Starting from Zero and Winning

[Anonymous]

So I applied for a Southwest credit card a few months ago only to find out I don't have any credit.

Now I'm trying to build my credit as effectively as possible, and I'm hoping y'all could help me out with a road map.

I went to my credit union yesterday and got a shared secured credit card with a $2,000 limit. From what I've been reading on here I should keep my balance under 10% and just keep making payments on time. I'm hoping to get some clarification in this post.

(21st)-----------Billing Period------------(20th)----------7 days until late fee?----------(27th)----------now an 18 day grace period----------(Interest kicks in)

What should I do to build my credit as effectively as possible? (Starting fresh with zero credit)

$2,000 credit limit shared secured card at 3% APR.

A) Spend $500 a billing period and pay it down to below $200 (10%) before the closing date. Then Pay that off before the late fee on the 27th?

B) Spend $500 a billing period and pay it down to below $200 (10%) before the closing date. Pay the late fee and then pay that off before the end of the grace period?

C) Spend $200 (10%) or less a billing period and pay it off before the late fee.

D) Spend $200 (10%) or less a billing period, pay the late fee and then pay that off before the end of the grace period?

E) Lower my limit to $500 and spend $50 (10%) or less a billing period? (Does a higher limit help me out?)

Do one of the above and....

F) Get a shared secured loan at the minimum?

G) Get a shared secured loan for $1,000.

H) Get a shared secured loan for $1,000 after 3 months with the card.

I) Get a shared secured loan for $1,000 after 6 months with the card.

How do I most effecitively pay down a shared secured loan if it is advised to get one?

Do credit bureaus see how much I've spent in a billing period vs how much I owe on the closing date?

Does a higher shared secured credit limit help my FICO score more or allow me to get a higher limit credit card later on?

Do I need to keep up to a 10% balance for as long as possible to ensure that it's reported?

Thank you for the help!!

-Nate

[CreditDunce]

My advice is for the next 4 months, spend as much as you would normally spend each month.   There is no point in trying to spend more money than you would normally spend just for credit history.  If you get close to your limit, make an early payment.  But don't worry if your total spend for the month is more than your CL... as long as you can pay in full every month.

PIF the amount of the statement before the due date.   I like paying as soon as I get the statement, but you just have to pay by the due date.  Typically the due date is 20-25 days after statement cuts.   Be sure to pay the full amount due.   Note, you should never pay a late fee or interest by paying in full every month. 

After 6 months of good payment history, you will have a credit score.  Two months before then is the time to start worrying about how much the statement cuts for.  You want the statement to cut for between 1-9% of your credit limit.  Say $20-$180 with a $2000 CL.  Lower is probably better, but it is very important it does not cut with a zero balance.

With your new credit score, you should be able to get an unsecured credit card.  Be sure to do some research on which cards you would like and likely to be approved for.  I would try to be approved for 2-3 unsecured credit cards on the same day.   Maybe Discover, Kohls, Wally, etc.   I would avoid cards with annual fees.  If your secured card will graduate to unsecured, then I would wait until it graduates.  If the CU does not graduate, then I would close the secured credit card once you have 2-3 unsecured credit cards.  For Chase cards (e.g. Southwest), I think you will need at least 1 year of credit history for best chances.

The size of you limits does not matter for your credit score.  Well it is easier to keep your utilization lower with higher CL's.  But FICO does not really care what the limits are.  However, FICO does like at least 2-3 credit cards.  Three $1000 credit cards with one showing a 9% balance and the others showing $0 would be better than one $3000 CC with a balance of $90.  More than 3 cards does not generally hurt you, but it doesn't help either.

Shared secured installment loans are mostly smoke and mirrors.  You give them $500.  They turn around and give you the money right back and call it a loan.  Then each month you pay the loan back (e.g. $31 per month).  Each time you make a payment, they then release that of your money back (e.g. you might have access to $30 each month).  Some CU's may require you to pay off the full amount before you have access to the original $500.    A secured installment loan can help your score, however, it may take 6 months from the time you begin making payments before it will help your score.  Having installment and revolving (e.g. credit cards), helps more than having either one alone.  However, you don't need an installment loan if you are just looking to establish credit.

If you wish to get a shared secured installment loan, get it as soon as you can.  It takes time for it to help your score.  Get it for the minimum amount they will give it to your for.  The smaller the installment loan, the less interest you will have to pay.  I would try for a minimum of a 2 year term.  4+ year terms are better, but you may need to get a bigger secured installment loan to do so.    Be sure to ask the CU if they report to all 3 CRA's before doing the loan. 

With 2-3 credit cards and one year history you should be able to get the SouthWest credit card.  But be sure to research it.  I don't have any experience with the credit criteria for that card.