Building Credit Score?

[directimports3]

I am in the process of currently trying to increase my credit score. I signed up a week ago and was successful taking off 2 items off of my credit report doing a PFD. My credit score is an average of 612. I currently have one credit card through Capital one which I know is not that great. I dont believe that they even report the limit to the bureaus.

My question is when my credit score increases should I try to apply for another credit card to increase my credit to debt ratio. Or should I try to secure a small auto loan, personal loan, or another route.

Currently I have vehicle that i paid cash, no house mortgage, and only one credit card with a 300 dollar limit. If anyone can point me in the right direction I would appreciate it. What is going to make my score jump in a positive direction.

Thanks

[Hal Jordan]

The biggest thing that will help you is debt to available credit ratio. Make sure you pay that card off each month, Keep your credit card debt under 20%. That will help your score more than anything else.

If you're credit score is a fico of 612 you should qualify for an orchard card... Probably a $300 or a $500 limit. I would take it and do the same. Make one very small purchase every month and pay it off each month.

You have to remember that this is not an overnight process. It took me close to six months to get my credit back up to a respectable level. I had over a 200 point increase (you can read the "my success so far" thread in the Success stories section.

Capital one does in fact report to all three credit bureaus. If you have had the account for more than 45 days you should be able to pull any of your credit reports and see it on there.

Lastly, it's hard to say if removing something may have a huge impact on your score. If you have a BK or a judgement against you or some charge offs or some 120 day lates those will hit you harder than anything. Especially the BK or judgement.

[Lian]

I am curious as to what type of CC you have with Cap1 where they are not reporting a credit limit? I would first concentrate on getting a CL reported so that FICO can give you a scoring of % util. Without that, you are probably being scored as one with no revolving credit, which will forever prevent you from a substantial increase in your score.

Getting a new card will, of course, increase your overall CL, but remember that FICO does not score CLs. It scores your % of balance against the CL.

An overall balance of $100 on a $500 CL card is the same as a $1000 balance on a $5000 CL card. So, even with low CLs, you can score high in % util.

The more compelling reason to get another CC is to improve your status from a thin to a thick credit file. You need plural revolving accounts to move out of the thin file category, and thus move up to a higher scoring category.

Getting installment rather than revolving credit will add to your mix of credit, but that has a lesser impact than adding to a single revolving account credit file. So I would go the CC route, and save the fine-tweaking of adding an installment loan for a later time when you really need it.

[armstrdm]

Lian (or anyone with experience), I'm new to this whole arena and wonder if you could clarify something for me... When you say overall balance, what balance is used to calc your score? Is it the balance at the moment your score is run, the high balance, month end balance etc? for example, I plan on using the Orchard card route to restore credit which has a low limit, say $100 for argument sake. If I use that to it's max each month, but then also pay it off in it's entirety each month, is that a bad idea? Or would I be better to charge like 20% of the limit and then pay that off? Thanks...

[Hal Jordan]

When we say balance we mean whatever your balance is in relation to your limit. SO if you have have $75 balance on a $100 credit card you will have a 75% debt utilization which is bad. You want it to be less than 20%.

The credit bureaus do not monitor your daily balances on your credit cards or installment loans. Typically most CC companies and lenders report balances to the credit bureaus once per month. Usually whatever you get on your statement as your balance is what get's reported so it's a bad idea to max out a credit card every month and then pay off the balance every month (the paying off each month part is a good idea). Your score can and does change every day though because of inquiries and adding or removing of new accounts (positive and negative). But typically balances will only update once per month.

If you're in the process of credit repair you need to seriously try and never go over 20% of your limit. You want to make sure that the balance of your cards is low when they report to the credit bureaus each month.

[armstrdm]

Thanks Hal! That makes sense....

[Lian]

Constantly keeping minimum % util is not, in my opinion, an area of great importance during the credit repair mode. It's specific percentage becomes important when you need your score for the application for new credit, but I would not make it a high priority concern until that time.

% util has no historical memory in FICO scoring. When a new balance is reported, the old % util is gone. So fine-tweaking % util to get the maximum FICO points each and every month is really unnecessary until such time as it is needed to milk all of your FICO points.

What is important is to keep your utilization at a level that permits you, when needed, to fine-tweak it down to under 10%, overall, and on each individual card. I would concentrate on the items of greater significance, such as correcting/deleting prior reporting, not being late, and making sure you have a proper mix of credit that will provide support for a high score in the future.

[Hal Jordan]

There are actually multiple reasons why I suggest keeping your credit balances under 20%. One of course is the direct impact to credit score. Keeping your balances pretty much the same shows you what kind of progress you are making in other ways. How much will my score go up after getting that PFD on a collection? Hmmm.. hard to tell because I just made a $150 purchase on my $300 limit card. However, if kept under 20% the person will know what kind of results they're getting...

TWO, keeping the balance down under 20% means practicing self control and learning to once again manage credit... KINDA THE WHOLE POINT.. So it helps the person build some good habbits that keep from ending right back in this mess again. Practice anything long enough and you'll get good at it.. This includes practicing credit management...

THREE. While re-building you have yourself in a position that it won't cripple your monthly budget if you do need to apply for credit and have to pay off that high balance to get your debt to credit ratio down so you can apply. This also keeps you from having to wait until the next credit cycle that your card reports on to show you've lowered your utilization... Need to apply for credit to get a dental proceedure done? Need credit to get your car repaired? If you keep your utilization low you won't have to worry about making it till next month after paying down your credit card so it shows on your Reports when you finally do apply for that credit to take care of that dental crown.

You feel it's unnecessary to worry about utilization until you're ready to apply for credit. I whole heartedly disagree. I believe focusing on utilization right out of the gate is one of the best things a person can do for themselves when they start credit repair.

Agree to disagree my friend.

Originally Posted by Lian

Constantly keeping minimum % util is not, in my opinion, an area of great importance during the credit repair mode. It's specific percentage becomes important when you need your score for the application for new credit, but I would not make it a high priority concern until that time.

% util has no historical memory in FICO scoring. When a new balance is reported, the old % util is gone. So fine-tweaking % util to get the maximum FICO points each and every month is really unnecessary until such time as it is needed to milk all of your FICO points.

What is important is to keep your utilization at a level that permits you, when needed, to fine-tweak it down to under 10%, overall, and on each individual card. I would concentrate on the items of greater significance, such as correcting/deleting prior reporting, not being late, and making sure you have a proper mix of credit that will provide support for a high score in the future.