A few months ago, I logged into CreditKarma to see that my credit score with TransUnion and Experian had surpassed 800! I’m not the best at seeing the long-term and so when I started working post-college in early 2010 with a non-existent credit score, I was convinced that would be the case forever! By the end of 2011, when I started condo/mortgage hunting, I had managed to get my credit score to the low 700s, which although didn’t result in the best mortgage rates, was pretty reasonable. I was definitely impatient at times in this process, but now that I have achieved the ideal credit score, I plan to no longer worry about my credit.
What principles did I follow to successfully build my credit?
- In the early days, I kept my credit utilization to at most 30% of the limit. Now, I don’t worry about this because I have a ton of unused credit and much higher limits.
- I would go 6-12 months between applying for new credit.
- I made every single payment on time.
- I applied for new credit and increased my credit limits as deemed useful early in the process.
- I constantly tried to remind myself that patience is a useful virtue.
I tried unsuccessfully to apply for the Chase Amazon.com Visa once or twice before I smartened up and instead hunted around for a credit union that would give me a secured credit card with no annual fee. The first few places I found (cough a big bank cough) wanted to charge me $39/year for me to let them hold $500 of my money to give me a credit card! This process all boggled my mind though – why would no one lend me unsecured money when I was making $100,000 a year?
By the end of the summer, I had a $500 secured credit card from a credit union, which really just meant that $500 of my savings account with them was my credit card limit. I set my internet bill to auto-pay on the credit card each month and diligently paid the credit card off when I got the statement. Progress!
Near the end of 2010, I had finally saved up enough money to buy a car in cash*. So what did I do? My parents had always taught me that you should buy a car with credit and then save/invest the money instead. That was because they had good credit and could buy a car with a 0.9% interest rate. Me with very minimal credit ended up with a 4.99% interest rate. I wrote a check for the first $10,000 of the car, financed the remaining $10,000 and change at 4.99% for 12 months, and set up the automatic payment from my savings account, which resulted in a ~$900/month payment. Yes, I had a $900 car payment. My mom thought I was crazy. I hate debt and wasn’t willing to pay interest for any longer than necessary. I didn’t see it that way though – I saw it as the loan being offset by my savings account that were at the same credit union and so in my mind, I didn’t really have a car loan even though I did.
I also got a $1,000 normal credit card from the credit union that gave me the car loan. In 2015, I never use that credit card anymore, though I will not close it until some other useful credit card is my oldest one as this is the card giving my credit history a reasonable age.
After six months with the (ridiculous) secured credit card, I asked the credit union to convert it to a real credit card. They increased my limit to $1,000 and it became a normal credit card. The points were terrible, so I hardly used it after that point. I eventually put a recurring $25 donation on it, set up a $25 auto bill payment from my checking account to it, and ignored the credit card.
I finally got approved for the Chase Amazon.com Visa…with a whopping $400 limit! What exciting times! I tried unsuccessfully to increase my limit after six months.
I was really surprised at the end of 2011 when I started condo/mortgage hunting to discover that my credit score was around 700 and I qualified for a solid 3.5% interest rate. (My credit woes were probably lessened by my 20% cash down payment and solid cash reserves.) The mortgage lender, on the other hand, was super confused by my $900/month “car payment” that was over 10% of my gross income and that combined with the proposed condo monthly costs would take up a third of my gross income. That’s okay because the “car loan” got paid off as I was going through that process.
In mid-2012, I closed on my condo with a credit score in the low 700s still and a 3% interest rate.
I also opened up two store credit cards to get discounts at the till. I think I got $100 or $200 off at Home Depot for opening up one of their credit cards (and they even let me pay in cash for the purchase – never used the card and eventually closed it in late 2013) and about 20% off at a women’s clothing store for opening up one of theirs.
I promptly refinanced my condo’s mortgage at the end of 2012 once I’d paid it down to 25% and secured myself a 2.5% interest rate for the following five years.
I asked my primary credit union (the one that gave me the car loan) for their cashback credit card with a limit of $10,000. They said yes, basically on the spot. That card gives 1% back on everything and its points were automatically deposited into my membership accounts every month. Easy cash back, awesome.
The second step was to ask my other credit card company to increase my limit to $10,000 as well. I didn’t get the answer I wanted at first and I didn’t give up. I politely explained that 30% of that amount represents a very small amount of my monthly income and my monthly spending and asked if there was anything further they could do. I was transferred to someone with more authority who did give me a bit more of an increase from the initial offering. I’m happy with that. This card essentially gives 2% back on gas stations, drugstores, and restaurants.
By mid-2013, I was trying to optimize my credit card rewards a bit more. I ended up going with the Fidelity American Express and lo and behold, they gave me a $10,000 limit! That card was great and is definitely a keeper. It’s back to being my primary card again at last.
At the end of 2013, I did some small churning: I applied for the Chase Freedom for a $200 bonus and the Barclaycard Arrival for a $440 bonus. I still have both of those cards today, though I’m just as terrible at remembering about the quarterly categories as I had thought I would be.
On my three year anniversary with my Amazon.com Visa, Chase increased my limit by $1,000! That was a nice touch, especially considering that I was hardly using the card by this point. Oh, actually, that in hindsight seems to have coincided with when I applied for the Chase Sapphire Visa. (which I plan to do again next winter once my twenty four months are up!)
I went on a closing accounts spree in 2014, closing my first credit union card and all the accounts there, my Home Depot card, my Loft card, and my Chase Sapphire Preferred months ahead of its fee being charged simply because I didn’t use it.
Sometime mid-2015, my credit score surpassed 800! It’s now hovering around 795-805, which I’m perfectly fine with.
I’ve started some slow churning now with being able to charge my grad school costs to a credit card. I paid for my fall tuition with a credit card to get points and will probably continue to do that.
I’m going to downgrade/cancel the Barclaycard this year with the negative changes coming its way, especially with my reduced credit card spending. If I cancel it, that will result in just over a three year average age of credit cards at the end of this year, which isn’t too bad for having only five years and a bit of credit history.
In conclusion, time and patience will build your credit history. Good luck telling that to my 21 year old self!
*In hindsight, spending $20,000 of my $70,000 and change net worth on a brand-new car was a bit strange of a decision, but everything has worked out just fine and the then-$20,000 no longer seems like a luxury with my now-net worth.