Joint loan account to build credit

[Anonymous]

Some quick background:

my girlfriend are I are recent (~1.5 years) immigrants to NYC from Europe, so we had to start our credit building from scratch. Through secured credit cards, then regular credit cards and on-time payments, etc., my score is now approx. 700. My girlfriend arrived to the US more recently and has been less active with credit cards, so her score is lower (approx. high 500's).

Question:

We want an installment credit account to built both our credit. I was thinking of a credit builder loan but if I can accomplish the same through a normal bank loan, I would prefer that. Is my credit high enough to obtain a 1 year small ($1000 loan)? There will be no traditional reason for this (I'm not buying a car, etc.). Also, can I put my girlfriend down as a co-signor to assist in building her credit? Does her credit have to be higher or same as mine?

Thank you.

[guiness56]

Whether they would let her be a co-signer is completely up to the lender.

Installlment accounts factor very little into a FICO score.  It does help in credit mix as long as it is opened.  Once closed it only helps in AAoA.  A history of making timely payments, thought do not count in the score, will help on a manual review.

Does she have CC at all.  What is her utilization?

[Anonymous]

She has had the BOA secured credit card ($300 limit) for about 6 months now, with low to zero current utilization. No other credit account.

I have several credit cards, with approx. $7k limit and around $500 balance. First account 14 months old.

[guiness56]

To help her score you can add her as AU to a few of your CCs.  They must be older than hers, low utilization and no late payments.

Don't let her card report a 0 balance.  FICO likes to see you use your credit but wisely.  Let it report at 9% or under for optimum FICO score.

[Anonymous]

Thanks for the reply. Three quick follow up questions.

How much will it improve her score to add her as an AU to my cards?

You mentioned installment credit will not necessarily improve the scores that much at this point. How much would it improve to have had a 12 month loan (of around $500 to $1000) paid off in full this time next year.

Our goal is to have low rates when we decide to buy a home in the next 1 to 3 years. When the mortgage lender assesses our credit, will they use the lower of our scores as their base score?

[guiness56]

The installment loan will help for mix of different types of credit which is10% of the score. On time payments do not factor into your score as it is assumed they would be on time. But the positive payment history will help in a manual review.

If she only has one card they may help as long as all are paid on time and you keep utilization on one card at 9% or less and the others reporting a 0 balance.

Lenders tend to use the middle score out of all three.