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chusk8z

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Looking for advice to help build good credit from scratch, as quickly as possible
I know there are countless posts of people looking for credit building advice, and tons of articles, all of which I have found very helpful, but I do not think it would hurt to try and get some advice on my particular situation, though it is nothing out of the ordinary.

I am 20 years old, no credit history. I have had a checking account with Capital one for almost 2 years now, and have been good with managing that account in general. I am a full time student at a private university, my parents and grandparents pay the tuition so I have no loans, I rent an apartment which my parents directly pay for, and I don't have a car, so no auto loan - and, I have no job, I rely on regular income from my parents and some random odd jobs that may appear in my life from time to time. I have no struggles with money, and no worries about loans etc for now. Yes, at the end of the day, I am a fortunate (aka relatively spoiled) college kid who is able to comfortably live off his parents. My parents have fairly good credit, are not in major debt, and have income on the higher side (~$200K/yr combined) due to pensions and current jobs, but by no means live any type of luxurious lifestyle due to big costs such as college tuition and apartment rental in a costly area.

I have recently applied for and been approved for a Capital One Secured Mastercard and will be receiving it in the mail within a few days from now. So far, I have a $200 limit on that. I would like to build the highest possible credit score in the shortest time possible (but not looking to cut corners or do something that could end up hurting my score). As of now, I have no score. I have familiarized myself with the factors affecting a credit score, and one of the most important factors I have recognized is having this account for at least 6 months. So my goal is to do the best things possible in those 6 months (and after obviously) to get the highest score when I am eligible to have a score. Just to note, I have no worries about paying my bills on time, I do not overspend and if I really needed my parents would help to make sure I don't go into debt/have bad credit by paying the bill directly if need be.

Of course, my plan's definite factors include on time payments, not exceeding ~30% of my limit, and utilizing the card to show activity (but never exceeding 30% of my limit). I also intend on making more than one monthly payment to assure I do not exceed my limit.

Things I have thought of that could help (or hurt?) my score, but am confused about:

1) Should I actually try to remain below 30% of my limit for an entire month, or can I reach that limit, say, 3 times in one month and make 3 payments to assure I am not over 30%? I spend far more than $60 per month (30% of 200) and I will either (a) continue using my debit card to fund the majority of my spending and not exceed $60/month on credit, or (b) continuously spend primarily on credit and make payments whenever the balance reaches 30%. Which one will build better credit?

2) Is it better to stay even lower than 30%? What is ideal, and what will build the highest score the fastest?

3) Should I increase my limit? For every dollar I deposit as security, I get a dollar added to my limit. Regardless, I will not exceed the ideal percentage of my limit. Does having a higher limit result in a higher score, or should I leave my current limit and follow my initial plan?

4) Should I try and open another credit account (likely one that is aimed at credit builders) and do the same thing with that card as this one? Will more than one account boost my score, or should I just keep this one for now? If it makes any difference, I could likely open an account that is not specifically for people with bad or no credit using a co-signer, either one of my parents, or possibly my girlfriend who has a good credit history and score (~760).

So, any advice at all would be helpful, with feedback on anything I mentioned, or any new ideas!

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OMG!!

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Awesome plan for building good credit!  I wish "I" knew this 15 years ago!  Nunya is a credit score BEAST MASTER!

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ButterflyWingz

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This is why I follow you Nunya.... I thumb up almso everything you say, and follow your comments weekly.

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I wish I knew then, what I know now...

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It’s great you are thinking about your credit this early on in your life.  People in their 20’s usually never think about their credit or how it will affect them later in life when they need it.  As a result, and as Im sure you have already found from other comments here on CK, most people have to correct or build their credit history later when it’s much harder.

First of all, the secured card is a great way to establish your history!  Be responsible as you say you want to be, and always make the minimum payments on time.  Your score will pump up in no time just from that.  However, just be aware that 1 single late payment will almost destroy your credit since you don’t yet have the diversity you need to keep your score up with a single hit like that.  Meaning you don’t have other positive factors to hold up the negative factors yet.  From the details in your questions, it sounds like you already understand this, and that’s a positive for you.

With that said, I will also try to give you a few short tips to help you increase that score before I attempt to answer the other direct questions.  To start with, you say your family is willing to help you.  This is a GREAT thing for you, because you can actually ‘piggy-back’ their good credit history to help establish yours.  What I mean by this is, if one of your relatives are willing to add you as an authorized user to one or two of their established credit cards, your credit report and score will reflect that.  As an authorized user of the cards, you get the benefits of the age of the card along with the good payment history directly reported on your credit…. almost instantly!  Just be sure that the card you are being placed as an authorized user on actually reports authorized users to the credit bureaus; they will have to have your SS# and birthdate to do this, so if they don’t ask for that when adding you, they likely will have no way of actually reporting to your credit report, and the attempt to use that card for your reports will fail to help your score.

As mentioned above, having diversity in your credit report is a good thing.  So after you have had credit for a short while, you may want to apply for a personal, auto, or other type of installment loan.  The loans don’t have to be much, and you will still want to make sure your payments are on time of course.  However, since you don’t have any income, you may find this to be a bit difficult to accomplish without a co-signer; hopefully your family will be willing to help in this area too.

Now to answer your questions as numbered above.

1)       This is a great question, also one of the first that I wanted an answer to as well.  So I have discovered that it really depends on the actual scoring model being used to calculate your score.  Meaning that some of the biggest scoring models used by most of the reputable creditors will only use the remaining balance actually listed on your statements at the end of the month to calculate your credit utilization (like the VantageScoring model used here on CK).  However some, less commonly used, scoring models will actually calculate the amount of your highest credit balance against your utilizations score.  Meaning that they will say you are at 90% of your utilization if you use $160 of your $200 credit limit on that secured card you got, even if you pay it off before your statement comes out.  I tend not to worry about these type of scoring models as they are very uncommon and rarely present an issue with most notable companies checking your credit.  But if you ARE worried about those type of scoring models, then yes, just pay down the amounts once you have reached your set balance amount before you use the card again and you will still maintain the utilization percent you are looking for.

2)      30% credit utilization is typically what most credit experts suggest as the number to never go over.  However, ‘I’ suggest keeping it even lower…. my target goal is actually just 10% of my credit limits.  This really comes into play when you apply for personal loans, because they want to know that your overall debt-to-income (DTI) percentage is low enough to afford to pay for whatever loan you are applying for AND your current debt obligations.

3)      This is another great question!  Also another I personally wanted the answer to as well.  So through my research, I discovered that again it depends on the scoring model being used.  As an example, the scoring model here on CK will not factor credit limits as part of your score, however the Experian scoring model DOES include a factor that uses your credit limits; typically giving a bonus for those accounts with over $2000 credit limits, and deducting points for accounts under $2000 credit limit.  However in either case the amount these models credit or deduct from your scores will be almost nominal (especially when your credit score is already over 700), and generally not worth worrying about.

4)      This is a great strategy for building a good credit report!  However, I suggest being patient with this part.  While you will see an immediate increase in your first couple of cards after you open too many accounts too fast, creditors (and scoring models) will actually see you as someone NEEDING money and begin to take points from your score instead of increasing it.  As a rule of thumb, I suggest starting out with 3 total accounts, and then just adding 1 more every year or so.  Also remember that inquiries will take points away, and since they take 2 years (approved or not) to fall off.  So try to keep your inquiries less than 3 or 4 at all times, and try not to apply for any other accounts until one of those has fallen off.

I hope this helps…… and good luck with your quest to good credit.

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