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Credit at Age 19: Should I Start A Self Lender Loan?

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Regular Contributor

Credit at Age 19: Should I Start A Self Lender Loan?

I'm twisted right now. I'm going to be a college freshman in 4 months. I am very financially responsible (have started my retirement already, have a full ride scholarship through college). My personal income is roughly $8K-$12K currently, but will change in college. No cards of mine ever carry past a 1% utilization each month when the statement closes.

 

My goal: Graduate college with almost all of the credit cards I will need and with a very high credit score, so that, while I'm house hunting out of college, I shouldn't need to worry about taking out new credit cards and so I can have an average credit history of 4 years and not tarnish it with a new card.

 

My credit history is as follows:

CLOSED - Discover Authorized user 2015-2016

OPEN - Discover Authorized User (16 months) (40% utilization, $16,000 limit)

OPEN - Capital One Student Journey Visa (PC'ed to Quicksilver last week) (11 months old), $2500 (1% utilization)

OPEN - Discover IT Student Chrome Secured Card (1 month), $500 (1% utilization)

 

I am considering two options. One, I plan on increasing the limit on the secured Discover to $2500 so as to have it graduate with a high limit in November after 7 months. Two, I was considering the $75 total cost of taking out a Self-Lender loan, mainly because it would add to the 10% of my score that is comprised of diversity (which is currently only CCs) and because it would allow me to show another 12 months of solid payment history.

 

My current average account age is 9 months due to the new Discover, which is the reason I want to have most of my future cards opened within the next early years, even if the limits are low for now. My credit score was 756, but dipped to 740 after the new card. I just want to not ding my score in the future with new credit cards when I am trying to start my mortgage seeking.

 

To recap questions:

1. Should I apply for a Self Lender loan?

2. Is my strategy a solid one regarding opening many cards in the next 4 years?

3. Is my strategy even possible with such a low income? How much is score weighed compared to income?




Age 21
Current Score: EQ 802 (2 Inq) | TU 790 (6 Inq) | EX 807 (7 Inq)
4 REPLIES 4
Moderator Emeritus

Re: Credit at Age 19: Should I Start A Self Lender Loan?

Welcome to the forums!  $75 fee for a self-lender loan?

 

Open up a secured loan with Alliant, pay it down immediately to like $20 and you only will tie up $40 of your money and then just pay a bit of money to it every so often to keep the inactivity fees away and enjoy having that positive tradeline with maximum benefit and minimum cost for nearly 5 years.

 

FWIW I'd recommend anyone without installment loan history do this, but $75 to tack a loan onto your report makes no sense in comparison in my opinion.

 

Method:
http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...

 

I wouldn't bother increasing the limit on the Discover, let it graduate naturally as they often will do a CLI on graduation from what I've seen.

 

Income isn't much of a factor compared to score for most (not all) credit cards at least but you have to show some and you won't likely qualify now.  FWIW I'd get the Alliant loan tacked on, then I'd sit on my hands till sophomore year and see if I could get a couple of goal cards, you don't need very many just pick a couple that make sense like grocery / restaurant / maybe something like Amazon if you use that.  

 

Figure out senior year when you have a better idea what your post-college plans are for a house, that may not come till later, but you don't need a tremendous number of cards to be covered for most typical expenses from a rewards perspective and you certainly don't need them from a score building perspective.  Build initial, then do a small expansion after a year or so, and put yourself in the top tier if you do need a house right out of school but a lot will change during college so I'd caution not to be married to the idea of having a house immediately at graduation.

 

Congratulations by the way!

 




        
Message 2 of 5
Valued Member

Re: Credit at Age 19: Should I Start A Self Lender Loan?

Ty if you're trying to widen your credit spread then a secured (safe) loan is good but you shouldn't be paying for it.  You can get secured loans from multiple lenders w/o any upfront cost minus the secured payment.  Estabilish a solid credit history with hopefully one or two banks (it seems you have) and grow off that. Just my .02  I'd look at Discover or NFCU or Aliant if anyone wants to charge you for a SLOC.  I personally would say check w/your bank to see if they do a CLOC and if not, then look at a SLOC, pay most off fast then let it mature. I wouldn't push the CLI but let things mature and fully agree with the above post.  Actually, your rocking right now, just widen and mature your credit. Patience.... 

 

CH13. Filed 2010, Discharged 2014, All fell off APR 2017.
Current Scores (4/30/17): 799 Transunion, 822 Equifax, 792 Experian
Re-stablished with a $500 NFCU secured loan that funded a $500 NFCU secured CC .
Current: NFCU Rewards (20K), NFCU Signature Rewards (20K), NFCU CLOC ($15k),PENFED Travel Rewards AMEX (20k), PENFED Platinum Rewards (20k), BankAmericard Travel Rewards Visa (20K), BankAmericard Alaskan Air Signature (21k), Barclaycard (15K), Discover Card iT (12K)
Message 3 of 5
Regular Contributor

Re: Credit at Age 19: Should I Start A Self Lender Loan?

The cost of the $500 Self-Lender loan is $12 + interest over 1 year, but the payments are locked at $48 minimum, so it can only take less a year or less, not more. So ruling out the $75 year-long loan from Self-Lender, the Alliant options sounds like a more long-term option, and cheaper, and I like the idea of having only a few bucks locked up in the bank rather than the full $500.

My main worries are keeping the savings account active (I read make a transfer every 6 months), when payments are due/the minimum payment possible after paying down 91% of the loan ($1/month, $1 per 6 months?), and will my credit score drop by 28 points AFTER the 5 years is up?

Thanks again, and it's nice to see such a great, fully thought-through contribution/guide, so thanks!



Age 21
Current Score: EQ 802 (2 Inq) | TU 790 (6 Inq) | EX 807 (7 Inq)
Message 4 of 5
Super Contributor

Re: Credit at Age 19: Should I Start A Self Lender Loan?

Hi Tyler!  My comments below in blue.

 


@tyler539 wrote:
The cost of the $500 Self-Lender loan is $12 + interest over 1 year, but the payments are locked at $48 minimum, so it can only take less a year or less, not more. So ruling out the $75 year-long loan from Self-Lender, the Alliant options sounds like a more long-term option, and cheaper, and I like the idea of having only a few bucks locked up in the bank rather than the full $500.
Great thinking.  Yes.  Alliant is cheaper, lasts much longer, gives you the full benefit right away, no hard pull, etc.
My main worries are keeping the savings account active (I read make a transfer every 6 months), when payments are due/the minimum payment possible after paying down 91% of the loan ($1/month, $1 per 6 months?), and will my credit score drop by 28 points AFTER the 5 years is up?
It shouldn't be a worry.  As per the guidance, there are lots of ways to keep both the savings account and loan active (after you have paid the $500 loan down to $44).  Many people simply set up an automated push of $1-2 from a checking account into the savings and into the loan.  That could be quarterly, every six months, whatever.
And yes, your score will drop when the loan finally closes -- assuming that 60 months from now you still have no open installment accounts.  But you can just get a new loan and pay it down (etc.) if that is the case.
Your score will also drop if you get a car loan, or a house, or whatever.  That's because your installment utilization will go from < 9% to maybe 98% or so.  If you don't understand why the score would drop, it means you need to read the second post again (the Theory Behind The Technique).



Thanks again, and it's nice to see such a great, fully thought-through contribution/guide, so thanks!

 

You are very welcome.


 

Message 5 of 5
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