New to credit? Build score with car loan, secured card

You get an extra boost by adding different types of accounts


Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question Dear Opening Credits,
I have recently established credit with a car loan this June. I was hoping to open a secured card with my bank (to use for groceries so the balance gets paid in full on payday). Would opening a secured card after six months of the car loan hurt my new credit score or should I wait longer before opening one? -- Jay


Dear Jay,
Building and then protecting a high credit score is a great idea, but first see if you have one yet. Sufficient information is necessary to create an accurate risk assessment. You're probably just barely meeting the minimum time requirement, as a credit score needs at least one account -- loan or credit card -- to be open for a minimum of six months. Log onto to check. Each credit bureau (Experian, Equifax and TransUnion) generates a FICO score, and each is about $20. FICO's competitor, VantageScore, isn't as widely used, but you can get one for free from

FICO scores start at 300, which indicates high lending risk, and go up to 850, which indicates low lending risk. Because your credit history is so fresh, your scores are probably on the bottom end. And that is OK, because secured cards are designed for people like you! You needn't wait. In fact, the sooner you start, the better.

Secured cards are the best way to start charging because they are easier to qualify for than their unsecured cousins. The money you put down as collateral and which often serves as your credit line reduces lending risk. If you default, the issuer can claim the funds held in deposit. It also gives you, the borrower a warm, cozy feeling that you've got a nice little sum safely tucked away in the bank from which you can borrow and repay on a monthly basis. You'll get that money back when you close the account with no debt due.

So how might applying for and then obtaining a secured card impact your credit rating? To answer that, I'll have to cover what goes into a FICO score, and the way your current behavior is already affecting it.

  1. Payment history. At 35 percent of the score, payment history is the most significant factor. Presuming you're sending your payments on time, keep it up! Each month you do, your score should escalate.
  2. Credit utilization. The next biggest scoring factor, at 30 percent, is the amount you owe compared to the amount you can borrow. With each payment your loan balance declines, causing your score to rise. 
  3. Credit history. The length of time you've had and used credit is 15 percent of the score. You can't make the clock hands move faster, but as the years pass, this category will become naturally richer.
  4. Types of credit in use. At 10 percent of the score, a healthy mix of products bumps up the numbers. Adding a secured card to your record should increase your score as it's different than a loan.
  5. Inquiries. Also at 10 percent, inquiries (an indication that you applied for credit, prompting a lender to check your rating) should be kept to a minimum. Applying for a card might lower your numbers a little initially, especially since you don't have much on the report to assess, so it will take on greater scoring weight. Don't worry, though. You'll rebound from the ding with responsible card use in the future.

Mind that credit ratings are only one aspect of the qualification process. You'll need an income to prove that you can handle the payments. Assuming you have a job, and the beginnings of a good credit score, a secured card should be within reach. To get a sense of what's available, review your secured card options on this site. 

Once you have the card, follow through with your plan to charge groceries, but always pay the bill in full. Try to send money before the issuer reports to the credit reporting agencies, too. This way you'll guarantee not just on-time payments, but your credit score won't be downgraded for carrying debt before zeroing it out.

Use the card in this fashion for a year, and your credit score will shoot up like a rocket!

See related: Your low-limit secured card strategy: Pay the bill early, often

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Published: January 13, 2016

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Updated: 10-23-2016

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