Will this get me a quick credit boost?

6 Replies

Hello, In the next year I plan on buying my first property, however because I don’t have much credit history I will need to boost my credit score to get financing. The broker I am working with has told me to leave $5 on my credit card account rolling every month, and it will help me to boost my score more quickly because I will have more revolving credit. Is there any truth to this?

From what I understand capacity and longevity are two of the most prominent factors in regards to calculating ones credit score. Therefore, if your credit card limit is $1000, and the balance on your monthly statements is $5, I would agree this would help boost your score. Another idea that could benefit you is to see if your cardholder would increase your limit, thus increasing your capacity. I know a couple other things such as the types of credit you have and new credit opened also affect your score. Just a suggestion, but maybe it'd be worth looking into opening up another CC account.

For higher credit scores it needs 4 established credit lines for 7 years or more.

Low limits decrease the score, however, applying to increase it get you hard inquiry and equal to opening new card - minus 5 points,

Not all cards are the same - don't apply on store credit cards or unknown something. Always better to apply if you get preapproved offers, not just randomly on their sites.

If you don't have any FICO score yet - it helps to start from secured credit card or ask someone to add you as an authorized user to their credit card. (They don't have to give you the card, but they have to be in good standing, high limit, low balance and longer than 7 year).

In 4-6 months after that you'll get real offers from Discover, Citi, Bank if America etc.

Spending is important: all you spend in cash - do through your credit card, put that cadh in your checking account and pay off every month.

It's better to spend 10-20% of limit and pay off every month before due date but after you receive the statement.

$5 spending won't do you any good - computer is analyzing all these factors and less than 1% of the limit won't be considered as spending.

If you do this as business, in 7-8 month you'll have 720-740 FICO and 3-4 major credit cards.

Obviously, you never miss a payment, don't be late, treat the cards as the loan not cash.

@Derek Hutson I agree with Irina. The plan to put $5 on your card and let it roll won’t do much (and letting it roll and pay interest each month is stupid). You need to establish more credit. Installment loans always look best but if you don’t have a need for a car/car loan or don’t have student loans, no need to seek that out.

Since you have so much time, open up some new cards, use them like Irina said and pay them off each month. The bureaus don’t want to just see you have cards with no balance and high limits - they want to see you managing debt effectively and responsibly. That is going to bring you to higher credit scores.

I'm pretty sure what was suggested to you is not to just spend $ 5 and let it stay on the card, but to use the card and always pay down, but leave $ 5 on it. That makes you look better than if you pay down to $ 0. Use the card regularly and don't pay it down completely

Originally posted by @Michaela G. :

I'm pretty sure what was suggested to you is not to just spend $ 5 and let it stay on the card, but to use the card and always pay down, but leave $ 5 on it. That makes you look better than if you pay down to $ 0. Use the card regularly and don't pay it down completely

No, this is not what was suggested.

When the month closed, the balance shown in your credit report, will be the one at the closing, not was left unpaid.

If you don't pay even $5 from what you owe, there will be interest and some fees: $0.50-$2.50. It means, such tactic will cost you few bucks every month.

When you pay off every month what you spent, there will be balance, different each month and next month new balance but it won't cost you anything.

Since it's not that apparent, you have to pay you "last statement balance", not total amount you owe by the time of the payment due, which is 3-4 weeks after the statement date.

I had access to a reverse engineered FICO 'what if' simulator for a while, and ran as many credit reports through it as I could, while I had it. FICO's algorithms are a trade secret, but folks have done their best to reverse engineer. 

A few things I learned, from the above and otherwise...

- Paying the balance off in full each month doesn't help, doesn't hurt. But it saves you interest, as noted.

- The sweet spot for utilization percentage is 1% to 14.5% according to the folks that have reverse engineered it. So if you have a $100 credit card, buy your significant other a $1 to $14.50 thing each month, and pay it off in full when the bill comes. I frequently read online people say 30%, and the reverse engineered software confirms that 30% is better than 50% is better than 80%, but 1% to 14.5% is the sweet spot. 

- Authorized users. If someone with a 10 year old credit card with no late payments adds you as an "authorized user," you will inherit that 10 year credit history most of the time -- so you can in theory be 19 years old and have a FICO score otherwise only obtainable by a 28 year old. If you become an authorized user on two, pretty solid bet that at least one of them will hit. You can cut the CC up and throw it in the trash when it comes, actually using your uncle / cousin / mom / whatever's credit card isn't the point. 

- For the most part, taking out a car loan is overkill. Remember that for most loan scenarios, 740 FICO is the highest bracket. Getting a car loan to bump you from 750 FICO to 815 FICO will not help your interest rate, for most loan scenarios. 

The authorized user one is probably the most blatant hack. I wouldn't be surprised if it went away at some point, but it's there for now. 

While I had the simulator and compared it to results (for that minority of bruised credit folks that actually did what I told them to do, rather than in one case literally exactly opposite...), it was within 15 points or so pretty consistently. 

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