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unaware22

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A few questions and need advice. Completely unaware.
So I'm extremely new to all of this. I've gotten advice from friends and family but I always end up on this site and figured this would be the best place to ask some questions, so here we go.

I'm 22 years old and currently live with my parents. My current score is 605 with Trans Union and 537 with Equifax. I've got a credit card that I opened up about 6 months ago. It started at 200 and just recently increased to 500. I had about 15000 in student loans that was consolidated earlier this year. My positive payment history shows 100% on both reports. I have two open collections on my account. One was opened in November of 2015 and the other in February of 2016. I have one open account regarding my credit history with an average age of 2 years 7 months. Lastly I've got 3 inquires on my Trans Union and 2 on my Equifax.

Here are the questions that I have:

1) In terms of my credit card. I always see that 30% utilization is best. Is this true?

2) How often should I be paying my credit card off and when? I've seen people say that once a month on the due date is best but I've also seen people say twice a month and making sure to pay off the card one week before the due date and not spend money until a day after the due date. A little advice on how to deal with this and what is best for raising my score is what I'm really wondering I guess.

3) What do I do about the open collections on my account? What is the best thing for my score and how do I go about it? Really clueless about this area overall. Help much appreciated.

4) How long do inquires last on a report? I'm seeing that I really should wait until trying to apply for something else until those numbers go down.

5) I'm going to need to buy a car in the near-ish future. What is the ideal score for a good interest rate and what do I need to accomplish before even thinking about going out to try?

I might have more questions as I have time to think about it but that's all that I can think about right now.

I really appreciate any and all help/advice you guys can give me.

Thanks

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 I will try to answer your questions and will also provide information which may not pertain to you at this point in time, but you may find helpful and interesting. I encourage you to copy and paste this information in an email to yourself for future reference.

The purpose of this website is to assist in educating yourself. I encourage you to read the articles on this site and others, and to read other questions and answers on this community section. I continue to read and learn about credit even at my age.

Let me start out by stating paying interest is wasted money. Always pay your credit cards in full each month, and only charge what you can comfortably pay off. The only exception to paying interest is a mortgage loan where interest can be deducted if you file long form on your taxes.  Try to avoid all other loans.

I started out with a $300 secured card, and over time have established an excellent credit rating with a total credit limit in the 6 figure range. 

Vehicle :  I suggest you save money to purchase a vehicle, and purchase a pre-owned or end of year close out. A new vehicle depreciates the moment you drive it off the lot.  Your interest rate will be enormous with your current credit rating. Never pay more than 2% or 3%.  

Credit cards: charge no more than 30% of your limit. At $500, charge no more than $150 before paying it off. Whether you pay more often than once a month; that's up to you.  I use my credit cards for almost all my monthly expenses for the rewards, and then pay them off in full when I get paid.  Even though I have high limits, I generally pay them in full mid month. This way in case I miscalculated my expenses, my credit balance will be extremely low and I won't have an issue paying it or them in full when due.

I encourage you to access your credit cards and banking online. You can set up account alerts, from payment due, limits charged, unusual activity, card not presented, etc. These alerts can be sent in a text message and/or email to you.  

One of my credit cards was compromised, and because I had set up alerts with the creditor, I was able to contact the lender within five minutes and received immediate reimbursement and a new card was issued. Most of my shopping is done online, so my card is not physically presented. I set up email alerts so I know whether I made the charge or my information was hacked.

Credit card limits are important. A higher limit means lower utilization. I had a large expense which caused 50% usage on one of my cards.I requested a credit limit increase, which was granted, and now my utilization is at 24%.  I will still pay the balance in full.

Inquiries: don't count so much as time goes on. Credit scoring is determined as follows: 

35%   payments

30%   credit utilization

15%  credit history

10%  new credit

10%  mix of accounts

One late payment can make your score drop 100 points! 

I'm not very familiar with collections, but google pay for delete agreements.

I hope you find this information helpful, and best wishes on your credit journey.

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I can't answer to all your questions, however what I did about collections was to first find out if they were legitimate.  Call the places that put you into collections, get information on your accounts, was there a balance owed?  Did their paperwork just not reflect a payment you made?  If it's legitimate, call the agency that is holding your collection.  Often a business will sell the account to a credit collector.  Work out a payment with them, or pay it all off if it's a small amount.  When it's cleared, have them report the debt has been collected and give them one month to report it cleared.  If they don't, put a note on your credit report and/or dispute the item.

Under 30% utilization is good, not exactly 30%.  

In my experience the better your credit score, the better the interest rate you'll get on a loan.  Clear the collections first, then look at it again. For me, I wouldn't look for an auto loan until my scores were over 700, but that's me.

Good luck.

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unaware22

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Thanks for your help! That was really helpful!

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When it comes to you needing to look for a car, go to the bank that you have your 1 credit card through and request a pre-approval.  They will calculate out exactly how much you are eligible for.  By using the same bank/credit union that you have an established trust with, you run a higher chance of getting a better rate.  To better improve this, if you dont already, open a checking and a savings account with the bank.  Save up between $1000 and $5000 into the savings account, this is something that the banks will consider when generating a interest rate for you.

On the collections accounts, contact the agencies that are holding the accounts.  If you dont know who it is, you can reach out to the originaly debt holder and get the name from them.  While it can suck, try to pay off the collections in full.  If the agency will wipe off the collection record from your report with an in full payment, do it.  This will remove the collections marks from your account and will drastically improve the rates you can get from a bank for a car. (Dont let the bank pull your report before these collections are removed.  Banks can look through previous credit pulls and the collections accounts will stay on the old pulls).

For the student loans, if you are still in school, you can have those put into a "In-School Deferrment" status. This will make the balance not actively pull against you when you apply for a loan.  If you are not in school, you have 2 real options to make the balance hurt less, go back to school, or request an "Administrative Defferment".  During this time the loans continue to accrue interest, but they do not hit on your loan rates as heavily.

Hope this helps a bit!

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RandomGuy_330

my current credit score is 585. 97% is the credit card utilization. 10 hard inquiries.

am planning to clear all the credit cards balance by mid of next year. hard inquiries by will be mid of next year too.

my payment history is 100% and nothing in collections. no bankruptcy too

how much score increase can i expect? i mean 585 to ? may be more than 700?

please help me understand. 

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You're Not Alone, My Friend...

Pat yourself on the back for confronting your finances head-on! I recently rebuilt my credit, so I know exactly what you're going through. Yes, the articles are a great resource and you should read them. Sometimes, you just want a few quick answers. I will try to answer your questions as someone who went from clueless to crushing it (my score went from 469-726 in 10 months.)

1. It depends on your personal situation. I've seen 30% tossed around a lot, but I think less is more. I know I am terrible with spending money, and I need the credit card to maintain a positive credit history. To play it safe, I keep my utilization at 10%. This number seems to work for me.

2. I pay my balance in full by the statement date every month. As long as you're paying it in full and on time, you should be fine.

3. NEVER PAY A COLLECTION UNTIL YOU HAVE LEGITIMATE PROOF IT BELONGS TO YOU. It is up to the creditor to prove that you owe them a debt. If I were you, I would send a DEBT VALIDATION LETTER via certified mail to the creditors that placed you in collection. You can Google a template if you are not comfortable writing your own. Per FCRA (Fair Credit Reporting Act- get to know this one), this document essentially gives the creditor 30 days to investigate and provide proof that you owe what they say you owe (i.e. a signed credit card application). If they cannot provide this proof, then they must remove the collection and any negative information associated with that collection from all three credit reporting bureaus. Conversely, if they prove you owe, then you are obligated to pay and must negotiate the debt accordingly.

Another note about collections... some creditors hire companies to pursue you for a debt, so they don't have to do it themselves. These agencies will often present the debt as if it was theirs, and engage collection action against you. Technically, if the original creditor ASSIGNED the debt to an agency for collection, then the debt still belongs to the original creditor. As such, you are under no obligation to pay the third-party attempting to collect from you. You can try to reach out to the original creditor and attempt to pull the debt back from collections, in order to deal directly with the original creditor. There is no guarantee they will do this for you, so don't put all your eggs in that basket. I was able to successfully remove collections this way. If the debt was actually SOLD to a collection agency, then you must deal with that particular agency.

4. & 5. The hard inquiries on your CK credit report overview should also show the scheduled date for when those inquiries should drop off. You really don't have much control over that timeline. You do have control over how many hard inquiries end up on your report. For example, if you apply for a credit card you will incur a hard inquiry. One exception is purchasing vehicles. If you are car-shopping, then you will also be rate-shopping (i.e. running your credit at each dealership to get the best deal.) If you complete these inquiries within a certain time frame (I want to say two weeks), then they will count as one hard inquiry for the purpose of purchasing a car. I am pretty sure it works the same way with mortgages. I would do more research on this for specifics and changes.

I hope this was able to help you. Please check out my earlier posts that chronicle the rebuild of my credit. There may be some useful information there as well. Feel free to reach out to me for any specifics regarding the debt validation letter or anything else in this post. Good luck!

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Use CreditKarma simulator to get an idea of the score increase if you cut utilization.  Try to get it down as much as you can. (it's 30% of your FICO score).

Subscribe to myFICO to get your true FICO score, that way you can see the different versions (auto, bankcard, mortgage etc...most commonly used is FICO 8)

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 Another option for the student loans, if they are through FedLoan and not a private lender, is to apply for a PAYE rate. For many recent grads, this amounts to having a 0-$50 payment instead of a $300+ dollar payment. My loans amount to around 27K, I make 47K salary, and my payments are currently ~100$. 

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