Spending money to build credit?

[RLA 323]

What is says on the tin:  How important is it really to quickly build a good credit score?  I think I understand the general importance of credit scores in Amerika, but I'm wondering how relevant they are for my situation, whether I should spend money to boost my score.  

 

Background:  My wife and I are about to buy a car.  Would it make sense for us to take out an auto loan just to help me build a credit history?  Would it really be worth spending $$$ in interest plus fees just to give my credit score a little boost?  How much of a boost could I expect anyway?  Are there tools online that can give you an estimate?  

 

The thing is, I already have a credit card through American Express Global Card Transfer.  I don't plan on taking out loans within the next couple of years, except maybe for credit-building purposes.  What else would I need a good credit score for?  What might I be missing?  

[.yana 597]

Better credit score = lower interest, lower APR. Good for mortgages, HELOCs, general loans, bank accounts, credit card accounts, background checks for employment etc. 

[JE57 239]

Credit Scores in the USA are can be very important..  Besides interest rates on Loans there is also the ability to rent living places, cost adjustments on insurance coverage, possible implications on employability etc....  That said,  wasting money on interest on a car loan you don't need makes little sense.  Would suggest you apply for a couple of credit cards that offer airline miles or cash back for awards and then use those to pay for things and then pay off the balance in full each month, you build credit and rewards at the same time for only the cost of the annual fees.  

[RLA 323]

@.yana, @JE57, thanks for the input.  I've used it to do some further research and come to the conclusion that it would not make sense for me to take out a car loan. 

 

I've found a number of credit score estimators and simulators online that let you play around with various what-if scenarios and see how that would affect your score.  It seems that taking out and paying back a car loan would raise my score by something like 5 points within a year.  Not sure that'd be worth spending $$$ on.  

 

Employment:  Yes, some employers ask for your credit report, but they only get a redacted version of your credit file that doesn't include your score.  And anyway, employers aren't interested in your score per se.  They're looking for defaults, high balances, frequent late payments, and other behavior that could be seen as irresponsible.  Opening additional credit lines won't help your employment chances.  

 

Renting: Yes, many landlords ask for your credit score.  However, according to RentCafé, a score of 650 should be enough to get you into almost any apartment (94% approval rate), except may in some very sought-after areas such as San Francisco or Boston.  If the online credit score estimators are correct, one well-managed credit card account should get you to >700.  No need to open additional credit lines. 

 

Credit cards & similar:  A good score will get you access to nicer cards with higher limits and better perks.  Nice to have, but not really necessary and probably not worth opening additional credit lines for.

 

Loans, mortgages & similar:  I'm more of a saver, meaning I don't like to spend my money before I've earned it.  So I typically don't care about interest rates.  However, if my wife and I were to buy a house in a few years, we would need to borrow some money, so a better credit score would probably save us some money down the road.  Still I'd buy the house together with my wife who has an excellent score.  Not sure how much of a difference my score would really make. 

 

So, I think the best approach for me right now is to be patient, to pay all my bills on time and to manage the one card I have as well as I can, then later add a second and maybe even a third card.  If I come across a 0% financing offer I'll happily take it, but I'm not going to spend money on loans I don't need. 

[Ash.1101 1,756]

Depending on the loan it'll actually drop your credit score because you will be adding in a loan where 90% of the debt is still owed. My husbands credit score was 720 when we bought our first car, dropped to about 660 after the loan went through the credit, and then dropped to about 630 on our second car.

With that said, my husband received his first credit card through our bank. He was added to my bank account as a joint holder in Dec 2015, and then in Oct 2016 he applied for his first credit card and was approved based on the bank account history. From Oct 2016 to August 2017 he had built his credit score from no credit to 720.

I'd say if you don't really need another car, a joint car loan would be more beneficial to your future ROC than just for the purpose of credit building.

Edited December 9, 2018 by Ash.1101

[RLA 323]

19 hours ago, Ash.1101 said:

I'd say if you don't really need another car, a joint car loan would be more beneficial to your future ROC than just for the purpose of credit building.

Good point, although I think a joint car title should work just as well?

[Crazy Cat 41,975]

I have found that my wife establishing a good credit score was very helpful when we purchased our new home a few months ago. The lender wanted both our scores.  I also found a great way to establish her credit score:

1.  I added her to an existing credit card (one which reports purchases for each of us to credit agencies) immediately after she arrived in mid 2017.

2.  We started using it for every-day items, then we paid the balance in full at the end of every billing cycle.

 

In about 3 months, she had established an excellent credit score.  And it will be one of the pieces of evidence for her ROC in a few months.

[Ash.1101 1,756]

3 hours ago, RLA said:

Good point, although I think a joint car title should work just as well?

 

Yep that would work just as well!

[RLA 323]

3 hours ago, missileman said:

1.  I added her to an existing credit card (one which reports purchases for each of us to credit agencies) immediately after she arrived in mid 2017.

2.  We started using it for every-day items, then we paid the balance in full at the end of every billing cycle.

 

In about 3 months, she had established an excellent credit score.  And it will be one of the pieces of evidence for her ROC in a few months.

Thanks for that testimonial, which shows that one well-maintained credit card account is enough to build a sufficient score.  I'd been a bit worried that one card wouldn't be enough because the "Building Credit" article recommends to "diversify", i.e., to take out secured loans or car loans even if you don't need them. 

[aznhouston 132]

You are from Germany where credit card or any sort of debt is despised, it's totally different here in the US.

Cards won't be enough. But for starting out, you'll need one. Later on, you need some installment loan like car loan or personal loan that requires you to pay monthly. The way they calculate the score is to monitor your ability to manage credit/money. The more diversified, the better. Keep applying for more cards to boost it. It took me 4 years to get to 720.

 

 

[ms_bobdog 501]

One thing I have learnt recently is that if you are added as an authorised user to one of your spouse's credit card, the entire credit history of that card automatically appears on your credit history. With Amex Global Transfer I was able to start out at a pretty decent credit score after a couple of months of using my card in the US and paying it off but after I was added as authorised user on my husband's Discover card, my credit score went up by 50 points in a week or so.

[Nitas_man 3,100]

On 1/3/2019 at 6:06 PM, ms_bobdog said:

One thing I have learnt recently is that if you are added as an authorised user to one of your spouse's credit card, the entire credit history of that card automatically appears on your credit history. With Amex Global Transfer I was able to start out at a pretty decent credit score after a couple of months of using my card in the US and paying it off but after I was added as authorised user on my husband's Discover card, my credit score went up by 50 points in a week or so.

That was our experience.

[D.Ba 85]

On 12/12/2018 at 9:57 AM, hoangthaihuy said:

You are from Germany where credit card or any sort of debt is despised, it's totally different here in the US.

Cards won't be enough. But for starting out, you'll need one. Later on, you need some installment loan like car loan or personal loan that requires you to pay monthly. The way they calculate the score is to monitor your ability to manage credit/money. The more diversified, the better. Keep applying for more cards to boost it. It took me 4 years to get to 720.

 

 

I think there is a good reason to despise credit card debt! I for one despise it, but of course I am German, so I completely fit the stereotype!

 

When I arrived and opened my bank account, I naturally had NO credit score, and then after a while a very dismal one. Which I found annoying, since I have never had a penny of debt in my life... I immediately bought a car and paid in full, although I realized it would "build my credit score" if I bought it in installments. Crazy, right? I am a better debtor borrowing money that I am if I have enough funds to pay in full. Us Germans don't get that, haha.

 

Anyway, I staid with my ONE credit card, which I also use very little (don't like to be fully traceable), always paid it off monthly, naturally, and after a while my score jumped from one month to the next, probably because I suddenly had some kind of history. So, my five euro-cents: no loans, no multiple credit cards, unless, I guess, you are really looking for a mortgage soon.