Question - Fixing and Achieving a Greater Credit Score

[Anonymous]

Sitting around the mid 500s at the moment with four minor medical collections from before 2013 and about 7.7k in student loans. I've owned a new 2017 for about 8 months (all payements on time). By the end of next week, I'm planning on taking care of those collections and setting up a payement plan for the school loans. I'm currently in search of a small loan (6 months) for a new mattress, about $700. I'll also probably open up two secured credit cards, Capital one and Discover ($500 ea), however, I don't fully understand all of the ins and outs of building a healthy credit quickly. If I need to stay between 0-30% credit utilization, does that mean I can purchase new headlights ($450) for my car and pay $420 of it off the next day to keep that sweet spot or does that mean I should only charge up to $150 per month on each card?

All of this is extremely new to me, as I welcome any knowledge tossed my way! Of course everything will be paid on time. I've got my eyes on qualifying for a mortgage as soon as possible.

Thank you so much for your time.

[Anonymous]

You can't really build "healthy credit quickly"; most of it is just being responsible with debt while playing the waiting game, which can take a while. That said, you're on the right track, at least.

As for your question, yes to the first part, no to the second. Utilization only counts the balances reported by lenders, which usually happens when your lenders close your statements for the month. You can max out every card you have monthly, and it won't ding your score as long as you pay off most of it before your lenders report.

[Anonymous]

Nice reply by JTG.  To add to what he said, you'll also want to keep the amounts that do report at < 8.99% -- not the more commonly believed number of < 30%.

To be fully accurate, you want your total utilization (all cards considered together) to be at < 8.99%, and each card considered by itself to be at < 28.99%. 

[SouthJamaica]

---

@Anonymous wrote:

Sitting around the mid 500s at the moment with four minor medical collections from before 2013 and about 7.7k in student loans. I've owned a new 2017 for about 8 months (all payements on time). By the end of next week, I'm planning on taking care of those collections and setting up a payement plan for the school loans. I'm currently in search of a small loan (6 months) for a new mattress, about $700. I'll also probably open up two secured credit cards, Capital one and Discover ($500 ea), however, I don't fully understand all of the ins and outs of building a healthy credit quickly. If I need to stay between 0-30% credit utilization, does that mean I can purchase new headlights ($450) for my car and pay $420 of it off the next day to keep that sweet spot or does that mean I should only charge up to $150 per month on each card?

All of this is extremely new to me, as I welcome any knowledge tossed my way! Of course everything will be paid on time. I've got my eyes on qualifying for a mortgage as soon as possible.

Thank you so much for your time.

---

1. Even after you've taken care of the medical collections, then you should take care of trying to get them off of your credit report. You might want to ask the collection agency if they will agree to remove it from your credit report when you pay.  If they won't just pay them off and then start sending verification letters to the bureaus.

2. You should NOT borrow to buy a mattress for a number of reasons, among them: (a) It's not worth it; it's better for you to save up the money. (b) That type of loan goes in as a "consumer finance" loan which looks bad in your FICO algorithm for some reason.

3. Don't mix up revolving utilization and installment utilization; they are 2 separate concepts.

4. On your revolving accounts, in almost all cases it's the statement balance that gets reported and factored in as FICO "utilization". So if you have a $1000 limit, spend $500 in a given month, and pay most of it off before the statement cuts, so that the statement balance is $100, you will be considered as having 10% utilization on that card, not 50%. You should try to maintain most of your revolving accounts at a zero reported balance, and have one or few reporting a balance of 28% or less, with an overall reported balance of less than 9%.

5. Installment utilization is figured separately. It's based on your current balances and your original loan amounts, and is based only on open loans, not paid off loans. It has a big effect on FICO 8 and FICO 9 scores, but its effect on other scoring models is less well known. You should try to keep this as low as possible, and the sweet spot is 9% or less.

6. It's all well and good to get secured credit cards, if you have no open credit cards, but just remember that each one is another new inquiry and another new account, each of which takes your score down further.

[HeavenOhio]

---

@SouthJamaica wrote:

---

5. Installment utilization is figured separately. It's based on your current limits balances and your original loan amounts, and is based only on open loans, not paid off loans.

 

[kshurika]

You should be most careful about your medical baddies. They seem to be five years old or older. In a state such as California, collections go "out of statute" after 4 years, but they can remain on your credit reports for 7. Check the statutes in your state to see what the limit is. Once you've gone beyond that statute, they can't sue you in small claims court, thereby giving you a huge upper hand when negotiating. But, contacting the collection agency to open negotiations is extremely dicey. If you do it the wrong way, you will start the seven-year clock all over again and it's almost a certainty that they'll file against you in small claims court and get a judgement. Do some deep research on this. Never use a telephone or email. Everything is by certified mail, return receipt requested. As your medical derogs draw closer and closer to 7 years, the collection agency will get more and more desperate to settle. Remember, they paid a few pennies on the dollar to get that debt. If you come to an agreement on the debt, make sure that they agree in writing to remove it from every CRA instantly upon receipt of payment.

Don't buy a mattress. Get the satisfaction of putting one over on a collection agency.

[SouthJamaica]

---

@HeavenOhio wrote:

---

@SouthJamaica wrote:

---

5. Installment utilization is figured separately. It's based on your current limits balances and your original loan amounts, and is based only on open loans, not paid off loans.

 

---

Thanks for the correction