I’m currently 22 and am a senior in college (although I’m going for one more year and then possibly grad school). I would like the possibility of being able to buy a house in two to three years, and therefore am looking for ways to improve my credit. I opened a credit card ~9 months ago with a $3,000 limit. Currently the limit on it is $4,500, all payments have been on time, and the balance is my previous month’s purchases (around $100).
In reading, many people recommend having either one or two revolving credit lines, and one or two fixed credit lines, for a total of three lines of credit. My credit card is one revolving credit line. I’m curious if taking out say a four year auto loan and making payments on time would substantially improve my credit score three years from now. The loan amount would likely be $7,000 to $8,000, giving monthly payments of around or under $200, which I can realistically afford. I’ve been paying my own college tuition and rent since the second semester of my freshman year of college, so I somewhat have of a grasp of my expenses.
On a side-note, I’m under the impression that I would be stuck with the interest rate I initially receive. I could refinance, but wouldn’t that close out the line of credit and begin a new line of credit, potentially lowering my score?
The follow-up questions are, would it be in my best interest to open a second credit card for additional feedback on my credit history? Also, I currently have a good amount of student loans, all of which are in deferment until I graduate (if I attend grad school, they will remain in deferment through that period). Do these loans count towards my credit score as fixed lines of credit? Some are federally-funded, while others are through private institutions.
For what it’s worth, Credit Karma reported my credit score at 722 as of a week ago, and TransUnion reported it at 764.
Delores
Angela
With those credit scores, I wouldn’t worry about being able to get a home loan in a couple of years!
The FICO score looks at several different aspects of your use of credit
* 35% — punctuality of payment in the past (only includes payments later than 30 days past due)
* 30% — the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
* 15% — length of credit history
* 10% — types of credit used (installment, revolving, consumer finance)
* 10% — recent search for credit and/or amount of credit obtained recently
The car loan might improve your score by adding an installment loan to your credit mix, but you don’t need the help.
The student loans will report positively on your credit score, since they are “paid as agreed.” If they report at all.
If you want more information about how the credit score is calcualted get Philip Tyrone’s “Seven Steps to a 720″
Comment by Tad W — August 18, 2010 @ 3:14 pm