA.  Opening a new account will drop it.  Again, you have to find the right balance between building your AAoA and opening new accounts.  At the point you're at you're still just starting out.  Building credit is a long, slow process so be prepared to be in this for the long haul.

[Anonymous]

@RM21 Thank you for checking out my post and the advice. I feel that it might be smart to wait until my inquiries fall off my report in about a year, and until I get a raise to request a CLI. Since I only have two cards with 3k and 10k and a 40k income, this sounds advisable. Glad to hear you think I am doing well and on my way! Thanks again.

@takeshi74 Thank you as well for a thorough and detailed reply! I definitely want to keep my FICO score in mind - last I checked it was 747, but that was over a year ago. I thought about applying for the Discover it card in particular because I believe they provide a FICO score for free on statements?

Great feedback to keep CK's recommendations and interpretations in check. I definitely do not want 21+ accounts, and they seem to encourage opening more accounts than I would be comfortable with. As a sociologist I am fairly aware that correlation does not demonstration causation, and want to make sure I get this balance right as I build my credit history. Since I have 2 cards now (but I only use Quicksilver to get rewards), I will probably open another card like Discover It with rotating categories at 5% back. However, based on your advice I will wait until my AAoA goes up and inquiries drop off before applying. Perhaps in a year

Interesting - I have been under the impression - again from CK - that keeping the balance under 10% is better than 30%. Do you think it has no impact on credit scores to go up to 30%?

I look forward to the long haul. Thank you again for your insights!

[Kevin86475391]

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@Anonymous wrote:

Interesting - I have been under the impression - again from CK - that keeping the balance under 10% is better than 30%. Do you think it has no impact on credit scores to go up to 30%?

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Staying under 10% is definitely much better than simply staying under 30%. I think Takeshi was mostly emphasizing that there's no historical component to utilization and that you can simply pay before your report date to get the benefits of low utilization without worrying about your utilization on a daily basis during the cycle. So a couple of examples:

If you allow 30% to report one cycle, then pay the balance down and allow 8% to report next cycle, they'll be no difference in your score versus if you had kept it reporting at 8% both cycles and never hit 30%. For scoring purposes with utilization it's just a 'snapshot in time' type thing and historical data doesn't matter. That said allowing 30% to report one cycle will definitely hurt your score (that month) compared to keeping it at 8%, it'll just rebound fully once you pay it back down.

Another example: You could allow your utilization to get much higher during the cycle, like maybe 70%+, then pay it down to under 10% before it reports, and it won't matter at all for your score. It'll be just like you never exceeded the 10%. It's just what reports that matters. The only risk is that a sudden spike in utilization and high spending could cause adverse action (AA) on the part of the lender, and generally that's very unlikely to happen if you stay under about 30%.

However, all that said, I absolutely think you're doing great now and your system is terrific. I wouldn't change a thing. I keep my revolving utilization quite low during my cycles too and rarely exceed about 2 or 3% since I PIF weekly, have healthy credit limits, and spread my spending across several different cards. I don't need to do that. I could let my utilization get higher and just pay once a month - indeed I'm not actively trying to keep my utilization low or worrying about my credit score. This is just the system that works well for me. I like doing stuff weekly because it keeps me on top of my spending and budget better. Plus I find paying stuff off more often just 'feels' easier. I'd rather send a card $200 a week than pay them $800 all at once. Just psychologically it feels like less of a dent in my bank account, so I indulge my preferences since it's also good/neutral for my credit and finances. Find a good system that works for you and stick with it - it sounds like you already have actually!

Anyway, on a different note, I wouldn't apply for the Discover It, or any other card, unless you really want to. 3 cards is generally recommended to build credit, but 2 is fine, especially when you're starting out. I don't think you'd see much if any positive effect just from adding another card. I'd recommend simply waiting till you actually want/need a new card before applying. That said, the Discover It is a GREAT card and my personal favorite. I'd definitely recommend it as a credit product and Discover is a great company to deal with. I agree with Takashi though, I'd recommend waiting a bit longer before applying since you have a thin file and low AAOA. 1 more month would probably be fine, but actually I like your idea of waiting about a year till your inqs drop off better. My personal rule of thumb is to apply for no more than 1 card every 1-2 years, but that's definitely a conversative approach. If you're comfortable and willing to take a slower, more gradual approach though, I think you'll definitely benefit from it. Building a great credit score is definitely more a marathon than a sprint!

Anyway, I think you're doing wonderfully! Keep on keeping on just like you're doing!

[Anonymous]

@Kevin86475391 thank you for your kind words, and for explaining how utilization happens as a snapshot in time rather than as a historical record. Your examples were definitely on point! I think my system has been working thus far, so I will continue to keep it at or under 10% - I also like sending in smaller amounts every week or two rather than a large amount at the end of the month. I will definitely take your advice and not change a thing. 

Very interesting - thank you for the advice about Discover It. I have had it on my mind for a while now, and thought that a combo Quicksilver for 1.5% back flat and Discover It for rotating categories would be ideal for me, but it sounds unnecessary. I really wish I could get rid of my student Visa card with 3K limit, but since it is my oldest card I try to just charge $30 a month to keep my utilization at 1% and PIF. I would love to get rid of that card and keep just the Quicksilver and Discover It to maximize rewards, but that does not sound like the smartest approach. In keeping with your advice, I will hold tight at least until my inquiries drop off in about a year and reassess at that point. 

Thank you again for sharing your wisdom!

[Revelate]

Just talkin FICO optimization, generally you want a minimum of 3 credit cards and at least one installment loan.  Doesn't matter what the installment loan is, literally a $500 share secured secure loan from Alliant counts identically to my $250K mortgage.  Spot on point wise under every major score released in the last two decades.

If I had to do it all over again, I'd get 5 credit cards and 1 installment loan and call it good personally, anything above that CC wise isn't relevant to FICO, though I personally have around 13 revolving accounts but it wasn't for credit building purposes.

Don't take CK's advice regarding, well, many things as it's not accurate unfortunately: they take their dataset, and the scores that people have, and reverse engineer things.  Statistically someone with 20+ accounts and a long credit history will have a good score compared to the average (yay statistics!), so the take away in their analysis is twofold: long credit history good (duh) and 20+ accounts good!

Unfortunately that doesn't track with any given credit score implementation, and in this case doesn't at all with any FICO algorithm.

[Anonymous]

@Revelate Thank you for checking out my post and providing some advice. I may be in the market for another card in a year or so, which would bring me to three total cards. For the installment loan, I know that it would help boost my credit, but without a need for the loan wouldn't it be silly to apply for one simply for the credit boost?

Sounds like CK does not have a good reputation on this site - good to know! I will definitely keep this in mind and hope to spend more time on these boards moving forward. 

[Anonymous]

Pull your annual credit reports for free. That'll be much more substantial for your needs than anything Credit Karma spits back at you.

[Anonymous]

@BadKarma718 Thank you for the advice - I have pulled my credit reports, but my FICO scores are not on them. Is there anything else I should be looking for? Seems like CK and my reports are fairly consistent.

Thanks!