Building Credit-Bank Accounts

Septus

So I never thought this would be an issue, but someone told me that by having my savings account(ING) separate from my checking account(Frost Bank) that I could either be hurting my credit or at least building less credit, because one institution does not know what the money is doing in the other institution.

Is there any validity to that, and should I get a second checking account through ING to have some or most of my expenditures flow through?

Deebaser

I've never heard of anything like that.

RepoMan1023

That's bull crap. The bank (ING, BofA, etc.) is not who creates your credit score. Trans Union, Experion, and that third one I always forget are the guys who do it. If you get a credit report from one of them, you will see that all your bank accounts are being tracked from every bank and credit card you own. A lot of people used to build good credit by getting a credit card (like a Sears card) using it once, and never touching it again. The credit report will show that you are always paying the bill on time, which would be $0 after the initial purchase, and start increasing your credit score. That has nothing to do with how many bank accounts you have in one place.

Scrublet

RepoMan1023 wrote: »

A lot of people used to build good credit by getting a credit card (like a Sears card) using it once, and never touching it again. The credit report will show that you are always paying the bill on time, which would be $0 after the initial purchase, and start increasing your credit score. That has nothing to do with how many bank accounts you have in one place.

I'm hoping this is not off-topic, and I spoilered the example in case it is, but I have a comment on the building of credit.

Recently a very open discussion between myself and my roommate led me to believe that this "get-your-card-and-never-use-it-philosophy" is not as good an idea as you'd think. Now I am not claiming to understand all the inner workings of the score and credit availability AT ALL, but let me just paint you an anecdotal example:

I got kicked out of AFROTC shortly before graduation, and this led to a scramble and a shotgun decision to do a 5th year in school. I ran out of money in November. My student teaching covered my rent, but everything else until May was on credit card. On top of this, my first year was at a private school. Guess how those loans are doing? I also had loans for my second and fifth year of school. Add to this a 2% pre-commissioning loan (that I got before getting kicked out ). Now I have been slowly reducing all this shit down, and have never missed a bill. I owed AFROTC $12K and killed it VERY quickly. However, you could very easily say that I am at a poor debt-to-equity ratio.
In April of this year, when I found out that Pioneer was gone for good, I jumped on a 50" Kuro at Best Buy that was 50% off at $2000 (this purchase has since been almost completely paid for). I'll be fucked if I was going to let that go off the market...that motherfucker will last me for years. My 0% interest card from Best Buy had a $1900 limit. And yes, the credit market still sucked in April.

Now, my roommate. He DID commission. He got that same pre-commissioning loan ($25K) and paid it off in full (he's a couple years older than me). He has had a credit card almost as long as I have, but he's gone with the use-it-once-and-never-again philosophy. He has no real school debt to speak of. He recently went to Best Buy to look at TVs, and got quoted for the same card as me at $1300 limit.

Now maybe conditions are just different. Maybe if I tried to buy a TV now I'd get quoted $1300. I don't know. But there it is...$1900 to $1300.

Clearly, while I personally know that I've got my situation well under control, and have for years, I don't have a very strong leg to stand on issuing my friends credit card advice. But I firmly believe that the best thing you can do is get a credit card, use it frequently for all your incidentals, immediately paying it off. This example is anecdotal, but trust me if you look at our financial situations my roommate is MUCH better off. However, he has virtually no credit history outside of that loan. My debt could be better, but I've successfully managed and even reduced it for two years, and in the 3 years before that used my card constantly without ever maintaining an actual balance.

Getting a credit card and burying it in a treasure chest does not demonstrate to the credit card companies that you can make payments and not overdraw your limit. (Edit: one other thing...I believe those cards that you can only use at ONE store, like my best buy card and the aforementioned sears cards, are different than ACTUAL credit cards good everywhere)

Jasconius

To the OP, that's completely false. It's not hurting your credit. It's not intrinsically building your credit, but that's basically true of any standard savings account, in the sense of how it impacts your score if at all (and I don't think it does, cash assets only factor into certain types of credit applications and as far as I know are unrelated to your credit score).

There's a really good website called creditkarma that can give you some pointers on how to boost your score. I'd check that out.

EggyToast

As a very straightforward way to make sense of your credit score, and the idea of "building credit," remember that credit involves DEBT. You could have $2M in 50 banks and if you've never carried debt, you have no credit.

You probably wouldn't need a credit rating, because you have collateral, but still.

Credit cards improve your score through use, backing up Scrublet's anecdote. The entire idea about a credit score is your trustworthiness regarding debt. Having a credit card and using it responsibly every month shows that you are responsible with your debt. Having a loan from a bank (mortgage, student loan, etc.) and paying it every month shows that you are responsible with debt.

It can get a little screwy when you realize that the credit agencies don't have a full snapshot of individuals lives and someone who buys a lot of things on credit and pays it off each month, but lives paycheck to paycheck, has a better credit score than someone who saves a lot of money and lives cheaply -- because one utilizes credit that much more. However, that's typically why when you're applying for a loan or similar, your bank balances and other collateral comes into play, because it attempts to complete the picture. It's also why it's kind of stupid to have a ton of cash laying around.

Anyway, unless you hear it from a serious financial source, assume the above -- if it does not deal with debt and credit directly, it does not affect your credit rating.

Gabriel_Pitt

That's why, IIRC, a chunk of what your credit score is based on is your credit utilization rate - how much of your available credit you use. If you max out your cards every month, even if you're paying it all off every time, that's not a good thing. For score building purposes, using something around 10% is supposed to be the best (you have $10,000 available from all of your cards combined, and use them to pay for $1000 worth of stuff each month). So having a card that you never use if perfectly fine. It just contributes to your overall available credit.

Scrublet

Gabriel_Pitt wrote: »

That's why, IIRC, a chunk of what your credit score is based on is your credit utilization rate - how much of your available credit you use. If you max out your cards every month, even if you're paying it all off every time, that's not a good thing. For score building purposes, using something around 10% is supposed to be the best (you have $10,000 available from all of your cards combined, and use them to pay for $1000 worth of stuff each month). So having a card that you never use if perfectly fine. It just contributes to your overall available credit.

No, I don't think it is perfectly fine. Both me and Eggy are making the same point...if you're not using your cards, you're not really building much credit. You're building a little bit more than the guy who doesn't even HAVE a card, but not using it at all doesn't show the credit card companies shit about your ability to manage debt. It's like looking at a recovered alcoholic who doesn't drink any more and applauding his responsible handling of alcohol. Sure, he's doing great as long as he doesn't use it at all...but give him that one drink...

unless I'm misunderstanding your statement...back when I was simply paying off my shit as I bought it (maintaining zero balance), I had a Mastercard I never used because my AmEx had a lower interest rate. Is THAT what you're saying? Because yea that would contribute helpfully as long as you're using credit SOMEHOW.

Gabriel_Pitt

That's what I was saying. You can have five credit cards, and never use four of them, so long as you're using that fifth card enough that you're using about 10% of your available credit. As far as your credit score is concerned, whether you spend 10% on one card, or 2% on five, the end result is the same.

KaufingMan

Income and amount of savings don't matter to your credit score at all.

Your credit utilization is the closest measure that is included in your credit score.

Here is what is included in your credit score.