Opening Up A New Credit Card to Improve Credit Score?

[Jazee]

I paid off a bunch of accounts and closed them.  Big mistake.  My FICO score took a hit because it reduced my total credit down to like what I had in college LOL and the remaining account was near the limit.  So I paid down the remaining account to be under 30% credit utilization, not sure how long it will take for my FICO score to update.

My question is, if I'm expecting to apply for an auto loan in about a month, should I first get approved for another credit card to increase my total credit (and further lower my utilization) or will the credit inquiry and or short age of the new account effect my FICO negatively enough to offset any benefit to raising my total credit and lowering my utilization?

[Anonymous]

What about a third option, which is to lower your utilization by paying down your debt?  Is that not a realistic possibility?

Opening a new card shortly begore the loan app is not ideal, nor is having your only card reporting at 30%.  You want all three reports to show that the card is at under 8.9% utilization.

If you cannot do that, it suggests you are having trouble managing your money.

[Anonymous]

The new account will be an immediate small hit due to the inquiry. But, it may not have time to show up on your file unless you wait a couple months. It probably won't make a positive difference unless it hugely impacts your utilization. Since you paid it down below 30% already then you *probably* have more to lose (in the near term) than to gain. If possible, paying it below 10% would be better than applying for new credit, for now.

I would probably wait until the car loan was secured to apply for a new card. Bear in mind that the car loan hasn't always gone through when you drive away from the dealer. Sometimes they get a tentative approval and slow roll sending in the documents. It can be a few days before the loan is formalized on the lender's side.

[SouthJamaica]

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@Jazee wrote:

I paid off a bunch of accounts and closed them.  Big mistake.  My FICO score took a hit because it reduced my total credit down to like what I had in college LOL and the remaining account was near the limit.  So I paid down the remaining account to be under 30% credit utilization, not sure how long it will take for my FICO score to update.

My question is, if I'm expecting to apply for an auto loan in about a month, should I first get approved for another credit card to increase my total credit (and further lower my utilization) or will the credit inquiry and or short age of the new account effect my FICO negatively enough to offset any benefit to raising my total credit and lowering my utilization?

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It will update in around a month or less... i.e. as soon as the new balance reports to the bureaus.

I don't think it will improve your score to add a credit card; in my opinion you should not be applying for anything until after the auto loan is completed.

[Anonymous]

I agree with SJ and CGID above and would advise against apping for a card now when you're a month away from an auto loan app.  Are you able to pay your revolving debt off today if you wanted to?  If so, I would suggest doing that and just letting a small balance report to position yourself in the best possible light for that auto app.

[HeavenOhio]

I'll add that when reporting balances, "under 30%" means 28.9% or below and "under 10%" means 8.9% or below. If you're paying interest on the card, pay down to 27% or 7% to avoid being bumped over the threshold by the following month's interest charge. I'd pay the balance down to about $10 or so and continue to keep it reporting at that level until your auto loan is finalized.

If you're paying interest, pay off the card once the loan is finalized. Then check check the next month's statement for any residual interest and pay that immediately. (It won't be much money.) Don't use the card again until you see a statement balance of zero. That's necessary to reset the grace period.

When you pay to zero, your score will be dinged because you have no credit card balances at all. That's a necessary step to resetting your grace period. Report a small balance the following month, and your points will come back. At that point, consider shopping for a new card.

If you're not paying interest, disregard the preceding two paragraphs.