Loan vs. credit cards?
What builds credit faster, having a 1300 dollar secured loan, or a crappy credit card with a 250 dollar limit? Just wondering, my grandma and I were talking about it, cause I have both, and she said that the loan was good, and I had no business getting that credit card bill, cause a loan looks better than anything on a credit score...is she right?
Answers:
The loan with a larger balance, once paid off will look better to creditors, and prove you can carry a high balance, and eventually pay it off.
A credit card with a $250 limit says very little, BUT, if you continue to pay it off each month, the bank will raise the limit, and before you know it, you may have a credit limit of $2,500 on that very credit card, and that will improve your credit as well.
Both work, and it doesn't hurt to use both to establish a solid credit history. You need multiple lines of credit to establish credit depth, and most lenders usually require 3 active tradelines with 2 year history.
That would mean one secured loan, 2 credit cards. And one issue with the secured loan is that it the account will close once the balance is paid off, wheras the credit cards will remain open until you close them, benefiting you in the long term.
Learn about mortgage, credit, and finance:
http://www.thetruthaboutmortgage.com...
They are both good. They are two different forms of credit. According to myfico.com, the type of credit only accounts for 10% of your total FICO score. Actually, getting a $250 cc was a good idea. As long as you pay your balance in full every month on time. Also, make sure you are making your loan payments on time. It's more about how much you owe and for how long you have had these accounts open that will affect your credit score. You can go to myfico.com to get detailed info about how your credit score is calculated.
Personally, I think credit cards are better for establishing credit history because they carry more weight. This is solely the fact that credit cards are unsecured. In addition, at $250 you can pay off the card faster if you need to.
Credit cards establish a ratio of credit usage, something that a loan cannot produce. This shows how good you are in managing your finances as far as usage. There is no available credit in loans.
Since your credit score is a function of time and a credit card is a revolving balance having a credit card will give you a longer credit history (assuming you keep it), and thus be better for your credit (where as the loan starts and ends or has a shorter history). About a third of your credit score is based on history. Another third is based on outstanding debt (debt to available debt ratio). In your example your loan carries a higher balance then the credit card and that would negatively impact your credit.
All that is out the window if you cannot manage it.
you higher scores will come from have credit cards with very low balance (under 10%), but you still need qualifing installment loan pay history. You need both
see the tips for (student) loans and credit at icebergtips com
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Answers:
The loan with a larger balance, once paid off will look better to creditors, and prove you can carry a high balance, and eventually pay it off.
A credit card with a $250 limit says very little, BUT, if you continue to pay it off each month, the bank will raise the limit, and before you know it, you may have a credit limit of $2,500 on that very credit card, and that will improve your credit as well.
Both work, and it doesn't hurt to use both to establish a solid credit history. You need multiple lines of credit to establish credit depth, and most lenders usually require 3 active tradelines with 2 year history.
That would mean one secured loan, 2 credit cards. And one issue with the secured loan is that it the account will close once the balance is paid off, wheras the credit cards will remain open until you close them, benefiting you in the long term.
Learn about mortgage, credit, and finance:
http://www.thetruthaboutmortgage.com...
They are both good. They are two different forms of credit. According to myfico.com, the type of credit only accounts for 10% of your total FICO score. Actually, getting a $250 cc was a good idea. As long as you pay your balance in full every month on time. Also, make sure you are making your loan payments on time. It's more about how much you owe and for how long you have had these accounts open that will affect your credit score. You can go to myfico.com to get detailed info about how your credit score is calculated.
Personally, I think credit cards are better for establishing credit history because they carry more weight. This is solely the fact that credit cards are unsecured. In addition, at $250 you can pay off the card faster if you need to.
Credit cards establish a ratio of credit usage, something that a loan cannot produce. This shows how good you are in managing your finances as far as usage. There is no available credit in loans.
Since your credit score is a function of time and a credit card is a revolving balance having a credit card will give you a longer credit history (assuming you keep it), and thus be better for your credit (where as the loan starts and ends or has a shorter history). About a third of your credit score is based on history. Another third is based on outstanding debt (debt to available debt ratio). In your example your loan carries a higher balance then the credit card and that would negatively impact your credit.
All that is out the window if you cannot manage it.
you higher scores will come from have credit cards with very low balance (under 10%), but you still need qualifing installment loan pay history. You need both
see the tips for (student) loans and credit at icebergtips com
The Secured Loan information post by website user , LoanSecuredLoan.com not guarantee correctness.