Dear Opening Credits,
I’m 21 years old with a limited credit history. I have had a car loan for about eight months, and a credit card for about six. I did have a small student loan that I paid off all at once about a year ago. Since I got my credit card, my score has gone up pretty fast. It’s around 711 now. I don’t use much credit, but the limit is only $500. I have been considering applying for a second card to increase my available credit. I always pay off the full balance at least once a month. Like I said, I don’t really NEED another card, but I am wondering if the boost to available credit would outweigh the inquiry. Thanks! – Beth
Dear Beth,
You are addressing two important parts of credit scoring, which are the length of a person’s credit history and credit utilization. However, your history may not be as short as you fear. While your car loan and credit card haven’t reached the year mark yet, that student loan you just paid off must have been taken out some time ago. You might have received that student loan when you first started college. That loan was listed on your credit files from the date it was granted, along with the recent payoff. That data is working in your favor.
If you stopped and held your credit scores where they are now, you’d be OK. Plenty of great credit opportunities would be open to you. But since you want to increase your scores, here are three ways you can do that:
1. Apply for a new credit card.
The most important reason to add a new credit card to your wallet is that it would add to your credit utilization. An additional credit card will provide more borrowing power. Because the credit limit on the card you have now is so low, charging up to or near to the maximum hurts your scores.
Another credit line would immediately fix that by broadening your utilization ratio. For example, if you charged $500 with your current card, your score would drop because your credit hit the limit. However, if you have a second credit card that allows you to charge $2,000, your overall debt would be far less when compared to the amount you can cumulatively borrow.
Regarding how the application for that card could affect your scores, you’re right to ask but don’t worry. After all, you can’t get any account with asking for it, and certainly lenders know this. They just don’t like to see a wild flurry of credit card inquiries in a short span of time, since it can be an indication that a person is desperate for money. One or two applications in a year, though? That’s not a big deal.
Check out the credit card deals that are in your current credit rating range and choose a card you like, preferably with a low interest rate and no annual fee. Assuming you have a steady job, you should be approved. You may see a few points shaved off your credit score in the beginning (due to the hard inquiry), but if you pay all your financial obligations on time and keep your debt very low, your scores will not just bounce back, but bounce up higher.