Credit card churning for young adults - Part 3: Building Credit History, Fast!

Part 1: Background

Part 2: First few months

Part 3: Building Credit History

Part 4: Choosing the Right Cards

Part 5: Meeting the Spending Requirements

Part 6: Taking Care of Credit Reports

Part 7: Conclusion

 

Now that you have a few cards to get started, you need to understand how to use them to boost your score as soon as possible. 

First of all, you need a fast track to age your credit report. I recommend getting an AMEX Prepaid/PASS card(not to be confused with gift card), which is a prepaid card so there's no credit check. There is no annual fees and very few fees. The primary points for this card is to take advantage of AMEX backdating policy, which means they will backdate all your future cards to the first card you got from them. For example: if you get the prepaid card in Feb 2012 and get approved for AMEX Gold in July 2012, your credit report will show that the AMEX Gold was opened in Feb 2012, thus tremendously boost your report age. The best thing is you can get AMEX PASS card as early as 13 years old so by the time you get approved for a real AMEX card at 18, your report will change from 0 year old to 5 years old (with perfect payment history!)

                                   AMEX PASS                                       AMEX Prepaid

Another option is to ask your parents to add you as an authorized user. You will enjoy all of their history with AMEX(including opening date), thus If you were born in 1990 and your parents got the first card in 1985, your credit report will show your account was opened before you were born;) It doesn't make sense but the system isn't smart enough to understand.

Secondly, you need to use your current credit cards wisely. Lenders love to see credit report with AMEX. Your goal is to get an it ASAP in order to get approved for other cards. To accomplish this,  you need to show you are their preferred customers: on time payment, pay in full and high spending. Here's how you can achieve these goals:


Assuming you have $500 credit limit:

• Charge as much as you can
• Pay off almost everything before the cycle ends
• Statement closing balance should be under $50-100 (10-20% of credit limit)
• Pay off in full

The impacts are:

• High credit usage
• Low ending balance -> low credit to debt ratio
• Good payment history

If you are not a big spenders, there are many ways to pay for stuff you need to pay by credit cards, which will be presented in the next part. After about 6-9 months with good payment history, you will be ready for your first mainstream AMEX card, and in no time you will get a tons of miles to travel for free:D

Notice: this post is entirely my own opinion. I am not an certified financial advisor. Do at your own risk. I am not affiliated with any credit card company nor do I earn any commission..