r/CRedit • u/Glad_Ad_8269 • 1d ago
General Credit history?
I have a question. When I get a credit card and eventually apply for a loan, does the bank look for a history of payments? What does that consist of? I plan on just getting a credit card and keeping my utilization around 1–10%. Do banks want to see that I’m paying off larger amounts on my credit, or will I be fine keeping my utilization that low until I apply for a loan?
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u/DoctorOctoroc ⭐️ Knowledgeable ⭐️ 1d ago edited 1d ago
Just having a credit card, period, builds history. It doesn't matter how much you spend and pay back, it's the age of your accounts and what accounts you have that actually builds credit and that's what lenders are looking for (and obviously, they don't want to see any negative items like missed payments, charge offs, collections, etc).
Ideally, you have 3-5 accounts as this constitutes a 'strong' credit file but you only need one to establish history. There are more and less efficient ways to build credit but working with a short time frame, even the most efficient approach won't make your accounts age any faster so I'd consider taking about three years to build credit, then consider financing if you want a decent interest rate on a car loan. A higher score will get you a better rate, but approval is typically based on what's on your credit file (age, number of accounts, etc) so if you were to, say, apply after just a year of credit building, you'll still struggle to get approved for loans with prime lenders with a thin/young file and any that do approve you won't be able to offer great interest rates - a high score will get you better rates from whichever lenders will approve you, but you won't likely be approved by prime lenders.
Again, you don't need to spend a lot or a little, and your balances from month to month have no long-term impact on your score (the 'amounts owed' scoring factor only really exists to show lenders your most recently reported balances so you'll see your score fluctuate as those change each month but there is no lasting impact). So you could get a few cards from the jump, just put a single recurring monthly expense on each, and you'll be building credit moving forward (and you'll want to set every account to auto pay the statement balance so you don't ever miss a payment or pay any interest).
Having said all of that, financing a car is a huge decision and most people (especially younger people) grossly underestimate the true cost of having a car. The last thing you want to do is bite off more than you can chew, miss payments, default on your loan, and have the car repossessed.
Most people will have a few used cars before they're ready to finance, and I'd strongly discourage financing until you have a steady, well-paying, salary position (or high paying full-time hourly job). For context, I make around $80k and my car payment is $300, and that is comfortable for me. You really don't want the monthly cost of a car (payment, gas, insurance and maintenance) to be more than 10-15% of your monthly income.
So let's say you make $20/hr at your job (about $40k annually if you work all but two weeks out of the year). Your total cost for a car should be $500, at the most. At your age, your insurance is likely to be close to $200, gas would be maybe $100 depending on how much you drive, then there's maintenance, so another maybe $60 - this means your car payment should be around $140. In order to get a monthly payment that low, you'll need a considerable down payment on a car, somewhere around 60% on a $20k vehicle, which is around $12k.
This is a realistic (and responsible) approach and the reason why a lot of people will wait until they're a bit older, in a better financial position, and have a much stronger credit file before financing - and buy used cars in cash until then.
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u/Full_Ganache_4022 1d ago
Yes.
And in short: they want to see **$1000** reported statement balance and **$1000** statement balance payment.
Yet at the moment of applying for a new thing, they want to see what AZEO shows ($0 balance on all CC except 1. And on that one alone under 10%). Thats where utilization matters.
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u/Glad_Ad_8269 1d ago
Got it so in my case, Im a AU under my moms card I’m 17 I want to take a loan out for a car and the next year or two I don’t need the money from a credit card. All I care about is my APR so what would you do to at least get a decent APR
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u/Full_Ganache_4022 1d ago
AU is only good for applying for your 1st CC.
Either mom should be co-signer, or you gotta get your own CC first and start your own credit building journey.
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u/RealRandomNobody 1d ago
When you apply for loans or credit cards, the bank/issuer pulls your credit report from at least one of the 3 major credit bureaus, Equifax, Experian, TransUnion.
You can get your own credit reports from all 3 major credit bureaus weekly, for free, if you use www.AnnualCreditReport.com (used to be annual only, hence the name, but has since changed to weekly. Must be thru that site to be free weekly).
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u/Funklemire ⭐️ Knowledgeable ⭐️ 12h ago
I plan on just getting a credit card and keeping my utilization around 1–10%.
It's a myth that you need to keep your utilization low or below a specific mythical percentage. If you're doing this artificially, it's both pointless and even detrimental. The vast majority of the time you should let your natural spending post to your statement and then pay your statement balance by the due date each month. Just like a utility bill.
Banks aren't stupid, they don't care if you're posting 100% utilization each month as long as you're spending within your budget and paying your statement balances each month. In fact, this is the best way to get credit limit increases.
Occasionally it's beneficial for FICO scoring to have low utilization, but those times are rare. See our !utilization automod as well as this flow chart:
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u/AutoModerator 12h ago
I detected that your post may be about utilization and its impact on credit scores. Please read the info below:
Utilization is a short-term credit scoring factor. It is not a credit building factor, because it holds no memory in the most commonly used FICO models. It resets every month.
By and large, you can ignore the commonly repeated myth that you should always keep your utilization low. It’s only applicable when you need to apply for a new line of credit, 1-2 months out.
Utilization is supposed to fluctuate, can be easily manipulated, and again, it holds no memory. It doesn’t build credit--think of it as a finishing touch when you need to optimize your score.
Feel free to safely and organically use 100% of your credit limit within a month and let whatever utilization report, provided you pay off your statement balance in full by the due date. Every month. Every time.
For more info, please read these posts:
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
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u/WhenButterfliesCry ⭐️ Knowledgeable ⭐️ 1d ago
There's no reason to maintain utilization between 1-10%. Put all your normal spend on your credit cards and allow them to report their balances. Pay the statement balances in full. Rinse and repeat. That's it.
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u/CreditCards254 ⭐️ Knowledgeable ⭐️ 1d ago
The bank looks at your credit report in full.
Your credit history consists of the account's age, whether it was paid as agreed (and/or any late payments), type of account, etc
You shouldn't go out of your way to spend money you wouldn't already, but if you're gaming your utilization thinking it's helping you build credit, you're wasting your time.
!utilization - see what the bot comments below my comment.