New Credit: Take Your Time

Build your credit slowly for the long haul.

New Credit: Take your time

Question: I am trying to build new credit and I am wondering if I should open several accounts at one time to save myself a lot of time. Also, what type of accounts will serve me best?

If having to take a look at your credit reports puts you into a cold sweat, you should know that getting new credit can be stress free.

There are steps you should take to minimize the impact on your credit score when trying to obtain new credit. This is one area where being impatient does not pay off.

First off, you don't want to fill out multiple applications without considering the impact on your credit score. When you apply for new credit cards or open lines of credit, each one will result in a hard inquiry. Those hard inquiries will lower your credit score.

But if its a car you are looking to purchase to build up your credit, those inquiries are lumped together so that there is less negative impact on your credit score. Normally, all car loan shopping within 30 days will only hit your credit once whereas individual credit inquiries from department stores or credit cards will hit you one at a time resulting in a lower credit score.

What about co-signing loans?

You should probably broach this with caution. Unless you are 100% sure that the person you are co-signing for will make the payment month in and month out for the terms of the loan then this type of new credit can be risky. If they skip a payment, your credit will be dinged. That ding will last a very long seven years.

Secured Loans

This type of loan has a rating that other creditors can determine is secured. With that, you'll gain less of a score increase because there is less risk involved. Lots of people open secured credit cards thinking it will rebuild their credit and this is somewhat true, but just be aware that it's not rated the same as an unsecured credit card.

Building New Credit Slowly

The best option to build a solid credit profile is to be patient. Opening too many new unsecured loans (credit cards mostly) at one time can actually have a negative impact on your credit. Rather than opening 4-5 accounts in the same time period, stage the accounts in 6 month increments. The best mix of credit is secured (like an auto loan) and a few credit cards (2-3) and then allowing those accounts to build a solid payment history over time.

Refinancing a Bad Credit History

While this can help to build new credit, it wont erase the old credit history. If your payment history was negative on that account you may have a hard time getting a refinance approved. if you can, be sure that the new loan is paid on time always. It makes no sense to open a new loan to build your credit up if you're just going to be late again.