How to build a credit score

Ok, here is a thought. Someone tell me this is a bad idea.

I am 23 (almost 24). I have no credit. I had one utility in my name for about 8 months, otherwise I have never had a loan, credit card, or anything I ever owed a regular payment on other than rent. And I don't think that any of my property managers reported the rent payments.

So, lets say I get a credit card now, use it for 3 months, pay it off every month, etc. I now have a credit score. Now, I go get a bunch of credit cards. A Shell gas card, a grocery card, an ACME store card, because they all build different rewards for different things. Say I have 3 of those cards. Now, I pay all of those off with ANOTHER credit card, again building more rewards points. That card would be paid off with cash.

Now, aside from the obvious risks of a credit card (credit card debt horror stories) and forgetting to keep up with this personal Ponzi Scheme, is there a reason not to do this? Wouldn't it quickly build your credit?

Note that this is all hypothetical. And even if it would work, it honestly sounds like a little too much effort. I'm just asking out of curiosity.

I think you'd have a short term credit issue by opening a ton of cards at once, but over the course of a year or so you should be doing pretty well and have a good score.

mtn wrote: Ok, here is a thought. Someone tell me this is a bad idea. I am 23 (almost 24). I have no credit. I had one utility in my name for about 8 months, otherwise I have never had a loan, credit card, or anything I ever owed a regular payment on other than rent. And I don't think that any of my property managers reported the rent payments. So, lets say I get a credit card now, use it for 3 months, pay it off every month, etc. I now have a credit score. Now, I go get a bunch of credit cards. A Shell gas card, a grocery card, an ACME store card, because they all build different rewards for different things. Say I have 3 of those cards. Now, I pay all of those off with ANOTHER credit card, again building more rewards points. That card would be paid off with cash. Now, aside from the obvious risks of a credit card (credit card debt horror stories) and forgetting to keep up with this personal Ponzi Scheme, is there a reason not to do this? Wouldn't it quickly build your credit? Note that this is all hypothetical. And even if it would work, it honestly sounds like a little too much effort. I'm just asking out of curiosity.

It takes more than a few accounts over the course of a few months. As already mentioned, you need accounts that have been opened for a while and you need a variety of accounts. I imagine it would take a couple of years to build a really strong credit profile.

I don't want to be snarky, but I'm kind of shocked that at 24 years old you don't have any credit.

You have to start somewhere, and its a catch-22...you need credit to get credit. The other thing to perhaps consider is a repayment at someplace like Get-it-Now or Aarons. Go buy a lamp or a table or a microwave and set it up on a pay plan.

Also...you usually are not granted rewards points for cash advances. Get a Visa, a Mastercard and a Discover card...and maybe a fuel and a major store card...and work on getting the limits raised by having a history of spend/pay.

z31maniac wrote: I don't want to be snarky, but I'm kind of shocked that at 24 years old you don't have any credit.

Been on my to do list, but up to this point it hasn't hurt me at all. The only time that I've even noticed it was when I was going to get a credit card (to build credit) and was denied.

Paid cash for college. What I couldn't, dad picked up. Pay cash for everything now. Rent a room from a friend. Life is honestly just easier this way. I should probably go to the credit union and get a small loan.

mtn wrote: So, lets say I get a credit card now, use it for 3 months, pay it off every month, etc. I now have a credit score. Now, I go get a bunch of credit cards. A Shell gas card, a grocery card, an ACME store card, because they all build different rewards for different things. Say I have 3 of those cards. Now, I pay all of those off with ANOTHER credit card, again building more rewards points. That card would be paid off with cash.

Store cards aren't that good for your credit (at least according to Clark Howard). You're better off getting one regular card (if you can, otherwise you'll probably need to start with a secured card - talk to your local credit union), start using it within the parameters mentioned earlier (never use more than 1/3 of the credit limit, always pay on time etc). IIRC it'll take at least six month for you to have a credit score. Once you have a score and it's half decent, apply for a reward card - it'll be very hard for you to get a reward card on the first try, you pretty much have to take what you can get.

BTW, using a balance transfer to pay other cards off, then pay the aggregate balance off isn't such a hot idea. First, cards tend to charge for balance transfers and second, you don't earn any rewards doing so. Just pay the cards off normally.

Oh, and try to get a card soon - supposedly it's really easy when you're in college and it gets progressively harder afterwards.

BoxheadTim wrote:

mtn wrote: So, lets say I get a credit card now, use it for 3 months, pay it off every month, etc. I now have a credit score. Now, I go get a bunch of credit cards. A Shell gas card, a grocery card, an ACME store card, because they all build different rewards for different things. Say I have 3 of those cards. Now, I pay all of those off with ANOTHER credit card, again building more rewards points. That card would be paid off with cash.

Store cards aren't that good for your credit (at least according to Clark Howard). You're better off getting one regular card (if you can, otherwise you'll probably need to start with a secured card - talk to your local credit union), start using it within the parameters mentioned earlier (never use more than 1/3 of the credit limit, always pay on time etc). IIRC it'll take at least six month for you to have a credit score. Once you have a score and it's half decent, apply for a reward card - it'll be very hard for you to get a reward card on the first try, you pretty much have to take what you can get. BTW, using a balance transfer to pay other cards off, then pay the aggregate balance off isn't such a hot idea. First, cards tend to charge for balance transfers and second, you don't earn any rewards doing so. Just pay the cards off normally. Oh, and try to get a card soon - supposedly it's really easy when you're in college and it gets progressively harder afterwards.

Well, there you go--that is why it is a bad idea.

Too late on the college front, I already graduated. But I will head down to the local bank and see if I can't get one tomorrow.

mtn wrote:

z31maniac wrote: I don't want to be snarky, but I'm kind of shocked that at 24 years old you don't have any credit.

Been on my to do list, but up to this point it hasn't hurt me at all. The only time that I've even noticed it was when I was going to get a credit card (to build credit) and was denied. Paid cash for college. What I couldn't, dad picked up. Pay cash for everything now. Rent a room from a friend. Life is honestly just easier this way. I should probably go to the credit union and get a small loan.

Could you go rent a car for me?

mtn wrote: Paid cash for college. What I couldn't, dad picked up. Pay cash for everything now. Rent a room from a friend. Life is honestly just easier this way. I should probably go to the credit union and get a small loan.

Either that or see if they offer the "regular" type of secured card where you put some money into savings with them and they give you a card with a limit tied to the savings balance.

Just make sure that the secured card you get reports to the credit bureaus as a lot don't, and that it converts into a regular credit card within 12-18 months.

Another option is to get a car loan, but that doesn't always help that much. A lady I used to work with never had credit cards, only car loans and when she tried to apply for her first credit card in her late twenties she had massive problems getting one. IIRC she had to become an authorized user on one of her husband's cards for a while.

z31maniac wrote: I don't want to be snarky, but I'm kind of shocked that at 24 years old you don't have any credit.

Do bank issued Visa check cards count towards credit?

I am turning 29 this year and have never had anything besides my bank visa (draws from checking account).

I am jointly on a few utilities for about 2 years now.

I always avoided credit cards like a plague, but I am starting to think I need to do something so I dont get raped when I look to get a house.

What would you do? I want to get a house in a year or two.

I honestly don't know much about credit, aside from snippits I have read on this site. As I said, the lession I got was to avoid credit cards because they were nothing but a source of trouble, and with the bank visa, I never really had a need. ( to clarify if anyone has a question, my dad passed away when I was 12 and my mothers money management was crap with big credit card problems)

So I set up an account with Credit Karma and looked through some things. My score is just under 700, so obviously I have some work to do, but I learned a few things pretty quickly looking through the various aspects that build a score. For instance, my only getting a credit card again a few months ago has been really detrimental to my score, and if my last card hadn't been closed by the parent company back in 2009 I would probably be in much better standing. Not closing my Firestone and Target store cards would have been smart, too, even though I hated dealing with those card (having to pay in store with check or cash only is really stupid, it's not 1947 anymore)

Honestly, opening a few store cards and getting a couple more credit cards and a car loan looks like about the best path for me. And waiting. A lot of waiting.

Apexcarver wrote: Do bank issued Visa check cards count towards credit? I am turning 29 this year and have never had anything besides my bank visa (draws from checking account).

Debit card? Nope.

Apexcarver wrote: I always avoided credit cards like a plague, but I am starting to think I need to do something so I dont get raped when I look to get a house. What would you do? I want to get a house in a year or two. I honestly don't know much about credit, aside from snippits I have read on this site. As I said, the lession I got was to avoid credit cards because they were nothing but a source of trouble, and with the bank visa, I never really had a need.

With the tightened underwriting criteria you'll have to have decent credit to get approved for a mortgage - the times when "had a pulse in the last six months" was enough to qualify are over.

One to two years to build up enough decent credit to qualify might already be tight.

Go to a local credit union and talk to them, see if they're willing to either issue a regular credit card or at least a secured card. They should be more open to this than the large banks - those will basically tell you to take a hike.

Oh, and if the plan is to buy a house, you want credit but not too much of it, with the latter you'll make the underwriter nervous and you might have to close some cards if you have "too much" available credit. Don't think that's a problem in your case, though.

In reply to Apexcarver:

Debit cards do nothing for you. I've been carrying a debit card with the same credit union since 2006 and it's been a very useful card. It has done nothing for my credit score.

I honestly think I'm going to open a few store cards, get a few more credit cards, and make a single purchase on each once a month just to have a little utilization shown. 0% utilization isn't going to help you at all but a few percent apparently can.

Oh, and if you go for a house, don't make the mistake I did and have three banks all try to write a loan if you have no reported credit score or you don't like the answer. I would get into a credit union as they're much more likely to spend a little time talking to you about why your score is poor or the loan rate isn't what you expected.

BoxheadTim wrote: With the tightened underwriting criteria you'll have to have decent credit to get approved for a mortgage - the times when "had a pulse in the last six months" was enough to qualify are over. One to two years to build up enough decent credit to qualify might already be tight. Go to a local credit union and talk to them, see if they're willing to either issue a regular credit card or at least a secured card. They should be more open to this than the large banks - those will basically tell you to take a hike. Oh, and if the plan is to buy a house, you want credit but not too much of it, with the latter you'll make the underwriter nervous and you might have to close some cards if you have "too much" available credit. Don't think that's a problem in your case, though.

There is an FCU through my work, I will look into it and see about putting some recurring expenses on a card from them.

Can anyone suggest a good book for guiding a noob around credit? I am feeling woefully underinformed. (why dont they teach any of this in Highschool or in that personal finance class I took in college???)

z31maniac wrote:

mtn wrote:

z31maniac wrote: I don't want to be snarky, but I'm kind of shocked that at 24 years old you don't have any credit.

Been on my to do list, but up to this point it hasn't hurt me at all. The only time that I've even noticed it was when I was going to get a credit card (to build credit) and was denied. Paid cash for college. What I couldn't, dad picked up. Pay cash for everything now. Rent a room from a friend. Life is honestly just easier this way. I should probably go to the credit union and get a small loan.

Could you go rent a car for me?

Yes, actually I have done it a couple times. The hourly truck rental just required a Visa or Mastercard Debit card. The Enterprise overnight out of state required a Visa or Mastercard Debit card and $200ish cash deposit.

I'm not sure where the "you can't rent a car without a credit card" canard came from, because I've never had that problem using my Visa debit card, either.

pres589 wrote: I'm not sure where the "you can't rent a car without a credit card" canard came from, because I've never had that problem using my Visa debit card, either.

It's not required, but when you sign over the right for additional charges to be pulled right out, I'm not giving my checking account for that. CC are much easier to dispute charges with, etc. There are a whole host of things that make using your CC a much better idea than your check card.

Unfortunately like many things in this country, if people don't understand it they condemn and shun it. Credit is an incredibly powerful tool when used responsibly.

But then, I don't go the whole hog insanity of a Mr. Money Mustache or Dave Ramsey.

z31maniac wrote:

pres589 wrote: I'm not sure where the "you can't rent a car without a credit card" canard came from, because I've never had that problem using my Visa debit card, either.

Unfortunately like many things in this country, if people don't understand it they condemn and shun it. Credit is an incredibly powerful tool when used responsibly. But then, I don't go the whole hog insanity of a Mr. Money Mustache or Dave Ramsey.

I agree--at 18 I was a young[er] kid and all I knew was "don't get a credit card they be all evils!" and never got a credit card. That was bad advice for me. I would have used it responsibly and built credit. Now, 6 years later, I don't need one, but the credit it builds sure would be nice.

Maybe this is a dumb question, but what's the actual importance of your credit score? I've always just saved up and bought stuff. I just turned 36 and the only loan I've ever been tied to is one that I co-signed on for my wife's (then fiance)school bill, and we paid it off fast. I've paid cash for ever car I've ever owned. I bought my house on contract, and it's been paid off for a year or so. I did get a credit card when I was fairly young, but only because debit cards weren't available through my bank and I liked to order car parts. I also got an amazon card once because they offered me a really big discount on what I was buying, then immediately paid it off.

I guess what I'm saying is, I'm a 36y/o married man with several cars, a paid off house, and zero debt of my own. My wife has some student loan debt, and she's a year into a program that forgives the balance if you make minimum payments for 10 years. She was on target to pay it off in 10 years anyway, but when she found out about this program the payments dropped drastically and it will be paid off in the same amount of time. We're living well below our means. Should I be worrying about my credit score? and if so, why?

You make a lot of money and/or live in a very cheap area.

For instance, the house I bought 4 years ago was $99,000. Even at my current savings rate of $1000/month, it would take me 9 years to save up to buy it (then assuming it hadn't gone up in value by then). That entire 9 years I would have also been wasting money on rent.

I could go on, but you'll never agree. Some people don't like driving old crap cans, or like doing things like......"You'd know I'd like a new TV, I could pull $1500 out of savings, or I could take their 0% offer for 15 months, while paying it off and continuing to put my money in savings/401k/money market/etc." All the while you get keep your money and stay liquid.

But like I said, I've seen this discussion enough on this board to know that the extreme anti-debt people will never agree.

In other words, whatever, do as you wish, no skin off my back.

Wow dude, you sure do assume a lot! I don't give a E36 M3 what you do with your money, I was simply explaining my situation and asking if I should be worried about my credit score, and if there was a bigger importance to a credit score than I was aware of.

What exactly won't I ever agree with? Please, tell me more about how much I like driving E36 M3ty cars and having E36 M3ty stuff!

In reply to 16vCorey:

Honestly I doubt you would need to worry about it but if you did ever end up in a situation where you needed a loan you might get raped on interest. Basically if you got stuck in an emergency situation where you needed to borrow money for some big expense you were not expecting but that is probably unlikely.

Z31, he didn't save up the money to buy the house--he bought the house on contract.

16vCorey wrote: Wow dude, you sure do assume a lot! I don't give a E36 M3 what you do with your money, I was simply explaining my situation and asking if I should be worried about my credit score, and if there was a bigger importance to a credit score than I was aware of. What exactly won't I ever agree with? Please, tell me more about how much I like driving E36 M3ty cars and having E36 M3ty stuff!

Buying a house on contract is a lot riskier for you than buying a house with a mortgage. Don't need credit for a contract, you do need it for a mortgage.

What would have happened if the guy you were buying the house from did not own the house outright (HE had a mortgage on it), he stopped paying, and the bank forcloses? The bank does not care if you had a contract, they weren't getting it. You're out all that money that you thought you were using to build equity.

That is the only real thing that credit would have gotten you in your situation.

16vCorey wrote: Wow dude, you sure do assume a lot! I don't give a E36 M3 what you do with your money, I was simply explaining my situation and asking if I should be worried about my credit score, and if there was a bigger importance to a credit score than I was aware of. What exactly won't I ever agree with? Please, tell me more about how much I like driving E36 M3ty cars and having E36 M3ty stuff!

The money/Cheap COL was based on having a home paid off in your mid-30s (congrats BTW). Apologize for the offense on the E36 M3ty stuff. I kind of misread your post with the "I save up for everything," that's not always possible, or why not use cheap money? For instance, my wife bought her new Mazda 3 a few years at 0% only costing her a few hundred dollars a month, keeping all her money in savings, and still able to amply contribute to everything else.

The house was an extreme example, but in this case, why would it make sense to save up $18k vs just buying the car with "free" money?

mtn: All "buying on contract" means is he didn't get a loan from a licensed lending institution. It's essentially "rent-to-own" while the "buyer" maintains all responsibility for maintaining the property, and I'm going to assume much less legal protection if an issue with a payment arises. And including the scenarios you pointed out, "that is all credit would have gotten you," well I'll take the mortgage route.

z31maniac wrote: mtn: All "buying on contract" means is he didn't get a loan from a licensed lending institution. It's essentially "rent-to-own" while the "buyer" maintains all responsibility for maintaining the property, and I'm going to assume much less legal protection if an issue with a payment arises. And including the scenarios you pointed out, "that is all credit would have gotten you," well I'll take the mortgage route.

I agree, the "That is all credit would have gotten you" sounds like it is not a lot; that was not intentional... It was just pointing out that in his situation it would be 1 item of security. A huge security, but for him it worked out.

And we don't know the situation. Maybe he was buying it on contract from his parents, and he is their only child--there is really not much risk there.