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I'm moving to the US from the UK in January. I have just opened a bank account and have applied for a Capital One secured credit card to help start building credit.

Would also taking out a secured loan - whereby I 'pay' the bank the amount and they 'loan' it back to me - help my credit score any further?

My understanding from other questions is I should keep my 'utilisation' at around 1% - 10% to help build my credit score, and pay the bill every month. I understand how this would work with a credit card but how would this work with a loan?

Edit: A few people asked in comments about longer term plans, I'll detail them here:

Primarily - I would like not to raise any red flags with rental applications or with utility providers as soon as possible.

Then, unless there is a good reason not to, I'd like to resume my current habit of making all purchases on credit cards and paying it off in full every cycle as soon as possible.

It's possible that in 2-3 years I would be looking at taking out a mortgage.

Finally, in the next month I need to purchase a car, but my current plan is to pay cash for this.

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    What specifically do you want a good credit score for? How do you think it will improve your life? IS it worth paying interest to do that?
    – D Stanley
    Dec 23, 2019 at 19:57
  • @DStanley lower auto insurance rates, less likely to be rejected by prospective landlord, employer, etc.
    – RonJohn
    Dec 23, 2019 at 20:01
  • "Would also taking out a secured loan - whereby I 'pay' the bank the amount and they 'loan' it back to me - help my credit score any further?" That's a secured credit card... :)
    – RonJohn
    Dec 23, 2019 at 20:02
  • @RonJohn: It also exists in the "personal loan" variation, with potentially very low interest rates (~2% which isn't bad as spreads go, but barely covers the bank or credit union's costs in paperwork). More importantly, the secured loan counts as an installment credit account, not a revolving one.
    – Ben Voigt
    Dec 23, 2019 at 20:44
  • @BenVoigt interesting. I certainly wouldn't do it, though... Using a secured CC, keeping usage under 10% and never being late is Good Enough.
    – RonJohn
    Dec 23, 2019 at 20:46

2 Answers 2

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Some credit info:

  1. Utilization doesn't help you in building credit. Your credit score is a snapshot at the time it's pulled. You need utilization to be low when the credit is pulled, before and after doesn't matter.
  2. Same goes for number of accounts. It doesn't help you to open 2 different accounts at the same time. You want to have several (and different) accounts when the credit is pulled.
  3. Zero credit (what you have right now) is indeed worse than bad credit. But since you already have a secured credit card your credit will improve very rapidly (unless you miss a payment). In a few months you'll get to "decent" credit.

It's indeed possible to get a mortgage in 2-3 years. I came to the US in May 2015 and bought a house (without co-signer) in June 2017. My wife's credit was too bad to improve the mortgage in any way. One other main factor here is income.

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Never pay interest just to improve your credit score.

Building credit takes time. Pay your bills on time, don't overuse what credit you do have, and you'll be fine. Paying interest to get a good credit score is like buying a brand-new hybrid car to get better gas mileage. You spend more for the mechanism than the benefit you get.

IMHO there's way too much hype surrounding credit score. Certainly a bad score can make things like car loans harder, but with a young or "decent" credit you should not have any of those difficulties. A bad score indicates you've misused credit in the past . If you haven't done anything to indicate you're a credit risk then you should be fine. Yes you might be missing out on some fringe benefits like better insurance rates but it is worth it to pay interest on a loan for that benefit?

The most impactful time for a good-to-great credit score is when you get a mortgage. Even then you can improve your situation be taking a bit more time to save for a higher down payment which will lower your credit risk (and build your score in the process). The rest is mostly marketing for the banks to get you to borrow more money (IMHO).

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    The answer to "you might be missing out on some fringe benefits like better insurance rates but it is worth it to pay interest on a loan for that benefit?" is to calculate the value of the benefit and determine if it is more than the cost, not dismiss the idea outright.
    – Ben Voigt
    Dec 23, 2019 at 20:33

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