I was bored one night at work and decided to get my credit score from FICO's website. This is what I got...

TransUnion - 671
Experian - 678
Equifax - 661

These scores are not all that great (they could be worse, though) All 3 credit reporting companies gave me these negative factors about my credit...

"The length of time your accounts have been established is relatively short" and
"There is a lack of recent bank/national revolving account info on your credit file"

The negative factors make sense. I'm 25 years old and NEVER had a credit card or charge card in my life and the only time I have ever applied for a loan is to buy my S2000. Everything else I just bought with cash, and if I needed to reserve a hotel room or rental car, I just used my debit card. I would like to buy a house within the next few years and to qualify for the best interest rate, I would like to improve my credit score. With that being said, I have been approved for a credit card through my Credit Union and I was thinking about accepting it and not using it. Will this work, or do I need to actually build a balance and pay it off month to month for this to be an effective way of improving my score?

Thanks in advance for any advice, I'm not credit savvy!

Jason

 

I heard carrying a little balance on a major credit card is good, but it hurts if you have department store credit cards.

 

Use it once every 6 months.... you have to show that you are responsible with credit to have a good credit score.

My aunt (mortgage person) sent me this article a while back by someone named Ed Diaz....

As you know, credit is all the rage right now and the most talked about financial topic. Who knew that a three digit credit scoring model based on high level mathematics, called algorithms, would become all the rage almost twenty years after it's creation? If you don't know what I am talking about, then you must either live in a commune in Antartica, or you are one of the very few humans left in the US who won't, doesn't and/or hasn't used credit. What I am talking about, of course, is the dreaded F.I.CO. scoring system. You know, the F.I.CO God that watches your every move & determines what you can and cannot do. The system was designed and invented by Bill Fair and Earl Isaac, hence the name Fair Isaac and Company score, in 1956 in San Rafael California, where the company's headquarters still stand. In 1956, however, Al Gore had not invented the internet yet so the scoring model was a very dormant and "before it's time" science. Enter the computer and internet revolution and bingo; automation takes over the lending world! The scoring model was viewed by the banking world as a cost cutting, and therefore, profit enhancing savior, since bank profits were declining due to competition and increased costs. The banks saw this F.I.CO scoring system as one way to get rid of their most costly expenditure, human underwriters. They integrated the scoring system into their automated systems and viola, a system that allows them to underwrite millions of people at a fraction of the cost, and at a much faster pace. This is called economies of scale. Much like what Henry Ford did with the assembly line in auto manufacturing.
Today, this scoring system dictates your every financial move and seems to follow you wherever you go, whether it's to rent an apartment, get auto insurance or purchase anything on credit. Bottom line, it's everywhere and will dictate what you can and cannot do and how much it will cost you. If you think you can get away from it and buy everything cash, good luck because for some things like renting a car, you must have a credit card and bingo, you will need to have credit to get credit. Having no credit is almost as bad as having bad credit. Furthermore, most people have no clue what their scores are, how the system works, who to go to in order to correct errors; which, by the way, over 70% of credit reports have errors and 29% of these errors will cause you, the consumer, to get declined when applying for credit. It is a disaster! It's similar to giving a 14 year old kid the keys to a car and expecting him/her not to crash it. You cannot manage what you are not taught. The science is very secretive and not taught. You sort of have to run into the information, and even then, you don't know how accurate the information is. The system is used by banks as a "tell all" of what you have done and who you are as a person (ie.Your character). In the event of any errors showing on your credit report, you are guilty until you prove yourself innocent and that is why identity theft is such a huge problem and epidemic in the U.S., robbing many people of their dignity and hard-earned money.

Now that I have scared you senseless and painted a doom and gloom picture, the good news is that you can educate yourself and learn to tame this wild beast. Here is some ammo for you. Your scores can range from 300 to 950 points. Although in my many years of research, I have never seen either end of the spectrum. Once you achieve a 720+ credit score for each of the three credit reporting agencies, which are Equifax, Experian and Trans Union, you are considered platinum! This doesn't mean you cannot get a loan or credit of any type if you have scores below 720, it just means that it will generally cost you more money the lower your scores are. Additionally, here is the breakdown of what makes up your credit scores: 35%= Your payment history, 30%= Amount of debt showing on your credit report, 15%= Your length of credit history, 10%= Type of credit. There is installment credit (ie. Auto and mortgage loans) and revolving credit (ie. Charge and credit cards), 10%= New credit. This category involves new accounts and inquiries. (Hint, when you apply for credit and authorize that institution to pull your credit report, this is called a credit inquiry and this type of inquiry that you authorize when applying, will cause your credit scores to go down an average of 5-22 points!). Makes no sense that we get penalized for just applying, but it's the way it is because the system doesn't want you to take on debt but you must in order to get a score, so it's really a catch 22!

So there you have it. Follow these guidelines and you will be just fine: 1. Have 2-4 bank credit cards. 2. Pay your bills on time. 3. Do not charge more than 30% of your credit limit. 4. Use your open credit cards at least once every six months. 5. Do not close out credit cards that you have had for over two years. 6. Check your credit at least once a year (this "self check" inquiry will NOT lower your scores). 7. Live below your means and forget about competing with the Jones'. It's a losing battle anyway you look at it! Ed diaz is a credit and mortgage industry expert and can be reached by email at pshift@comcast.net.

 

An open credit card with no debt or charges can actually lower your credit score. I'd use it to charge things that i already had the cash for. Put that cash aside and use it to pay the bill at the end of the month.

#7 above is the best piece of advice I ever got. I live well below my means. That doesn't however mean I'm afraid to spend money.

 

use it and pay it off, the people with the highest credit scores have had big debt in the past and paid it all off on time and in full.

 

Thanks for the tips, it looks like I will accept the card and be wise with it. I don't given in to temptation, so I'm not worried about digging myself into a hole. Once again, thanks!

 

use it occasionally and make steady payments....do not do a balance transfer and keep the same card (company)....if you get a better offer for a new card simply call your current creditor and negotiate a lower rate...also keep balance low in proportion to the limit.....another thing..if you plan on buying a house you will still qualify for the best rate...I do mortgages and I can get someone with a 620 the same rate as someone with a 750....unless your trying to do something like put no money down or go stated or even NINA (no income no asset).....i've even gotten someone with a 590 credit score approved (with assets and a low debt ratio)......hope this helps a little........Tim.