I don't have any credit established but I'm a computer programmer and I make pretty good money. I'm 21 and I would like to buy a new car. I can't get a loan because I don't have any credit and I've only been working professionally for about eight months.

I would like to build my credit and I believe I could do so with my $3, 500 college loan. What would be the best way to pay it off? They recommend $50/ mo. Should I do like $200/ mo? Would it be better to pay it off as soon as possible?

What other things can be done to build my credit as soon as possible to be able to get a loan (without an absurd interest rate).

I have also heard that I can use my money (I have several thousand in the bank) as collateral on a loan; but my bank, USBank, didn't mention this when I was on the phone with them. Is this true and how can I do it?

  • 1
    I'm going to make this a comment insted of an answer but my advice is "DON"T get a new car" Unless you are completely financially set for life, buying a new car is an incredible waste of money.
    – Kevin
    Commented Aug 20, 2012 at 18:06
  • 2
    Thanks, I can appreciate that. However, I didn't mean "new" like brand new. More like, "new to me." Plus, not getting things you like defeats the purpose of doing hard work. There is a fine line between wasteful spending and justified expenses. Commented Aug 20, 2012 at 18:14
  • I don't think it's wrong to spend money on things you like. I won't think someone's a bad person or anything if they go out and buy one. (Unless of course, they are being foolish and buying a car they can't afford when they have other responsibilities) I think it's better to spend money in a way that will make you happy and fulfilled. For lots of people, a new car sounds great until they've had the loan for a while and they realize it isn't worth what they spend on it. Money is only good for buying what you need, buying what you want, making more money and helping others. Balance is the key.
    – Kevin
    Commented Aug 20, 2012 at 18:21
  • Unless you are planni g to take out a large loan soon, or have known problems on your credit history that you nedd to repair, I'm really not convinced that your credit score is worth paying any attention to at all. Spend responsibly, borrow responsibly, don't borrow when you can save for something instead, pay off card balance in full every month, have a decently paying job, and your credit score will take care of itself.
    – keshlam
    Commented Jan 18, 2016 at 0:00
  • The only way you money can be collateral is if you can't spend it. If it's in a bank account, and you can take the money out any time you want, it's not good to the lender as collateral. Instead, use it for a down payment. Lenders will decrease the interest rate for higher down payments. Commented Aug 3, 2018 at 21:36

3 Answers 3


Good credit is calculated (by many lenders) by taking your FICO score which is calculated based upon what is in your credit report. Building credit generally means building up your FICO score.

Your FICO score is impacted by many factors, one of them is your utilization ratio of your installment loans like student loans. This is the ratio of the current balance to your original balance. To improve your score (slightly) you would want a lower ratio. I would recommend paying your student loan down to 75% ratio as fast as you can and then you can go back to $50/month.

A much better way to improve your FICO score is to have a revolving credit. Your student loans are not revolving, they are installment loans. Therefore, you should open at least one credit card (assuming you currently have none) right away. The longer you have had a credit card open, the better your FICO score gets. Your revolving credit utilization ratio is way more important than your installment loan ratio. Therefore, to maximize your FICO, try to never have more than 10% utilization on your revolving credit report to the credit bureaus each month. Only the current month's ratio affects your score at any given moment. You can ensure you don't go above 10% by paying your balance before the statement cuts each month to get it below 10% way before any payment would be due. (You should always pay your remaining credit card statement balance in full each month by the due date after the statement cuts to avoid any interest charges.) Note that there is a slight FICO advantage to having at least one major bank credit card instead of just only credit union credit cards. Also, never let all your revolving credit report a zero balance in a month, you must always have at least $1 reporting to the credit bureaus on at least one of your open credit cards or your FICO score will take a big negative hit.

If you cannot get a normal credit card, go to a credit union and find one that offers secured credit cards, or a bank that does. A secured credit card is where you place a deposit with the bank that they hold and give you a credit limit to match your security. Ideally it would be a card that graduates to unsecured after you demonstrate good history with them. For example, the Navy Federal Credit Union secured card unsecures for many people. I also believe the Wells Fargo Bank credit card (you can join if there is a family member who served or a roommate who did) also will unsecure. The reason you want it to unsecure and not be forced to open a new account to get an unsecured account is that you want your average age and oldest age of open revolving credit accounts to be as high as possible as this is another impact on your FICO score.

Credit unions that anyone can join include, Digital Federal Credit Union, the Pentagon Federal Credit Union (which offers a secured card that does not graduate), and The State Department Federal Credit Union (also offers secured card that I think does not graduate).

One other method to boost your FICO score is to get added as an authorized user on one of your parent's credit cards that has been open a long time. Not all lenders will report such an authorized user, however, ones that are known to do so are: Bank of America, Citi Bank, and Capital One. It is a good sign that it will report if they ask for the social security number of the authorized user. However, note that the Authorized User addition can have no impact if the lender is using one of the newer versions of the FICO scoring model, only the older versions reward you for the age of accounts for which you are an authorized user.

A very long term boost is to open your first American Express card underwritten directly by Amex such as their Zync card which is pretty easy to get. The advantage of American express is that they remember the date your first credit card was opened with them and if you open new accounts in the future they will back date the date of their opening to match the date your first card was opened. If you let your membership lapse, be sure to record the account number and date opened in your personal files so that you can help them locate it again if you reopen as they can have trouble if it has been on the order of ten years or more.

Finally, note that the number of accounts opened in the last twelve months is a small negative mark on your score (along with number of inquiries), so if you open a lot of accounts all at once, in addition to bringing down your average age of accounts, you will also get dinged for how many were opened in the last year.

  • 1
    "The longer you have had a credit card open, the better your FICO score gets." Does it have to be used? For instance, I have an $800 credit card (from US Bank) given to me as a "student card" but I have only used it once. If I maxed it out and payed it off every month, would that be more effective than just putting a couple hundred on it and paying it off each month? Commented Aug 18, 2012 at 18:46
  • 1
    You only need to be using one card at a time, however, beware of a bank closing your account due to lack of any use. Charge a pack of gum occasionally on each card to keep them from closing due to no use. No need to use your $800 card other than to show a $1 purchase each month unless you want that particular lender to give you more credit. FICO score wise there is no benefit to using it more. Never carry a balance, pay in full each month.
    – WilliamKF
    Commented Aug 18, 2012 at 23:31
  • 2
    Also note with only $800 in credit, you only want $80 or less to report each month to keep your utilization below 10%, this will have a huge impact on your score. Pay it down to this before your statement cuts each month, not waiting until it cuts and the payment is due the following month.
    – WilliamKF
    Commented Aug 19, 2012 at 10:54
  • "Also note with only $800 in credit, you only want $80 or less to report each month to keep your utilization below 10%, this will have a huge impact on your score." Is 0% utilization favorable to 1% or greater < 10%? Is it optimal to charge just one dollar each month; and, do you know the differential of charging $1 as opposed to the full $800 and paying it off? I'm just wondering what is the payoff (i.e. will it effect my credit score by 10 points if I do this over 8 months?). Thanks for your help :) Commented Aug 19, 2012 at 11:57
  • 1
    It only impacts the current month score, what you did ten months ago no longer matters, just what you did this month. 0% is definitely not better, you need at least $1 reporting to show use of revolving debt on at least one account. You can charge more than $1, just pay it down to something less than $80 before the statement cuts and your balance is reported to the credit reporting agencies. No benefit to charging the full $800 and paying it down other to that creditor that owns the card seeing use and possibly giving a credit limit increase in future.
    – WilliamKF
    Commented Aug 19, 2012 at 12:27

A lender will look at three things when giving a loan:

  1. Income. Do you make enough money each month to afford the payments. They will subtract from your income any other loans, credit card debt, student loan debt, mortgage. They will also figure in your housing costs.

  2. Your Collateral. For a mortgage the collateral is the house, for a car loan it is the car. They will only give you a loan to a specific percentage of the value of the collateral. Your money in the bank isn't collateral, but it can serve as a down payment on the loan.

  3. Your Credit score. This is a measure of how well you handle credit. The longer the history the better. Using credit wisely is better than not using the credit you have.

If you don't have a credit card, get one. Start with your current bank. You have a history with them. If they won't help you join a credit union.

Another source of car loans is the auto dealer. Though their rates can be high.

Make sure that the purchase price doesn't require a monthly payment too high for your income. Good rules of thumb for monthly payments are 25% for housing and 10% for all other loans combined. Even a person with perfect credit can't get a loan for more than the bank thinks they can afford.

Note: Don't drain all your savings, you will need it to pay for the unexpected expenses in life. You might think you have enough cash to pay off the student loan or to make a big down payment, but you don't want to stretch yourself too thin.


There are a lot of things that go into your credit score, but the following steps are core to building it:

  • Pay bills regularly and on time. This includes bills like your rent and utilities, in addition to any debt payments you may have.
  • Pay down your total owed. In your case, paying down your college loan faster would help, and it's a good idea for your financial future to start chipping away at that debt.
  • Keep an active credit card, but pay it off every month.

Now, in your case, you obviously have some flexibility in your monthly budget since you're considering paying down your college loan faster. You have to weigh whether it would be better to pay off the loan that much faster, or just save the money towards buying the car. If you can pile up enough cash to buy the car (and still leave yourself an emergency fund) it would be better to buy the car than add another interest payment. As other answers have noted, you don't want to get in a situation where you have no cash for "unexpected events".

Some links of interest:


You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .