Quick question credit novice

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BeauDez
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Quick question credit novice

Postby BeauDez » Mon Aug 01, 2016 10:00 pm

Hi,

I had lived much of my adult life with the misguided idea that I was better off just sticking to debit cards and avoiding buying things on credit entirely. Saved up for vehicles, used debit card in place of credit cards, etc... Well, last year, I realized that was a mistake and having a positive credit rating was an important thing to have in this society.

I was very lucky to be able to get put on a family member's 10 year old Chase Sapphire card as an authorized user, which, with my otherwise empty credit file got me to 725 right out of the gate. I also applied for and got my own Chase Freedom card one year ago. Everything paid in full over the last year, except for the Chase Sapphire, which we had to puit some unexpected charges on, but has been steadily paid down. Almost have that one paid off.

My oldest account, of course, is the authorized user card. 10 years. 1 year on the Chase Freedom. AAoA 5.5 years. My credit score has been going up and was 776 as of August 1st. Today I applied for and got a Discover IT card and a Barklaycard Ring. I do most shopping through Amazon and will be using the Discover this quarter for Amazon Purchases, with the 5% rewards category. If they repeat Amazon in Q4, I will probably use it for Q4 as well, since the Discover IT offer includes doubling cash back earned during the first year once that year has ended.

I know I need to add cards over time, which, with the total increases in credit line, help my credit score in the long run. However, I know there is also a short term hit for adding new accounts that can take some time to balance out. The plan had been to add two cards a year moving forward.

I have a couple questions for this year, as well as welcoming any advice for the long term strategy.

The two new cards will cut my AAoA from 5.5 years to 2.75. How much of a hit should I expect from this and how long does it typically take, paying balances on time and in full on all accounts, before that hit is erased?

I also am very tempted by the Amazon Store Card. I'm an Amazon Prime Member, which means if I get the Store Card, I will be able to finance larger purchases interest free if payed off monthly with in the established time, which varies based on the amount of the purchase. It also gives 5% cash back all the time, which would be nice for the quarters when the DiscoverIT and Chase Freedom don't have bonus cash back on Amazon purchases. The question is, if I get that card as well during this window, will a third new card, which would lower the AAoA to 2.2 years make much of a difference in the total short term hit on my credit score? Also, does store credit have the same effect on my overall score as a Visa/MC/ etc...?

Lastly, moving forward, does adding 2-3 new cards a year actually make sense for increasing my rating over time? I've read conflicting reports on this kind of strategy and wonder what people's thoughts are.

Thanks.


takeshi
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Re: Quick question credit novice

Postby takeshi » Tue Aug 02, 2016 9:47 am

BeauDez wrote:The two new cards will cut my AAoA from 5.5 years to 2.75. How much of a hit should I expect from this and how long does it typically take, paying balances on time and in full on all accounts, before that hit is erased?

AAoA is pretty straightforward. Paying on time and in full isn't relevant to AAoA. AAoA is just total age of all accounts / number of accounts. The only way to build AAoA is over time. In your case, with an AAoA of 2.75 and 4 accounts you have 11 years and 4 accounts or 132 months (AAoA math is generally easier with months) and 4 accounts. That's an average of 33 months per account. In one month you'll have 136 months and 4 accounts or an average of 34 months per account.

Paying on time helps with Payment History. Paying in full and credit lines aren't really as important for scoring as is Revolving Utilization (balance[s] / limit[s]) which factors into Amount Owed.

The standard FICO factors and their typical weights are:
http://www.myfico.com/crediteducation/w ... score.aspx

It's not just about the impact to AAoA and the impact of the hard pulls with new accounts. Having new accounts on your reports can be a concern for creditors depending on the state of one's credit profile. Since you're really just starting off and have a thin profile the amount of new accounts that your profile will support will be very low. Sticking to the rate you mentioned is probably advisable until your profile thickens and ages.

BeauDez wrote:If they repeat Amazon in Q4

No if to it. The 2016 calendar is posted:
https://www.discover.com/credit-cards/c ... endar.html

BeauDez wrote:My credit score has been going up and was 776 as of August 1st.

You don't have just one score. There are many scoring models used by creditors in their decisions. For most models you have a score with each of the 3 major CRA's. For the FICO 8 model, for example, you'll have a score with TransUnion, a score with Experian and a score with Equifax. Make sure you're not overlooking the other 2 major CRA's. Also keep in mind that accounts where one is an AU may not be considered in all cases with all models and creditors.

BeauDez wrote:The question is, if I get that card as well during this window, will a third new card, which would lower the AAoA to 2.2 years make much of a difference in the total short term hit on my credit score? Also, does store credit have the same effect on my overall score as a Visa/MC/ etc...?

A revolving account is a revolving account. It doesn't matter if it's a VIsa, MasterCard, store card, line of credit, etc.

It's never just about the change itself but one's credit profile as well. As I said, your profile is new and thin. Adding a new account is going to have a bigger impact -- not just because of AAoA and the hard pull but from having new accounts as well -- for you than it would for someone with a thicker, established profile. While you might be limited to adding X accounts, another person could possibly add many more accounts without the seeing the same impact.

It's entirely possible that you could sign up for the Prime Store Card and not see any adverse impact. I really can't guarantee things one way or another. However, with what you've presented I'd recommend cooling your jets and letting your new accounts age. Building and rebuilding credit is a long, slow process and far too many look for quick and easy fixes and get too excited with approvals and start applying left and right for credit without putting much thought into the matter. You're off to a good start. Stick with it. Just work towards paying all statement balances in full and don't spend what you don't have.

BeauDez
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Re: Quick question credit novice

Postby BeauDez » Tue Aug 02, 2016 3:07 pm

Thank you.

I may go ahead and get the Amazon Prime Store Card. That will be it until next August/September, (like this year, I'll limit all new inquiries to a narrow time window to take advantage of the "within 14 day equals 1 inquiry"). I'll watch the way these three new accounts effect my score and how it recovers and use that experience to decide on what to apply for in twelve months. I don't feel a need to have a ton of cards. I know I'll be looking for a card with a zero interest period in late summer/early fall 2017, as the interest free period with the new Discover IT will end around then. (I've made responsible use of zero interest to make two purchases I wouldn't have otherwise, paying them completely off within 2-3 months, while keeping my utilization low).

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Vattené
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Re: Quick question credit novice

Postby Vattené » Tue Aug 02, 2016 3:14 pm

Having a good credit score is generally important, but if you can get by without needing it more power to you. A long-term goal of mine is to save and pay cash for a car. Most people, if they want to be homeowners, at least need good enough credit to finance a house (and at favorable terms preferably).

Regardless of the need for credit, using credit cards for rewards can provide a lot of value. Starting out as an AU on an old account gave you a great boost on AAoA, but the number by itself isn't too important. I had to build my credit with accounts in my name only: my total credit history is about 5 years and my AAoA has slowly climbed to just somewhere around 2 years 7 months, and I really don't need to worry about getting approved for credit when I apply. *edited to add: I had no trouble getting approved for a mortgage at a low rate 1.5 years ago - my AAoA wasn't very high but my credit profile was strong enough to get me in that tier.* Get cards you want and that will be useful to you, but don't worry about adding a few cards every year just for the purposes of building credit. As long as you manage the credit you have responsibly your overall credit will improve and stay strong over time.
-Vattené
FICO-8:
EX - 809 (11/16) | TU - 803 (11/16)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now

saba
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Re: Quick question credit novice

Postby saba » Sat Aug 06, 2016 12:54 pm

Apply for a card if the benefits outweigh an AAoA ding. AAoA is overrated a bit anyway.

BeauDez
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Re: Quick question credit novice

Postby BeauDez » Mon Aug 08, 2016 7:20 am

Well, I applied for and got DiscoverIT and Barklaycard Ring. Only the Barklay account is reporting as a new account. I assume the Discover will shortly after I receive and activate the card.

I've already received a -27 point hit on my credit scores, with the Hard Pulls and one new account reporting. It will be interesting to see how much more it drops when the Discover card reports, then how long it will take for my scores to recover. I decided to hold off on any more cards for now. I applied on the 1st. If I'm right that HPs within 14 days count as one inquiry, I might still apply for the Amazon Card by the 14th, but I'm really leaning towards just sticking with the two new accounts.

They don't make it stress free, do they? :) Applying for a third card this round may produce a bigger hit short term and getting AAoA back up will take longer, but, on the other hand, the sooner you add a card you plan to add at some point, the sooner it starts accumulating time towards AAoA.

I don't plan on having a ton of cards. I'm thinking 6 or 7 total by fall 2018, only adding more cards down the line if they offer something desirable I'm not getting elsewhere. I don't plan on applying for a mortgage or car loan anytime in the next two or three years, but do want to get my score as high as possible over the next few years.

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Vattené
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Re: Quick question credit novice

Postby Vattené » Mon Aug 08, 2016 11:44 am

BeauDez wrote:If I'm right that HPs within 14 days count as one inquiry, I might still apply for the Amazon Card by the 14th, but I'm really leaning towards just sticking with the two new accounts.

Each new credit card application will be a separate inquiry. That rule is for something like a car loan or a mortgage - it allows you to shop for rates with different lenders without punishing you. Say you're buying a car and you apply for a loan through a couple banks and through the manufacturer's financial subsidiary directly. This is one credit-seeking activity; you are just trying to find favorable terms for yourself. Even in these cases, every HP is going to show on your credit profile, but they will allegedly be bundled and counted as one inquiry for credit-scoring purposes.

Every credit card you apply for is a new credit-seeking activity. If it is with one lender, it is possible they won't report a second HP (I'm not certain on Amex's policy, but I've heard if you apply for two cards within some amount of time, they won't hit you with a second HP only if you are denied), but I'd count on getting a HP with every credit card application you submit.
-Vattené
FICO-8:
EX - 809 (11/16) | TU - 803 (11/16)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now

kdm31091
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Re: Quick question credit novice

Postby kdm31091 » Mon Aug 08, 2016 12:36 pm

The creditor doesn't decide if the inquiries will be combined as far as credit card apps. As far as Amex, or whoever, is concerned, the system does a new pull every time you apply for a card.

On the bureau level, if the pulls come from the same creditor, same department of that creditor (i.e. not personal/business cards mixed), on the same date, etc, the bureau may decide these pulls are duplicates, and thus merge them into one. This is highly variable even with creditors where it is thought to be "solid" because people mistakenly believe Amex, BOA, or whoever is "doing them a favor" and merging the inquiries. That's not the case -- it's purely an instance where one is relying on the bureaus deciding the inquiry is an unnecessary duplicate.

The wind up is, for credit cards, expect a distinct pull for every card and be happy if something does get combined. The "rate shopping" feature which combines inquiries for loans doesn't occur with seeking credit cards.

charged
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Re: Quick question credit novice

Postby charged » Mon Aug 15, 2016 11:20 pm

BeauDez wrote:Hi,

I had lived much of my adult life with the misguided idea that I was better off just sticking to debit cards and avoiding buying things on credit entirely. Saved up for vehicles, used debit card in place of credit cards, etc... Well, last year, I realized that was a mistake and having a positive credit rating was an important thing to have in this society.


I respect this. I think the attitude of not buying things until you have the money is a good one. You're right though, it's necessary and well worth it as long as you continue to have this attitude with your credit cards as you did with your debit cards. I don't know why anyone would use a debit card and deny themselves the rewards and better consumer protection that many credit card companies offer.

Pace yourself though. Applying for truck loads of cards at once could set off red flags to these companies and they'll do more hard inquiries on your report that bring it down a few points. You really only need one or two good cards to enjoy the benefits and perks and improve your credit.

BeauDez
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Re: Quick question credit novice

Postby BeauDez » Wed Aug 24, 2016 4:32 pm

Well, I now see why my credit score dropped about 30 pts. Average Age of Accounts dropped to the Poor category.

This brings me back to the conundrum on adding new cards. Over the next two years, I would like to add another 2-4 cards, then sit on those unless I have a really compelling reason to. Adding one or two more this month would, of course, lower my AAoA even further, but not enough to go into the Very Poor category. The 10 year authorized account would be diluted further, but my AAoA would go up steadily moving forward and another 1-2 cards over the next two years would have a smaller impact on the average moving forward.

Sigh

I do have a related question, how does a Personal Loan factor into everything? If I took out a Loan for, say, $5,000, does that get calculated into my Credit Utilization? My current total available credit is around 24K. The only balance is a ~$1200 balance on the card I'm an AU on. Would the loan make my Available Credit $29K, with $6200 utilization at the time the loan begin? Or, is it somehow calculated separately? Also, how would a closed loan effect your AAoA? Let's say I take out a 24 month loan and pay it off on time. I know it still shows up on the credit report for a number of years after being closed, but does it still effect AAoA once it's closed? If so, does it's influence continue to accumulate after the loan is closed, or is it capped at the term of the loan?

Sorry for the questions. I feel like I have a newbs grasp after reading various articles and posts, but those are some questions that aren't very clear to me.



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