sunsetorange

Hi all,

I just picked up my first Audi last month, and am loving my Q5!

I am Canadian, and moved to the US 2.5 years ago. I have been trying to improve my credit since moving here (good Canadian scores + good job apparently mean nothing).

In this regard, I decided to finance my new car - 36 months at 2.9% (not bad for someone with a short US credit history, I think!).

Prior to getting my car, I had all the money put away to pay cash, so I can pay off this loan as quickly as I want.

My question to those with any banking/financial savvy:

What is the BEST way to bump up my credit score?

I was thinking I would pay a big sum up front (ie $30K) to knock down the principal/lower the total interest paid, and then make monthly payments for 11 months until I hit 1 year (by which time I'd ideally like to just have it paid off).


Basically, I want to know what bumps the credit score:
- the rate of payoff (ie, gradual, or fast)
- the duration you must hold the loan to make it worthwhile/credit-worthy
- whether putting a big first payment down is a big issue (?should I put more, and pay less in the following months)

I'd appreciate any insights/opinions people may have!

JohnBoyToo

IF you insist on building credit
You are on the right track....
establish credit and pay it off in a timely manner...

http://www.myfico.com/crediteducatio...yourscore.aspx

make sure it is always something that is reported to the credit bureaus though..

consider a credit card, either a secured or regular and paying it off each month....

make it reasonable credit limits - high credit limits actually MAY hurt your credit score...
i.e. if you make 100k / year and have 5 million in available credit - THAT would probably hurt your credit worthiness because at any point your could go deeply in debt...

i.e your "credit utilization" has an effect...


then, you can pray for the day you pay off all that credit and can full time it in an rv traveling around the country !!!

Parsec

In addition to all the usual stuff you will find on any website (% of on-time payments, length of credit, credit utilization), the one area of credit building that a lot of people forget or don't know about is having several different TYPES of credit. The most basic is a revolving loan, such as having a credit card and using it at least once a month. In addition to having revolving credit, it's also important to have a fixed short-term loan such as a car loan.

In your case since you are borrowing at a somewhat favorable rate of 2.9% I would suggest keeping it longer than 12 months - say 36 or 48 months. This would allow you to continue building your credit over the next several years. A one-year loan with on-time payments is not enough time for a new citizen to build a stellar credit score. If you are able to build up a credit score of 800 after just 2 years (there is no way to tell how fast your score will climb), then you can decide whether to pay off the loan early. It doesn't matter how large the loan is. You can take out a small loan for $10k and pay it over 3 years. That's probably about $300/mo.

So to sum up your questions, you should pay off the loan gradually, not fast. Duration: longer the better. After a certain point it doesn't matter anymore. Big downpayment doesn't matter for a car loan, only thing that matters is length of loan and on-time payments.

Source: I am a CPA

EDIT: Many employers also include credit checks as part of their background checks so it is important to have a good credit score if you are a final candidate seeking a competitive job.

sunsetorange

Parsec - thank you SO much for your advice!!

I had originally considered just taking out a smaller loan (ie, the 10K you suggested) and pay it off slowly, but I wasn't sure if taking out a larger one would look better, so did that, knowing there way no penalty for over-paying (ie knocking it down to $10K) early on. The loan is through Audi Financial so I believe that should be reported to credit bureau (ironically BoA turned me down, despite the fact I had the full cash amount of the car sitting in my BoA account!! apparently the loan + banking sectors don't talk to each other.....)

So maybe I'll do that - knock it down to low amount so that the interest payments aren't huge, and spread that out over 36 months. I'll keep an eye on my credit score.

After a year getting denied credit cards, I've finally accumulated a few over the past 1.5 years, and use these regularly. They don't have huge limits, and I pay them off on time monthly.

Again - thanks for the advice!

Parsec

Glad I could help. Also, in the US you qualify for a free credit report every 12 months. I believe you can get the score for a nominal fee, I'm guessing around $20. Check on that once a year and you'll be fine. In my early days after college, I was also trying to build up my credit so I subscribed to an unlimited credit reporting plan where I can check my score as often as I want. I believe it was around $100/year at the time, but I was obsessed and checked my score every couple weeks. It was addicting to watch my score increase from the 500's to the 700's in a short period of time.

Interex

Parsec speaks the truth.

Regarding pulling your report:

FreeCreditReport.com by Experian will allow you to pull your credit report every single day for about $15/month. It gives you your full Experian report and once a month, you can pull your report from all 3 bureaus at no additional charge. Pulling these reports will not impact your credit score as they are not considered inquiries from lenders. Note that the scores won't be the actual scores that lenders get but it will be fairly close (within 10-15 points). I have a Discover credit card and found they're offering the same service for $10 so I went that route. When I called to cancel my FCR membership, they tried to keep me by stating they could drop me down to something like $5/month. I declined it but just some advice for you or anyone else that may have FCR and want to get a lower subscription fee.

sunsetorange

Good to know - thanks!!! It's a very humbling experience to come from good (Canadian) credit to none, and I appreciate all the advice I can get! I think I'm doing well so far, and this car loan should definitely help!

amstrad

Another point of advice when seeking loans. Always get a simple interest loan as opposed to a fix interest (if you finance through Audi FS, they only do simple interest). On simple interest, you pay interest only on the remaining principle balance. That way your strategy of making large payments early reduces the overall interest you pay over the life of the loan.

Fixed interest loans (issued by less reputable car loan issuers) calculate the total interest up front, and you have to pay it regardless of how fast you pay down the principle. STAY AWAY FROM THESE.

For example, the loan I got was for $24k at 1.9% for 66 months (longest term they were offering that interest rate at) through Audi FS. This makes the monthly payments around $350, but the total interest I would over the life is around $1500. I plan to pay $1000 a month for the first year, and then pay the remaining #12k @ $500 a month. This way I only pay about $450 in total interest and at any time, if my finances get tight, I can fall back to a low payment of $350 for a few months.

Here is a nice calculator for computing total interest on a simple interest loan (together with a math, which is not actually not simple). Most online calculators screw this up.

http://www.cs.miami.edu/~burt/learni...-AutoLoan.html

amstrad

Woah! My appoligies for resurecting this zombie thread. For some reason it appeared at the top of my thread list.

Parsec

I haven't seen sunsetorange in a while. It'd be nice to see some more pics of her purple Q5!