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Need Advice for Planting Season

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Anonymous
Not applicable

Need Advice for Planting Season

I am a person that for various reasons has basically never used the credit system, I do not have any FICO scores at the moment, and the only tradeline that shows on my bureau reports is a paid off auto loan that is so old it is going to fall off next year. I am getting ready to get another auto loan and since I have no credit the interest rate is going to be very high, my goal now is to boost my credit scores up as high as possible in the next 6 months so that I can refinance the loan to a prime interest rate. My biggest question is how should I approach credit cards? On another site I put in my info and was soft pull "pre-approved" for some non-secured cards (CapOne Quicksilver + 2 other cards from some bank I have never heard of) plus some secured cards as well. Here are my questions:

 

Should I apply for all I was "pre-approved" for or should i only stick to secured cards to avoid potential credit denials?

 

How much do denied card apps actually hurt you 6months out, and should I even worry about that since I dont even have FICO scores right now?

 

What do I do with the cards? my finances are in order and I dont need to use the cards. Do I put a small balance between 1-5% on all of them and then just pay the minimum monthly payment they send me a bill for? Do I leave a $0 balance on them and never use them? Do I put all of my groceries and gas on them and pay them to $0 every month? Which method boosts credit scores and credit limits the fastest?

 

Is there a "magic number" of hard pulls that I dont want to go over so that in 6months I have a good shot a prime rate? I will have hard pulls from the auto loan, probably going for a "credit builder" loan at my credit union, and then whatever pulls come from the cards. So should I just apply for every sub prime card I can find or limit myself to 4 apps, 10 apps, X apps, etc?

 

Thanks for any replies and advice.

 

Message 1 of 11
10 REPLIES 10
Anonymous
Not applicable

Re: Need Advice for Planting Season


@Anonymous wrote:

I am a person that for various reasons has basically never used the credit system, I do not have any FICO scores at the moment, and the only tradeline that shows on my bureau reports is a paid off auto loan that is so old it is going to fall off next year. I am getting ready to get another auto loan and since I have no credit the interest rate is going to be very high, my goal now is to boost my credit scores up as high as possible in the next 6 months so that I can refinance the loan to a prime interest rate. My biggest question is how should I approach credit cards? On another site I put in my info and was soft pull "pre-approved" for some non-secured cards (CapOne Quicksilver + 2 other cards from some bank I have never heard of) plus some secured cards as well. Here are my questions:

 

Should I apply for all I was "pre-approved" for or should i only stick to secured cards to avoid potential credit denials?

 

Neither in my opinion.  That is, I wouldn't immediately apply for all your pre-approved offers all at once (all on the same day).  Nor would I take the opposite approach and apply only for the absolutely certain secured cards.  Instead, I'd pick 2 cards that you like the most from among the pre-approved ones.  Then apply for the one you like most.  If that goes well, wait a couple days and apply for the next in your list. 

 

Stop if you get a refusal.  Do a recon of that application and see if you can move it forward.

 

Given your goal, which is to maximize your score in a short time frame, you should only want a maximum of three cards.  Two might be better, given the fact that the savings you'll get with the higher AAoA and fewer inquiries.

 

How much do denied card apps actually hurt you 6months out, and should I even worry about that since I dont even have FICO scores right now?

 

An inquiriy counts against you for a full 365 days.  It doesn't lessen its impact after six months.  It goes from full impact at day 364 to zero impact at day 367.  Not sure the exact day it cuts off; it is probably 366.

 

The fact that you don't have FICO scores now is not relevant.  You will have FICO scores 6-7 months from now, which is when you want to re-fi the car, and the inquiries you incur now will have an impact at the time you need your score to be its highest.  If you could be certain that you won't re-fi until 13 months from now, then of course you could (for planning purposes) ignore all the inquiries you incur now, since they would have zero impact once 367 days had passed.

 

What do I do with the cards? my finances are in order and I dont need to use the cards. Do I put a small balance between 1-5% on all of them and then just pay the minimum monthly payment they send me a bill for? Do I leave a $0 balance on them and never use them? Do I put all of my groceries and gas on them and pay them to $0 every month? Which method boosts credit scores and credit limits the fastest?

 

I like your idea of using every new card a small amount every month for at least the first 3-4 months.  It will create a history of non-zero balances and regular monthly payments early on.  It's possible that isn't necessary, but "how could it hurt?" is how I look at it.  CC Issuers are known to cancel cards that are never used so I like your idea.

 

But when you say "only pay the minimum payment" -- here I'd say no.  Wait until the statement prints.  It will have some amount on the top.  Say it is $40 with a minimum payment of $20.  You should pay the full $40.  Do that AFTER the statement prints and well before the due date.  But continue to make some purchases so that you have another bill to pay (in full) the next month.  Paying in full (or PIF) prevents you from paying any interest.

 

Two months before your re-fi, you'll want to pay all your cards down to $0 except one.  The remaining card you will continue to use and keep a smallish balance on it.  This will make your score go as high as it can (with respect to CC behavior) shortly before you need it for the re-fi.

 

Is there a "magic number" of hard pulls that I dont want to go over so that in 6months I have a good shot a prime rate? I will have hard pulls from the auto loan, probably going for a "credit builder" loan at my credit union, and then whatever pulls come from the cards. So should I just apply for every sub prime card I can find or limit myself to 4 apps, 10 apps, X apps, etc?

 

You should NOT apply for every card you can, since you have an extremely specific goal, which is NOT acquire cards but to build up your score in a very short time frame so that you are in the optimum place for an auto re-fi at month 7.

 

Your goal ideally should be to have three hard pulls with three CC approvals.  (In an absolutely perfect world, each hard pull would go to a different bureau!)  That may not work out, since you might get rejected.  There's an argument for opting for only two CCs (since as I said your AAoA will be higher and your inquiries will be lower).  But three is probably a bit better than two all things considered, even counting the lower AAoA and the extra hard pulls.

 

Thanks for any replies and advice.

 

The credit builder loan you plan to get will not help you.  They are best for people who have no open installment loans.  But you are planning to get a car loan extremely soon, in the next few weeks it sounds like.  Thus, at the time you re-fi, you will already have a big open installment loan, one on which you still owe most of the principal.  

 

If you want to understand better how "credit builder" loans work with respect to FICO, read the first two posts on this thread:

 

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secure-technique/td-p/4506756

 


 

Message 2 of 11
Anonymous
Not applicable

Re: Need Advice for Planting Season

Quick follow up.  I got the impression that your need for a new car is immediate and non-negotiable.  But if I was mistaken, consider for a minute whether you could delay the car purchase for 7 months (or as long as it takes for you to get scores).  If so, then the Share Secure loan is a great idea.

 

You'd focus on getting 2-3 credit cards now and an SS loan with Alliant.  There would be no hard pull for the Alliant loan.  When your scores materialize, you'd have three cards with payment history, a perfect utilization pattern for optimized score benefit, and an SS loan to help with credit mix and low installment utilization.

 

Your application for a car loan would go great then and you'd probably get an awesome rate.

Message 3 of 11
takeshi74
Senior Contributor

Re: Need Advice for Planting Season


@Anonymous wrote:

I am a person that for various reasons has basically never used the credit system, I do not have any FICO scores at the moment, and the only tradeline that shows on my bureau reports is a paid off auto loan that is so old it is going to fall off next year. I am getting ready to get another auto loan and since I have no credit the interest rate is going to be very high, my goal now is to boost my credit scores up as high as possible in the next 6 months so that I can refinance the loan to a prime interest rate. 


You're starting off very late.  Consider that there is an impact just from having new accounts and your reports -- in addition to the impacts to AAoA and from the hard pulls --  and that the impact is going to be bigger for someone in your situation with a very thin profile.  Adding new accounts is going to be a concern for creditors in the shape you're currently in even if you limit it to just 1 or 2 new accounts.

 


@Anonymous wrote:

Should I apply for all I was "pre-approved" for or should i only stick to secured cards to avoid potential credit denials?  


A preapproval is not an approval.  Do not rely on preapps.  Even secured cards aren't guaranteed.  There are secured cards that require a credit check and those that do not.  The latter would be safe but I can't tell you what you would or would not qualify for nor can anyone else.

 


NiceMemesFam wrote: 

How much do denied card apps actually hurt you 6months out, and should I even worry about that since I dont even have FICO scores right now? 


It's not the denial that matters.  Educate yourself on the standard factors, typical weights, etc.  This link is just a starting point and only addressed FICO scoring.

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

There are many other resources that you should use including info on this site from myFICO, the various subfora, the stickies in each subforum, existing threads and other sites out there with info on credit.  The weighting on this link is what is typical for most but for your credit profile you will see a bigger impact from having new accounts and from the hard pulls.

 

Look at your reports.  Note where denials are indicated (they're not)?  As I mentioned above, there are impacts from new accounts which include the drop in your AAoA (Length of Credit History), the hit from the Hard Pull and having new accounts on your reports (New Credit).

 

You should definitely consider what you're going to do very carefully as any score is generated based on the data in a report.  The actions you take will impact the data in your reports and will factor into your scores.

 

Additionally, scores are just one consideration.  Every product has its own underwriting criteria and those criteria aren't just going to look at scores but your entire credit profile to determine what you qualify for.

 


@Anonymous wrote:

 

What do I do with the cards? my finances are in order and I dont need to use the cards. Do I put a small balance between 1-5% on all of them and then just pay the minimum monthly payment they send me a bill for? Do I leave a $0 balance on them and never use them? Do I put all of my groceries and gas on them and pay them to $0 every month? Which method boosts credit scores and credit limits the fastest?


The minimum is just the least you can pay to keep your account current.  Do not consider the minimum anything other than that.  You want to pay every statement balance in full to avoid incurring revolving debt and interest.  You do not need to incur revolving debt to build credit with revolving accounts.  Be aware that there is a difference between carrying a balance and letting a balance report.  You don't need to carry a balance to have one report.  Whether a balance reports or not and how much all depends on your current balance on the report date.  Most cards report on statement date but not all do.  For those that do, if you allow a statement to cut and then pay the statement balance in full by the due date then the statement balance will report even though you paid the statement balance in full (because the statement date/report date falls before the due date so paying after the balance reports will not change the reported balance).  You can pay down or pay off a balance prior to report date to reduce or eliminate the balance that reports.

 

As far as balance is concerned it's all about Revolving Utilization (balance[s] / limit[s]) which falls under Amounts Owed and has a signficant impact.  Revolving Utilization is determined based on the current balances and limits indicated on your reports.  You don't "build" with it.  It is a point in time metric.  Standard advice is do not exceed 30%.  When applying for new credit, requesting CLI's, APR reductions, etc you may want to optimize it to eke out some additional points by allowing only one balance to report at 10% or less but you don't need to constantly do this as, again, it's a point in time measurement.

 

To tweak your Revolving Utilization for your auto loan app, know when your accounts report and get them down just prior to the auto loan app.  Be aware that after an account reports it can take several business days for a CRA to update.

 

 

There are no quick and easy fixes with credit.  Building and rebuilding is a long, slow process and you may not get exactly to where you want to be in 6 months.  If you can push that auto loan back to 1 or 2 years I would highly recommend it to give yourself a more reasonable timeframe to build your credit.

 

If you have any derogs (lates, collections, etc) then get to work on those ASAP.  You want your reports to be totally clean and free of them.  Carefully research in the Rebuilding subforum to see what you can do about them.

 


@Anonymous wrote:

 

Is there a "magic number" of hard pulls that I dont want to go over so that in 6months I have a good shot a prime rate?


It's never just about the one factor/change.  There isn't a magic number.  Impact depends on one's credit profile.  Your thin credit profile won't support much credit seeking activity so keep it down to 1 or 2.  A person with a thicker profile in good standing could easily handle a much larger number of inquiries.  Again, I doubt that you're likely to get yourself to where you expect to be in only 6 months.

 


@Anonymous wrote:

probably going for a "credit builder" loan at my credit union


Skip that.  If you want to use an installment to help build then read up on share secured loans (mentioned above).

 

 

All of these are very common topics so, again, don't overlook existing discussions as a resource on top of all the other resources I mentioned.  If any site's search feature isn't working for you then try a site restricted Google search.  Here's an example for searching share secured loans on this site:

https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=share%20secured%20loan%20site%3Aficoforums.myfico.com

 


@Anonymous wrote:

So should I just apply for every sub prime card I can find


Uh, no -- for reasons stated above.  Picking nits but subprime is relevant to the borrrower, not the card.

Message 4 of 11
Anonymous
Not applicable

Re: Need Advice for Planting Season

Thank you for the insightful replies.

 

I did not realize that the auto loan and credit builder loan both count as installment, thus making the credit builder redundant. Thank you for pointing that out Dixie.

 

So I guess I will go for 3 unsecured cards I will app one and see what happens. I dont really understand the AAoA argument though, I have 0 active accounts right now and my AAoA is "N/A" according to Credit Karma. Wouldnt my AAoA be 0.5 years 6 months from now regardless if I have 1 card or 20? If they are all opened in August then all of my accounts will be 0.5 years old in 6 months.... right?

 

I also wanted to clarify about my comment on paying minimums on the cards. I do not plan on actually using the cards at all, there is no point for me to do this as none of these cards have rewards; I will just continue to use my debit card and *gasp* pay for things with my own money. So what I was going to do was put a $10 balance on a card and then just pay the monthly minimum that way I dont have to keep putting stuff on the card after I pay it off. If the card companies really want to charge me 25% APR on my $6-7 balance I am fine with that. The finance charges will be less than the gas used to get to the store, and then the hassle of doing 3 separate transactions to load a $10 balance every month. This was my primary reason for just leaving a small carrying balance, mainly convenience as the finance charges will be tiny. Once my scores are good enough I do want to get an airline miles reward card because my gf and I do travel fairly often, but until I get a rewards card there is absolutely zero reason for me to put day to day purchases on a credit card.

 

Also Dixie my need for a car isnt really non negotiable but there are various reasons I just want to get it done now. I have an extremely high savings rate, extremely low monthly expenses, and very good cash reserves. In fact I have more than enough money in my 401k to just do a 401k loan and buy car I want outright, which was my original plan, but further research into the issue has lead me to the conclusion that I would prefer to not to liqudate market based assets at this time. If the market were to tank sure I could possibly save quite a bit of money and it would be a smart move, but if the bull market continues I could lose out on a lot of compounding gains, and there are a few scenarios where I could have negative tax implications.

 

Basically I want to get the ball rolling on building credit, I wanted the car, and paying a couple grand in interest over the next 6 months doesnt really bother me at all so waiting is just unnecessary in my view.

Message 5 of 11
Anonymous
Not applicable

Re: Need Advice for Planting Season

Hi NMF!  You write:

 

"I dont really understand the AAoA argument though, I have 0 active accounts right now and my AAoA is "N/A" according to Credit Karma. Wouldnt my AAoA be 0.5 years 6 months from now regardless if I have 1 card or 20? If they are all opened in August then all of my accounts will be 0.5 years old in 6 months.... right?"

 

In your first post, you mentioned that you have one closed car loan on your reports.  You mentioned that it would be falling off next year.  If it will be falling off next year, then it has been closed for 9 years now.  A typical car loan closes at month 36 or 48, but let's be conservative and say 36.  That means that the account is 12 years old now and will be 12.5 years old in six months.  Closed accounts count toward your AAoA just as much as open ones.  Thus, if you add exactly one card now (and no more) your AAoA will be (12.5 + 0.5) / 2 = 6.5.  If you add three cards now your AAoA will be (12.5 + 0.5  + 0.5  + 0.5) / 4 = 3.5  The more cards you add the lower your AAoA will be when you apply for the re-fi.

 

CK's summary software ignores closed accounts in its AAoA calculation but this does not reflect how FICO scores things.

 

Thanks for trying to explain how you plan to use your cards.  I had been pretty clear what your plans were, but now after your last post I am confused.  You mention that you don't intend to use the three cards at all, but that you will be putting a $10 balance on one.  That confuses me -- putting a balance on one sure sounds like you are going to use it.  You then mention that you'll be paying the minimum payment on it and seem to be under the impression that you could make that MP each month for six months in a row without paying the $10 balance off.  Most credit card companies specify that the MP is at least $20 (or the statement balance, which ever is less) so you'd actually pay it off with your first MP.

 

Whatever you are planning to do sounds complicated and unecessary.  If I were you I'd set up the three cards to autopay their statements in full, and then use each card for something small once a month: a burger, a cup of coffee, a tank of gas, etc. during the first three months, That's really easy.  And you'll be creating a record of card use and payment in full -- unclear to me why you want to avoid that when it is the very thing you are getting the cards for (creating that trail).

 

Anyway, best of luck in whatever you end up doing. 

Message 6 of 11
Anonymous
Not applicable

Re: Need Advice for Planting Season


@Anonymous wrote:

 

 

CK's summary software ignores closed accounts in its AAoA calculation but this does not reflect how FICO scores things.

  


AH HA! I am learning ! Well thanks for that information Dixie because I figured that closed accounts werent calculated into AAoA because they arent in CKs break down. So yes now I obviously understand how adding more cards will lower my AAoA. And yeah I think that auto loan was paid off back in 2007 and it was a 48month loan.

 

Thank you as well for the $20 minimum payment heads up as well. I am not used to dealing with the skanks, excuse me I meant "banks", so I am not apprised of all of their likes and dislikes just yet. So I guess I might have to make a small purchase and pay it off each month. I can see myself at the grocery store telling the clerk "put this package of steaks on this card, OK now this package of chicken on this card, OK this bunch of bananas goes on this card" while soccer mom behind me is getting ready to lose her ship, I will just turn around and tell her "I am building my credit :^) " All jokes aside you are right I will probably just put my gas charges on a different card every time I fill up and just pay it off each month, easy enough.

 

Thanks a lot Dixie you have clarified quite a bit for me, a lot of this stuff is unintuitive or counter intuitive. I really dont understand why CK would evaluate AAoA explicitly different than FICO does, I understand that FICO is a proprietary model but if it is the generally agreed upon industry standard it would seem logical to me that 3rd parties should try to mimic their evaluations as best they can so that the information they provide is reasonably uniform. When I pulled a 3b FAKO from Equifax it said EQ 680 EX 720 TU n/a and CK says EQ 580 EX 580 TU n/a so it will be quite interesting to see what my FICO scores are once they come online.... guess we have to wait and see Smiley Happy

 

Thanks again.

Message 7 of 11
Anonymous
Not applicable

Re: Need Advice for Planting Season

You are very welcome!

 

And I think your idea of putting all your gas on your cards is great (alternating cards for each time you fill up, as you say).  Boom.  You're done.

 

I would add to that setting up each card to automatically charge the monthly statement (in full) to your checking account.  Then you never have to worry about making payments.

 

Finally, remember to completely pay off two of the cards and stop using them about 60 days before when you need your score to be at the highest.  FICO will give you extra points if (at that point) you have most of your cards reporting $0 with one card showing a small positive balance.  There is no advantage to trying to execute that "all zero except one" rule every month -- you just need to do it shortly before a big credit pull.

 

I agree that CK is crazy for reporting account age the way they do.  The two major scoring families (FICO and Vantage) both count closed accounts and open equally, so I see no reason to mislread consumers by summarizing age in any different way.  Nevertheless I do encourage you to keep using CK.  You couldn't ask for a better deal for free weekly reports.  And the reports themselves are reliable.  Just ignore what they say about account age.

Message 8 of 11
Anonymous
Not applicable

Re: Need Advice for Planting Season


 

Also Dixie my need for a car isnt really non negotiable but there are various reasons I just want to get it done now. I have an extremely high savings rate, extremely low monthly expenses, and very good cash reserves. In fact I have more than enough money in my 401k to just do a 401k loan and buy car I want outright, which was my original plan, but further research into the issue has lead me to the conclusion that I would prefer to not to liqudate market based assets at this time. If the market were to tank sure I could possibly save quite a bit of money and it would be a smart move, but if the bull market continues I could lose out on a lot of compounding gains, and there are a few scenarios where I could have negative tax implications.

 

Basically I want to get the ball rolling on building credit, I wanted the car, and paying a couple grand in interest over the next 6 months doesnt really bother me at all so waiting is just unnecessary in my view.


Why would those reasons make it better to get the car now? It's great that you have high savings/low expenses/cash reserves, but that doesn't mean that suddenly losing money on 6 months interest is okay. You're in such a good financial state, why would you be willing to part with that much money? Instead of throwing it away at high interest, you could add that money to your 401k or cash reserves! (Also, a 401k loan should pretty much be a last resort, for financial problems, never an option at all for something like buying a car...) To me, it would make alot more sense to get the credit cards and build credit for 6 months (or longer), and then apply for the car loan, so you have lower rates from the beginning. In this way, you will benefit most, rather than the banks getting your extra money!

Message 9 of 11
righthererightnow
Frequent Contributor

Re: Need Advice for Planting Season

Quicksilver is a very useful card, if you can get it.. i'ts a good one to have (and use).

 

Inquiries hurt, get additional ones at your own risk. More than 6 is VERY BAD, I would be careful doing more than 3. They cease affecting the score at 1 year, but they are on for two years. I burned myself, and my scores, that way. Inquries... argh. : (

 

Also, everytime you get a card it knocks your average age of accounts down. You will FEEL it with no credit history. I would say.. try to bunch the ones that you get together and stay minimal (with cards you want to keep).

 


Is there a "magic number" of hard pulls that I dont want to go over so that in 6months I have a good shot a prime rate? I will have hard pulls from the auto loan, probably going for a "credit builder" loan at my credit union, and then whatever pulls come from the cards. So should I just apply for every sub prime card I can find or limit myself to 4 apps, 10 apps, X apps, etc?

 

Thanks for any replies and advice.

 


 




Message 10 of 11
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