Need help building credit

[bumstah]

Hi all. I don't think I've done the best job building my credit. I'm not a careless spender, but exactly the opposite. I've had a credit card since I was 18 and being 23 now, I don't think I even spent over $2000 in total on the credit card.

I checked my credit the other day and I was actually docked points for not having a long credit history. This was shocking to me because I thought as long as I continue paying off my car and use the credit card every now and then, my credit would be perfect. But I use my credit card so little I was actually docked a lot of points.

I believe part of the reason why I've been so anti-credit card is because I've been an avid D. Ramsey listener and I followed his 'no credit card' advice the last several years. I failed to see that the majority of Mr. Ramsey's audience are individuals who are mostly in debt and cannot control their spending. I do not fit that category, therefore I have begun to explore other options and listen to other financial advisers such as Ric Edelman (who is also great).

So my main question is: What is a healthy way to build credit by using credit cards? What is the ideal number of cards to carry? Should I have one for rewards, cash back, etc.? Is it okay to pay off my debt every month, or does the credit not build up that way? Also, some recommendations for credit cards would be helpful as well.

Much appreciated, thanks!

[jpg7n16]

So my main question is: What is a healthy way to build credit by using credit cards?

A healthy way to use CCs is to use only the amount of cards you benefit from. Get rewards you will actually use. Dont buy things you could not afford without the card. And pay them off every single month.

Why are you concerned about building credit?

What is the ideal number of cards to carry?

only the amount you need and will benefit from. There is no specific number.

Even FICo wise, there is no set number. Which is a better opportunity to lend to, person A with 4 cards and $12k total LOC? Or person B with only 2 cards and $50k total LOC?

My point is that you cannot tell. There are too many other factors involved.

Should I have one for rewards, cash back, etc.?

Yes. I believe having a couple no-fee CCs that rotate categories is a great way to save on purchases you would have made anyways.

Is it okay to pay off my debt every month, or does the credit not build up that way?

I won't go too far off on my rant, but this is one main reason why I dislike emphasizing credit scores. People start considering doing stupid things to raise their score.

It is detrimental to your net worth to pay interest you don't need to pay. So pay off your card frequently. At least monthly, if not more often.

Don't worry about how to boost your credit history, don't worry about your score. Worry about using credit responsibly and check your credit report for accuracy. Do that and the score will take care of itself over time.

https://www.annualcreditreport.com

[kv968]

So my main question is: What is a healthy way to build credit by using credit cards? What is the ideal number of cards to carry? Should I have one for rewards, cash back, etc.? Is it okay to pay off my debt every month, or does the credit not build up that way? Also, some recommendations for credit cards would be helpful as well.

Much appreciated, thanks!

The best way to build credit with CC's is to simply pay your bills on time. And the best way for you to do that is to pay off the entire amount when it's due so you don't incur interest. There is no need to carry a balance to help your score because it doesn't.

Another big thing to keep in mind is your credit utilization ratio (CUR). All that is is how much you put on your card in relationship to your total credit available. For example:
You have a $5000 limit and charge $1500 on it in a billing period. That's a 30% CUR which is as a rule of thumb the highest you should go.

As far as how many cards to have, like jpg said, you can't really tell. With the more cards you have, your total available credit would be higher so your overall CUR will be higher also. Just remember, everytime you apply for a card your score will take a temporary hit as the issuing company will most likely do a "hard pull" of your credit.

No one really knows EXACTLY what goes into calcuating a FICO score but if you just keep paying your bills on time and keep your CUR at a reasonable level, your score will improve.

[bumstah]

Thanks guys for the excellent info.

One question...Is it possible to pay my monthly car loan with a credit card, and pay off the credit card debt before the monthly due date? As of now, I've always just used my debit card to pay my monthly car loan. I never tried this before and thought it might be a good way to use the credit card.

[NetSkyBlue]

Just remember, everytime you apply for a card your score will take a temporary hit as the issuing company will most likely do a "hard pull"

How long does the "hit" typically last?

[kv968]

How long does the "hit" typically last?

I think I remember reading somewhere that it was something like 5 points for 6 months. The inquiry itself could remain on your report for much longer. I'm sure someone on here who monitors their credit better than I do would have a better answer.

One thing to remember though is that some hard pulls will be more or less counted as one. Such as if you're shopping around for a car loan or a mortgage. If you have a lot of those inquires within a limited time, it won't affect your score that much. Or so I understand it.

[jpg7n16]

Thanks guys for the excellent info.

One question...Is it possible to pay my monthly car loan with a credit card, and pay off the credit card debt before the monthly due date? As of now, I've always just used my debit card to pay my monthly car loan. I never tried this before and thought it might be a good way to use the credit card.

Varies by lender. Like I tried to do the same with my rent to get 1% cash back through my card. The apt allows you to pay with a CC, but has a convenience fee of like $14. Aka more than 1% back.

If they'll let you pay by CC, make sure there's no fee to do so. And yeah I'd do it! Get some free rewards for paying your car down.

Just make sure you follow through and pay the card off like youve planned.

[myrdale]

The most important thing you can do is build a long history of paying your bill on time.

There are several other items that come into play also.

1) Length of credit history. This is based off the age of you're oldest account. The age they are looking for is something like 15 years. You, like me, are a long way away from that BUT this only counts as a small portion of your overall score. What ever your oldest card is, I'd personally suggest keeping that one open unless you absolutely have no use for it anymore.

2) Types of credit. Having multiple types of accounts like a credit card, a small loan, a car loan, and a mortgage. That said, I am really not sure how much this is going to help. I'd purchased a $500 table one time and paid minimum payments for about a year trying to "build" my credit. While this works for showing I could pay my bills on time, once it was paid off, it moved further and further into the past.

3) Number of applications. If you put in for a bunch of applications all at once for new credit it will hurt you.

4)Amount used. The credit utilization mentioned earlier is a biggy. You do not want to max out your credit cards use the 20 to 30% MAX and pay them off each month.

5) History of paying on time. On the bright side if you were to miss a payment, these count less and less as time goes on.

6) No bankruptcies, collections, etc. These things stick around for a long time, like 7 years.

As far as the ideal number of cards? I'd say 1. What ever you're oldest card is keep it. Close out all other cards until you reach that 20 to 30% utilization threshold. Also you can contact that one card and ask to have your limit raised. Going from using $100 per month on a $500 limit to using $100 per month on a $1000 limit took you from 20% to 10% utilization over night.

I would pay the card off every month in full. I'd also make a point to use it every month. I recommend that more out of superstition on my part though.

I am sure someone can point you towards a card with awesome rewards, but that is something I have never concerned myself with. I use debt for everything except the one store credit card I use for a few odds and ends purchases each month.

You might want to talk to your local bank or credit union to see what programs they offer.

[kv968]

I am sure someone can point you towards a card with awesome rewards, but that is something I have never concerned myself with. I use debt for everything except the one store credit card I use for a few odds and ends purchases each month.

You might want to talk to your local bank or credit union to see what programs they offer.

I take it you meant DEBIT not DEBT? If you do use debt for everything it'd be to your advantage to use a rewards card.