What is this thread: This thread is meant to be a collection of information and discussion about credit. Your credit is one of your greatest assets; unless you plan to live the rest of your life paying cash for everything. There's a good chance you will need to leverage your credit rating to buy a car or a house at some point. How you handle your credit will determine if you qualify for a loan, what your interest rate will be, and ultimately how much you actually end up paying for that house or car.

I am not an expert, and this is not meant to be an "Ask me about..." thread.

Why is there this thread: There is a great deal of misinformation and misunderstanding about credit, how to establish it, how the scoring works, etc. I have seen people on 2p2 talk about building credit in nonsensical ways. I have talked to my friends who are deathly afraid to open a credit card because of how it will affect their credit score. Invariably, my friends don't actually know the value of their credit score when they say this.

Who am I: I'm just a guy on the internet. I don't work in finance, in fact I make cosmetics for a living. In the last year, I have taken on credit cards as one of my new hobbies, with the goal of reaping rewards in the form of cashback, frequent flier miles, hotel points, etc. Since April (2012) I've opened 12-15 new credit cards. I've monitored my credit score. My only qualifications are that I've read a lot about credit and how it works, and I've seen the impact leveraging my credit has had on my FICO score.

Where I am lacking: I was fortunate to have a credit history established for me when I was younger, and to have good credit by the time I got interested in credit card rewards. I have helped friends write "good will" letters to have late payments removed, but I have very little experience with removing negative tradelines from credit reports. If your credit is in shambles and you're looking to repair it, go to www.creditboards.com and spend several days reading.

What is your credit report: Your credit report is a listing of all open tradelines and associated accounts. It contains your name, address, employer, and SSN. It is usually broken down into sections which include Info about you, open tradelines, closed tradelines, active collections, settled collections, personal statement.

How to check your credit report: You are entitled, by law, to a free credit report from each of the major bureaus (TransUnion, Equifax, Experian) once a year. Go to https://www.annualcreditreport.com/cra/index.jsp and follow the prompts to do so. Do not give your credit card information to any site that says they will give you your credit report unless you know what you're buying. When you view each report print out a copy and/or save it to PDF for future reference. Also, some credit cards give you access to services that allow you to check or monitor your report whenever you'd like. One example is Citi's Identity Monitor http://identitymonitor.citi.com. Refer to this wiki page as well: http://en.wikipedia.org/wiki/Compari...eport_websites

What are you looking for: Accuracy mostly. You want to make sure that your name is spelled correctly and consistently across the three reports. You want to make sure you know about all of the accounts listed. If someone has stolen your SSN the accounts they open will show up here.

What can you do if something is wrong: All of the bureaus allow you to dispute information that shows up on your credit report. It is important to make sure that the information is accurate. Once an item disputed the bureau will check into it and adjust if necessary, and they are required to do this within a specific time frame. Some credit repair tactics tell you to dispute negative items on your report even if they are accurate in hope that the bureau will not be able to validate it in time and remove it from your report. But again, I know little about credit repair, so if this is your interest go to www.creditboards.com.

What is your credit score: Your credit score, commonly known as your FICO score, is a numerical representation of your creditworthiness. Looked at from another viewpoint, it is an assessment of how risky it is to extend you credit. The FICO score ranges from 300-850. There are several different interpretations of the zones, but roughly (imo) 750+ is Excellent, 700-750 is very good (and typically considered "excellent" for credit cards), 650-700 is OK, and lower than 650 is bad news. Of course, 500 is worse than 610, but you don't want to really be in the low 600s or worse.

Here are a few pictures I found on google:


What does your credit score affect: Your credit score affects whether or not you will be approved for new credit. Mortgages, auto loans, and credit cards are all directly affected. If you get approved with a mediocre credit score, your interest rate may be higher than someone else who has a higher score. Lenders do this to compensate for the risk they are taking by lending to you. Also, it is not uncommon for "non-lenders" to use your credit score/history. It is known that credit scores are used to determine rates for homeowners and automobile insurance. And in some states, credit checks are used in the hiring process.

How is the credit score calculated: Per the FICO website, the five main factors of your credit score are:
35% payment history, 30% amounts owed, 15% length of credit history, 10% new credit, 10% types of credit


How do you check your credit score:
www.creditkarma.com - gives an approximation of your score based on TransUnion data
www.creditsesame.com - gives an approximation of your score based on Experian data

Both sites are free to use, and require no credit card or payment plan. They rely on the mint.com business model where they suggest cards and accounts for you and if you open them they get referral commisions.

Both of these sites will give you an idea of your scores range, and will let you track data month to month. There is really no reason not to sign up with both. They will also allow you to see some other score type approximations like your VantageScore and your auto insurance risk score.

While these sites will give you an approximation, you can get your actual calculated score any time you apply for credit. Typically an approval/denial letter from a credit card company will include a note about your score and which bureau the pulled.

Credit Myths:

Checking your own credit score/report hurts your score: Checking your score/report yourself on the websites listed above shows up on your report as a "soft pull", meaning it only shows to you. Other lending institutions will not see these inquiries and they do not affect your score. When an institution checks your credit for a formal credit request (applying for a new car, applying for a car loan, etc.) they do a "hard pull" which does get recorded and will lower your score based on the 10% category "New Credit".

Carrying a balance helps your score: Carrying a balance will never make your credit score improve. In fact, carrying a balance can only hurt your score based on the 30% category of "Amounts owed" or "credit utilization". Carrying a balance and actually using the card may help your relationship with the lender (Chase, BOA, etc) as it can show them you are a profitable customer, but the effect is not typically worth what you pay in interest. Almost always, the best strategy is paying your bills in full every month.

If you pay your balance off in full every month your "utilization" will show as 0%: Credit utilization is a snapshot of your balances as any given time, not only when your statement closes. If you make a $4000 charge on a card that has a $5000 limit, even if you pay it off in full when your statement closes, your score may temporarily suffer due to high credit utilization if it is checked in the middle of the statement. This is the main reason why the myth of "you have to carry a small balance to show that you're using a card" is absolutely false.

It's a good idea to close accounts you don't use or use often: Unless the account has a negative association or charges you a fee to keep it open, it's usually not a good idea to close accounts. Closing an account will reduce your overall credit available, which will artificially increase your utilization (30% of your score). It will also affect the average age of your accounts (15%). If you close a new account your avg. age may increase, which is a good thing. But if you close an old account your avg. age my decrease, which is bad.

Opening a new credit card (or multiple cards) hurts your score: This is the one I hear the most often. Each new credit application will drop your score by a few points due to the hard inquiry (10% category - New Credit) and may decrease the average age of your accounts (15% category - Length of History). But it will also increase your total credit available, which will artificially decrease your utilization (30% category - Amounts Owed). Typically after applying for several new credit cards, my score dips 10-15 points, and then recovers over the next month or two.

Here is a snapshot of my credit score approximation from CreditKarma, with black lines drawn where I applied for multiple cards at once. Remember, over this period I've applied for ~12 new cards. Notice how the score drops initially, but always rebounds:


Paying off a debt in collections removes the negative item from your credit report: FALSE!! This is why it's so crucial to pay your bills on time, always. As I mention above, even a single late payment on an account that's been open for 5 years can be potentially damaging. If you have an account in active collections, always negotiate "pay for delete", meaning when you pay, they delete the item from your credit report. Otherwise it will show up on your report as settled, but still shows that it was in collections, so it is still damaging.

Credit Tips & Tricks:

First, treat your credit carefully. Understand what you're agreeing to whenever you take out a loan or get a new card. Your credit is one of your greatest assets. You need to guard it and make good decisions. A friend of mine is a responsible guy, always pays his debts, means well, etc., but when he tried to better himself by going to school, he didn't realize that student loans would become active once he stopped schooling. He missed a couple of payments and all of the sudden his credit is in shambles. He's since settled everything and did so pretty honorably imo, but his credit is still a wreck and will likely be that way for several years.

Amex backdate trick: I have heard that American Express reports any new account as opened on the date of your first open account date. So if you opened an Amex in 2002, and you open one today, it will show as 2 amex cards, both opened in 2002. I do not have experience with this as I only started this hobby in the past year, but if true, you could really boost your length credit history with this trick.

Young Authorized User: If you have good credit as a parent, you can start your children's credit history when they turn 16 by adding them as an authorized user on one of your accounts. You can give them the card for emergencies only, or not even give it to them at all. This will show up on their credit report as an Authorized account, but it still starts their history early. Beware that if you are irresponsible with this account it may affect their future credit as well.

This trick has been around for a while and has been partially negated by the rating agencies. Amex Centurion card holders (black card) would offer to add a stranger as an authorized user to their account for a fee. They would never give them the AU card of course, but having your credit report associated with such a prestigious account used to do wonders for your credit.

Business card spending: This is another one I haven't verified yet. Business accounts are not shown on your personal credit report, and they are tracked separately. So maxing out a business credit card (temporarily of course) will not have the same effect on your credit score as doing the same spending on a personal card.

What you should do right now:

1) Start monitoring your credit. Get all your reports and print them out, verify their accuracy, and submit claims to the bureaus if info is incorrect.
2) Sign up for creditkarma and creditsesame and start tracking your scores.
3) Read more on credit repair @ creditboards.com
4) Add to the discussion or ask questions in this thread.
5) Do not be afraid of your credit score and take an active role in finding out what will harm it and what won't.


If you are paying for everything on a debit card, why not open a simple cashback card like the Chase Freedom or Discover More and earn some cashback or rewards for your spending? Just remember to pay on time and in full!

Or if you'd like to start smaller, or maybe can't get approved for a rewards card, look into a store card or a secured credit card to start building your history. Typically if your credit history is blank you can still get approved for a rewards card if you have decent income. If your income is low and you have no history, you'll have to start with the non-rewards cards.

I would certainly be happy to help you choose what card best suits your needs or spending habits. Hopefully this has been a good primer and I look forward to the future discussion.

795 WHAT

JL,

Thanks for finally doing this, good stuff.

A supplementary recommendation *I promise this is not sarcasm*: if there are negative records on your credit report, challenge them even if they are accurate. If the credit agencies can't verify them, they will remove them anyway.

Would it help my girlfriends credit score if I add her to a rewards visa that I spend around 1k a month on?
Or would it really not matter?

My credit is excellent, while hers falls somewhere in the poor range

Thanks for the thread btw, really useful info

If I am occasionally a couple days late on paying off my credit card (but I always pay it off in full at the end of each billing period) is that going to affect my score negatively?

In Canada fwiw.

JL,

I currently have two credit cards, neither of which give any cash back or rewards. I would like to get a card that offers some sort of cash back. I have very good credit (creditkarma says 779 and creditsesame says 810), however I'm currently unemployed and thus have 0 income at the moment. Will this prevent me from being approved for a new card? If not, do you have any suggestions for cards that I should apply for?

Cool thread JL

Definitely a good start and looks like lots of good information out there. I'd love to help you answer any questions as I consider myself sort of an expert in the area and work in the field every day.

JL,

1. I don't have any credit cards and don't ever plan to get one. I also don't plan to take out any home or auto loans in the next 10-15 years. The only reason I would ever get a credit card is if it could be profitable. What kind of $ are we talking about in terms of cashback rewards and whatever? How much time do you spend reading about and applying for cards?

2. When you dispute something on your credit report, do you need to file a dispute with all 3 agencies, or can you just do 1 and it will get reported to the other agencies?

It wouldn't hurt it, that's for sure. But there's only so much an AU account can help. If she's in the "poor range" she likely has had accounts in collections in the past and it is going to take a lot of work (or time) to get her score improved.

That being said, you want to add her to your oldest card so that she can benefit from the length of credit history. If they're all relatively the same age and you have an AmEx, I would add her to that because the card issued to her will have a separate CC# from yours and you can register that one for Small Business Saturday too

ETA: just be careful, she is in the poor range because she probably screwed up in the past.

I really don't know how this stuff works in Canada. I would look into how to get a free copy of your report and see how the information is being displayed.

First of all, congrats, those are great scores. You are firmly in the zone where you should be leveraging your credit and having it work for you a bit with rewards cards.

Having 0 income is going to be a barrier, not necessarily preventing you from being approved, but potentially only getting you a very tiny credit limit.

Most credit apps ask you for your "household income" which is typically further defined. Most often it means "monies available to you to pay off debt incurred". You would not be the first to interpret this as "money you can borrow from x" where X is someone you live with that you're not married to. In fact, when I got my first credit card after college (I was living home) I misinterpreted and put my income + moms + dads in that box because I was used to "household income" in terms of the FAFSA and student loans. Needless to say, I got a really large credit limit.

There are a lot of great rewards cards out there, but to make a recommendation I need to know more about your preferences. Where you spend the most money, your banking relationships (having a checking account with a lender can open up extra rewards), whether you prefer points, miles, or cashback, and whether you would be willing to pay an annual fee for greater rewards.

If you're interested, give me an idea itt or shoot me a PM.

Thanks bud, I had no idea you were in this field. You'll have to catch me on AIM and elaborate. Feel free to add or correct any info

1. Honestly, it can be pretty profitable. I certainly didn't open 15 cards because I needed more credit...

In terms of points, where 100pt = $1, some of the best signup bonuses are for 50k points or $500. This is for signing up and spending $5000 in 3 months. Steep spending for most people but there are ways to up your spending without actually spending money and if you were going to spend $5k anyway thats essentially a 10% rebate. Other cards have similar opportunities.

In terms of miles, some of the signup bonuses if used right can be half a dozen domestic one ways.

And remember, these are bonuses, not the rewards on normal spending. Some examples are:

5% cashback on gas
5% cashback on office supply
5% on telecom, tv, internet, cell phone
2% on resturants
3% on airfare

etc.

I read 30min - 1hr every day through Google Reader with a bunch of my favorite blogs and that's pretty much it. It really is a hobby for me so I don't mind the reading. Most of the bloggers make money through CC referrals so you just need to wade through the post every other day pushing a certain card. www.flyertalk.com is good too but I don't spend much time there.

2. You need to file it with all 3 agencies if it is reported incorrectly on all 3. Sometimes you will find only 1 has misinformation. They don't work together and they certainly aren't working on your behalf. If you're trying to get an accurate statement deleted, I believe what I read was it's best to dispute with a single agency and when they delete it file a dispute with the others saying "see what TransUnion did? Do that". But again, that's not where the bulk of my reading has been.

Thanks

Long story short, she had some medical bills way back when that are finally paid off, and now we're working on getting her credit score up. She already has her own capital one card that she pays off immediately, plus I co signed a car loan for her. I figure as long as it can't hurt, why not add her as an authorized user to my account. She won't actuall be using the card

Really good stuff JL, thank you.

You gave me some good advice earlier this year that I appreciated. I made one small mistake prior to speaking with you, that you pointed out RE: cancelling existing card, that I wish I didn't do. But overall it hasn't affected me too much as I begin to establish credit. Dispelled a lot of myths people were feeding me.

Wow. Credit sesame.com is amazing

Going to save myself around $200/mo on auto loans, and $450/month on my mortgages if this is legit. Exciting times, thanks again JL

I'm not familiar with Canadian specific items but in terms of US credit-related issues the payment would have to be more than 30 days past the due date to be reported as late.

Well... here's the good news -

Most scoring models include closed cards when calculating "age of accounts" so you won't see a significant change immediately. So long as you have other accounts that are open on your bureau you shouldn't see a significant change in 7 years when the account falls off your report as well.

So if I have a couple cards that I've been using for a long time do you recommend bumping up the credit limit every couple years? I've always heard that's bad for your credit but it sounds like you're saying it's a good thing.

First off, great OP. The information really sets off discussion.

I just bought my credit report from Equifax (in Canada, you can get them for free once a year but only by mail and I can be impulsive). It seems the only late payments are those above 30 days (they are categorized as 30 days late, 60 days and 90 days+). I have only one in my credit history back in 09 or 10, for example, but I know for a fact I missed some payments by a few days or even a week or two since then. Some, the bank has removed for me but others slipped through for sure.

Second, my score in Canada is 703 (good). It seems the scale is the same and the credit agency is the same (Equifax or TransUnion). However, they also show the Canada Population spread and it goes like this:

4% Poor (300-559)
10 Fair (560-659)
15% Good (660-724)
14% V. good (725-759)
57% Excellent (760+)

Is it Canadians being badass since our housing market is going up up up or is it similar in the US? I was somewhat surprised to be this low in the quintiles (didn't expect to be great since I'm young, but still, only at 23% percentile sucks...).

Last point: I got a mortgage in June and an auto loan in March, and my score has definitely been going up. When I applied for the mortgage the banker told me I was high 600's (he also said it was not terrible but not very good). So, it's up. I haven't missed payments since then.

Anyway I've been curious for a long time and your OP made me plunge for the $23 credit report on Equifax, I'll try to get the TU one for free by mail some time when I'm not busy.

Also, I don't think taking on credit for the sake of building credit makes sense (unless you have 0 credit, obviously everyone should have a card or something for emergencies... you never know what could happen). Paying interest to up the score just a bit, at least in Canada, doesn't make sense. Maybe credit is harder in the US with the crisis from '08 however.

Another point: When in good financial standing, open a line of credit. Not a credit card, a line of credit. Those are lines, like credit cards, that are revolving. You can use them whenever to take on a loan but you don't have to. They have a set amount, and a set interest, available to you whenver.

The main advantage is the rate is MUCH Lower than CC (think 4-6% rather than 18+). If you sign up for one when in good financial standing, if you hit a rough spot, you can hit that rather than friends or CC's for money if you lose your job or hit a tough spot for wathever reason. It's much tougher to get that same line opened when you try to go and meet them AFTER losing your job than it is BEFORE. You do NOT have to use it if you don't need it. It basically is how businesses operate for their short-term credit needs.

JL,

Holy ****. Solid OP. best I've seen in years. gtpitch or JL, maybe you can answer this -

I have 11k in hospital debt. That was from 2008, and from what I've read on the sites you recommended, 7 years is all it will affect you for. I have one 300$ limit capital one card which I've been using for this year to build credit. Paid it off every month, checked my scores, and it's ~650. My question is - since I don't really plan on taking out any loans for the next few years (auto would be the only one I can think of) is my best course to continue to ignore the hospital debt, open a few more cards, and continue paying off my balances? seems like I definitely need to open a few more cards at least since my credit limit is so low. I definitely don't have the money to pay off the hospital debt and I have long stopped receiving letters.