New to credit: Will a store card help build my thin credit file?

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Keeping Score with Steve Bucci


Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.

Ask Steve a question, or see if your question has already been answered in the Keeping Score answer archive.

Will a new store card help build my thin credit file?

If you’ve just started building credit with one card, a second one could have a bigger impact on your score than if you had many accounts with long histories. First, be sure you’re making on-time payments with the card you have and keeping your balance as low as possible.

If you want to add a new account, you may consider a passbook loan from your bank or credit union instead of signing up for a new store card.

Expert Q&A

Check out all the answers from our credit card experts.

Dear Keeping Score,

I recently opened a credit card account with a bank. This is my first credit card ever, and I have no record before this. However, my aunts say store credit is very helpful as well. Will opening a store credit card right now affect me or should I just wait to get another card? – Adolfo

Dear Adolfo,

Congratulations on your first credit card. This is a big step and one that can certainly help you live a full and financially successful life. However, a word of caution here – credit can also hurt you if you are not careful.

Because of your limited credit history, anything you do will have a larger impact on your credit score than if you had an extensive credit history. Perhaps your aunts can help you demonstrate what I’m talking about. Fill a glass of water and put it next to the kitchen sink. Next, fill the sink with water. Take a bottle of food coloring (the type used for coloring Easter eggs) and put a small amount in the glass. Next put the same amount in the sink.

See the difference in color strength? Your credit file right now is like the glass. Any good or bad items will color your score more than if you had more data in your file, like having more water in the sink to dilute the effect of any action. So, it’s extra important in your early use of credit that you only add positive items to your file by being extra careful.

With that in mind, let’s talk about the best ways to increase the positive data in your credit file. Too many times people are in such a hurry to establish their credit that they make the mistake of trying to do too much at once. Hard as it is to hear, slow and steady wins the race.

How to maintain your score after getting your first credit card

The most important factor in your FICO score is payment history (35 percent). This is where you can make the most scoring impact with your new card by making sure to pay your bill as agreed, on time, each and every time. In fact, if I were you I’d aim to make your payments early just to be safe.

Figure out the best way to remind yourself to pay your bill so that you are never late. I use my bank’s online bill pay service. The day I receive my statement, I set up the payment to be received by the card issuer before the due date. As long as you have the money in your account, you’ll never be late this way. However, you should do what works for you. Just be sure you’re not late or sending less than the minimum payment due.

Second to payment history is credit utilization, weighing in at 30 percent of your score. This represents how much of your available credit you are using. Here again, you are in the driver’s seat, so take it easy. Maxing out a card is never a good idea, no matter how long you have had a credit card. But because you are new to credit, you will want to be extra careful.

Keep your utilization low, between 25 and 35 percent of your credit line max. If you can keep it lower, that’s even better. If you never charge more than you can pay back within a month, you will never pay interest on your credit cards and you will never find yourself in credit card debt.

If you do find yourself contemplating a purchase that you cannot pay back all at once, I suggest you try to make sure that you can pay it back within 90 days. Not only will this minimize the amount of interest you will have to pay on the purchase, but it will keep your credit utilization from creeping up as you use your card for regular purchases during the month.

See related: A second credit card: When it’s wise to get one, when it’s not

Should you add a new store card to your wallet?

Your aunts were not wrong when they told you store credit is helpful in building credit. It’s just a question of timing. Store credit cards are often easier to qualify for than bank cards. This is because most times the amount of credit offered is relatively modest compared to a bank card.

Additionally, the store wants to make it easy and attractive for you to shop there and become a regular customer. But be aware that retail cards typically have higher APRs than general purpose cards, and they often advertise deferred interest deals that can be costly in the long run.

However, be aware that new credit accounts for 10 percent of your score. Every time you take on a new line of credit, your score will drop until you show you can handle it. (You may also see a drop of five points or so from a hard inquiry generated by your credit application.) This drop can be greater for you than for someone with years of data in their credit file.

Tip: What accounts do you need to achieve a credit score over 800? Just having a fistful of credit cards isn’t going to get you over 800. Different types of loan accounts can show you’re disciplined with your debts and help you with the credit mix scoring factor. Also, don’t overlook important scoring factors such as payment history and credit utilization.  

Too many new cards in a short time period signals caution to the credit scoring models. In the short term, you might be better served by building up your credit history by using one card rather than splitting purchases over two or more.

The other two factors in credit scoring are credit mix (10 percent), which is the variety of types of credit you have used, and credit history length – 15 percent. You are very new to credit, so only time will help you in the history department. And while it would seem that your aunts’ advice to get a store card might help you in the credit mix area, I don’t think it would help that much since it would just be another credit card.

You would do better to open a passbook loan at your local bank or credit union. Your local bank can help you set this up and it will count as an installment loan, adding another type of credit to your mix. It will also have less of an impact to your score than a credit card under the credit utilization factor, since revolving balances carry more weight than installment loan balances.

For now, I suggest you wait a few months before you open anything new. Concentrate on successfully using the card you have and make all the right choices there.

Remember to keep track of your score!



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