Just Started, Aiming for Above 750

[Anonymous]

I am 19 and so far my credit rating has  been good. I knew about the improtance of having a good credit rating since I was 17. I ran into this website today and I read all the tips in order to have a good score. I want to know what I can do in order to increase my score even more. 

So far I have 2 credit cards. One of them I have been an authorized user for more than 3 years. Another credit card I applied for more then 6 months ago. I have a limit of $2000. I use my credit card frequently, only to show activity in order to build my history. I always pay off the balance in whole. 

I am thinking about applying for couple more credit cards. 

Before I apply for another credit card, I need to know more information on how to improve my credit score. I want want to become a high achiever. I know building credit takes time but I want else can I do thats in my control in order to build my score.

Few questions I had while I was reading educational information on this website

1) Is it better to payoff the balance in whole or just do minimum payments, if I have 0% introductry rate? 

2) Will it hurt my score if my credit card increases my credit line? 

3) This webstie said that "don't open new credit cards you don't need, it will backfire," How do you define need? My current need is to improve my score. So if I open up couple of credit card accounts and use them and pay them off in whole, how will it hurt me? 

4) Refering to question 3 above, wouldn't it be helpful to me to have multiple credits cards and show activity on them in order to help my score in the long run? Isn't it better to have 3 credits cards in the past 3 years with good acitvity on them compared to only 1 credit card with good acivity on them?

[marty56]

Welcome to the forum.

Question #2 is no, it wont hurt your score if they raise your credit line/limit (CL).

Question #1 is the best approach is to have only 1 CC report a balance of 9% or less of the CL.

Question#3 is tricky in that you generaly loose points for a new account and they associated hard INQ but if you dont have a bank issued Visa/MC card and only have say a store card or gas card,  your score could improve becuase of the additon of the so-called prime card.  IMHO I owuld not open new revolving accounts as a tatic to improve your credit score if you allreay have some.  An installment loan such as a mortgage or autoloan would help your credit mix.

Question#4 As long as mulitple revolving accounts to show activity in the same month, having mulitple cards could help you in the long run based on AAoA if you open a new TL or a mortgage.tgage.

You must focus on the end game for imporving your FICO score.  A mortgage or autoloan is an example of valid end game.

At his point I would just let the 2 cards you have age and not go out and get more credit cards and do not revolve any balances - stay of of credit card debt.

[llecs]

Right now, your revolving mix of credit is good. You may see some benefit by adding a charge card (store, gas, etc.). Normally I 'd suggest not apping anymore (will drop your scores if util is in check) but your history and AAoA is short and wouldn't take too long to recover. If you are looking to replace the AU card, then go for it. Otherwise, don't app unless you need to.

1) Always PIF. Save money on interest and CCCs tend to frown on minumum-only payments. Even if you have 0%, the utilization will hurt your scores. Ideally you want 1/2 of your CCs reporting $0 and 1/2 reporting a balance of $1 but no more than 9% of the CL. Good news about util is that it is forgiving. Six months from now if you get your balances low, then FICO won't have any memory and will only score you in the present.

2) Your score is never harmed by a CLI. Conversely, your scores are not dinged for a CLD, if your balances are in check. I personally would opt for the $1 balances over 9%.

3) I lose an average of 20-25 points with each new CC and tend to recover a large majority of that by 6 months and all of that by 1 yr. Adding new cards will ding you in three ways as far as I can tell. First, there is a ding for the newness (for lack of a better word) of the credit. Creditors don't like to see new credit - often a sign that a consumer is desperate for credit and could be in financial trouble. Second, you get dinged with the drop in your avg. age (AAoA). FICO like to see a loooong history, especially average age. Adding new cards to that only drags that down and your score too. Finally, some get dinged for the new inquiry.

4) A proper mix of credit, IMO, is at least 2 revolving CCs and one charge card. So having one CC report would get you to high achiever status in time, but certainly won't get you to the 800 club. Adding one more CC will get you there, but it will take longer because for every card you add, you are having to add more time to get to that goal (AAoA is measured in years; if you lose one yer in the AAoA, it will take one year to get it back).

ETA....Marty is a faster typer.

Message Edited by llecs on 03-08-2009 08:56 AM

[Anonymous]

Hey guys thanks for the reply. I have some couple more questions and concerns.

I am a bit confused with the reply you gave me. 

1) What does AAoA mean?

2) What does "revolving" credit mean? 

3) What is a charage card? I noticed you guys said  a charge card is a store/gas card. I am not really sure what they are.

4) Can you give me a better understanding of how the average age concept works? 

Let me expalin my situation:

My goal is to have a really high score (above 750) by the end of the next two years (age 21). Not only that, I want to be able to maintin that high score throughout my lifetime. 

So far I have two cards as I mentioed in my first post. 1) an authorized user card (MasterCard) and 2) American Express (AE). I mostly tend to use my AE card and I don't like using my authorized user card because of personal reasons. My goal is to add one or two more non AE cards since there are alot of stores out that that don't accept AE. 

Now I undestand that everytime I apply for a new credit card, I get a hard inquiry on my report, thus leading to a drop in my score. Also, if I apply for mutliple cards in less than 10 minutes, my chances of getting aproved for my second application will be higher. So knowing the advantage, should I go ahead and apply for two cards or just one? What I mean is, if I only apply for one card right now, my points will drop, but after 6-12 months, if I apply again, my points will drop again. So is it better to just take one big drop right now instead of taking 2 smaller point drops? 

Lets say if I am in a financial siutation to pay off any balances I have on my cards right away what is my best approch to becoming a high achiever. I know adding new credit cards will hurt my score because of average age. Bu if my goal is to have a high score in in a time span of 1-2 years, wouldn't it help my score if I just get two cards and show activity on all my 4 cards? So this way by the end of 1-2 years, I will have history on all 4 cards. 

What is the most opitmal and best approch I should take in order to acheieve my target? How many extra CC should I get? Should I get a charage card? What type of method should I use to pay off the balance? I am able to pay of any balance right away, despite this fact, should I keep a balance? Does having a balance help me improve my score?

[llecs]

1) AAoA is average age of accounts. Look in your CR. Take all the OC accounts like the two CCs and any other OC accounts you have (SLs, loans, car, mortgage, etc.). Subtract today's date from the date the TL was opened and express that into months old (e.g. if your two cards were two yrs old, then 24 months). Add the sum of all the months and divide that figure into the total number of accounts. Then divide that figure by 12 to get your AAoA. AAoA is expressed as a whole number, so if you get 3.2 yrs, your AAoA is 3 yrs. To cheat, you can also usually find your AAoA on your FICO reports.

2) Revolving = any MC/Visa. Seems like one or two Amex cards report as revolving too. HELOCs and LOCs are also revolving depending on the balance.

3) Charge card = store or gas cards (non-Visa) and most Amex cards. Examples are Macys, Target, Walmart, Exxon, etc)

4) Higher the AAoA the better. If you get new credit, your AAoA drops as does your score.

IMO, you will not hit 750 within 2 yrs if you apply for anything. If this is your goal, hit 750 then app for that 3rd card if you want it. Your score will fall below 750, but you'd recover within a year from then.

Maybe I should have asked this first, but what are your two FICO scores now?

[haulingthescoreup]

If you haven't already, please read Understanding Your FICO ® Score and Credit Scoring 101 (at least the first post.)

These will give you the background knowledge you need to understand what you read here on the forums.

Click "Frequently Requested Threads" (at the top of many of the boards, and linked in my siggy) and you'll find the abbreviations thread, along with lots of other fun stuff.

It will really help if you get some of the basics under your belt first, because you're about to enter the drinking-from-a-fire-hose stage, and you're going to be really overwhelmed by responses to individual questions without getting some "credit grammar" under your belt first.

[Anonymous]

One way to make the most of a 0% APR offer on purchases is to load up the balance close to your limit and then pay it in full, While this will temporarily drop your FICO score, it has its benefits. It will be used by a banks internal scoring model to determine how much credit you use and responsibly pay back; as in the case of a bank like HSBC this can actually save your credit limit from CLD.

Also bigger banks may look beyond AU usage to determine credit limits and there is nothing better than a high water mark on your own cards to work with. Remember a FICO score is only part of the process banks use to determine how much they will lend you. Just get the reported balance down to under 9% when it comes time to apply for new credit

[Anonymous]

Also you can forget about getting a 750 if you load up on student loans. Deferred or not, its a balance carried and ultimately figures into your credit risk. Once paid off though, they definately help your score, as I have no open installment loans, 1 paid student loan and no remarks about needing to improve my credit mix

[Anonymous]

Just remember the 2 Golden Rules of Credit Cards:

It's not Free Money

and

It's always better for credit cards to pay you to use them than the other way around

You can break the 2nd rule and still have great credit but if you forget the first one its like feeding a Mogwai after midnight

[Anonymous]

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@Anonymous wrote:

I3) This webstie said that "don't open new credit cards you don't need, it will backfire," How do you define need? My current need is to improve my score. So if I open up couple of credit card accounts and use them and pay them off in whole, how will it hurt me? 

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Well it depends on how firm you want to be with that 2 year goal. If you get a minimum number of cards and an installment loan you pay off before then, you will get there faster. On the other hand people like to load up on alot of cards as early as possible so later on new cards don't lower their average age so much; going for the quantity approach will lower your scores in the short term until your accounts age but ymmv depending on how old that AU account is. If its over 20 years old you can apply for 2 more and still have an AAoA of 5 years or better

If you do decide to load up on credit cards now, get the ones with no annual fee, so you can keep them for as long as possible. The one exception might be a green Amex charge card

Message Edited by reots on 03-09-2009 03:33 AM