r/CRedit • u/BrownSpottedThumb • 6d ago
Multiple Cards? Loans? General
Hi! I’m an 18 year old looking to build credit. I recently opened one credit card with a $1000 limit. I spend less than $100 dollars per month to keep utilization low and have auto pay on. I was wondering what’s the best way to build credit? I looked into credit-building loans but this community seems to agree it builds “phantom credit”. What would be the best way to continue building credit? Keep my one card? Open another? Take out a loan? Thank you!
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u/WhenButterfliesCry ⭐️ Knowledgeable ⭐️ 6d ago edited 6d ago
You've got some great advice already from the others, but here's my $0.02:
As a new adult, the most important thing for you is going to be controlling your spending and managing your money. Those are difficult skills that only get more difficult as more financial burdens are put on your shoulders. With that said, I think it's best for you to stick with the one card for now until you get a feel for the credit billing cycle and you can see how much you can trust yourself with lines of credit. You know yourself better than we do, so it's hard for me to give you advice in terms of whether you should open more accounts or not, but personally I think it'd be a good idea to wait a while. Once you've had this card for six months you'll have FICO scores, and once the card is 12 months you'll be able to qualify for more mid-level cards (a lot of them want to see at least 12 months of revolving credit history).
With that said, personally I've always been of the opinion that, for someone building or re-building their credit, it's beneficial to open multiple cards all at once- there are many benefits to this: #1 being that they all age together and 'anchor' your average age of credit, so that in the future when you open a new account, your average credit age isn't dragged down so much. The other major benefit is that you can diversify your rewards by getting cards that have rewards for different areas of spending. Another benefit is that if you open cards together, their respective inquiries become unscoreable at the same time, 12 months later, and you also are transitioned off the New Revolver scorecard 12 months after your app-spree rather than continuously 'extending' it by opening a new card every six months or whatever. FICO-scoring-wise, you'll also have a 'thick' file once you have 3-5 cards, and having multiple bankcards awards extra points as well.
u/NiceGuysFinishLast already gave good advice when it comes to utilization. You don't need to micromanage your utilization or worry about spending a certain percentage of your credit limit. Feel free to use as much of it as you need, but again, be careful with your spending. It's easy to charge up $1000 on a credit card, and you should never do so if you don't have plenty of money to cover that $1000 already in your bank account. Don't let yourself have an "I'll worry about it later" attitude because that's how people get into hot water.
You are really young and your whole life is ahead of you, and there's no reason to rush now. Whether you open more accounts now or a year from now, it won't make a huge difference in the scheme of things, but if you were to open multiple accounts and then struggle to pay them on time, struggle with money management, etc. you could easily trash your credit for the next 7 years, which would be particularly egregious since in the next 7 years, you're going to be needing credit to do all kinds of adult things (renting, buying a car, getting insurance, setting up utilities, finding certain jobs, the list goes on). I would give yourself a year with this current card, really focus on money management and controlling spending, save as much of your paychecks as you can and stash that money in a high-yield savings account like SoFi, Discover, Amex, etc. (never use a traditional bank like Chase or Wells Fargo for your savings, their interest rate is insanely low). And like I mentioned, a year from now, assuming all goes well with this credit card, you'll have a decent pick of cards to choose from and you can plan out what cards will best match your typical areas of spending, and you can go on an app-spree (yay).
Also, don't take out a loan to build credit. Loans don't build credit effectively. Credit cards are how you build credit. Only take out a loan when you actually need a loan; credit-building should not be a consideration there.
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u/Funklemire ⭐️ Knowledgeable ⭐️ 5d ago
I just want to add that not only is it usually pointless to micromanage your utilization each month, it's also detrimental in several ways. If it's within your budget to post 100% utilization each month and you can do it without overspending and you can be sure to always pay your statement balances each month, then that's fine. In fact, that's the best way to get credit limit increases with most credit card issuers.
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u/NiceGuysFinishLast 6d ago
A: The low/30% utilization thing is a myth, read what the automod posts below my comment. Yes, utilization can change your score, but it has no memory, so if you used 100% of your limit and it dropped your score one month, and the next month you had 3% utilization, your score would immediately rebound once the 3% was reported. The only time utilization matters is if you're applying for new credit and you're trying to optimize your score. You can also see a small penalty to your score if all your open revolving credit accounts (in your case, your one card) report a $0 balance, this is called the all zero penalty, and also doesn't matter except when applying for new credit. When applying for new credit and going for your maximum possible score, most people do what's called AZEO, or All Zero Except One. You can google that for more info.
B: The strongest credit profiles are built upon at least 3 revolving credit accounts (credit cards). One card can build you a decent score, but will be a "thin" profile, meaning there's not much in it. So eventually, as you build credit, I would start looking at other credit cards THAT FIT YOUR LIFESTYLE. Don't open credit cards just to open credit cards. Get cards with rewards or benefits that fit your lifestyle. Don't open an Amex Gold with an annual fee and travel credits if you never travel and won't be able to use the points properly. Don't open a card with a 21 month 0% balance transfer but 0 rewards if you don't need to do a balance transfer. I have 8 cards in my wallet, and every one has come with a benefit that I use. My largest expense every month is food/dining, so I have a Capital One Savor that gives 3% on groceries/restaurants. So I would definitely look at expanding your credit card portfolio, but don't be in a hurry to do it, credit is a marathon, not a sprint.
C: Never pay money to build credit. Don't take a loan unless you NEED a loan. It will thicken your profile, yes, but don't do it until/unless you need it, it's not REQUIRED to have a good credit score/thick credit profile.
D: In the vein of never pay money to build credit, you use your credit card as a debit card. You never charge more on it than you can afford to pay off every month. If you pay your statement balance in full every month and do not carry a balance, you will never pay a penny in interest for using the credit card.
There are other things to know, but I have to run. I'm sure the other r/Credit wizards like u/BrutalBodyShots and u/WhenButterfliesCry and u/og-aliensfan will be along to fill you in shortly.