How I Went From a Non-Existent Credit Score to 784 in 8 Months
Eight months ago my credit score was non-exisent and today, as of this writing, I am thankful to share my FICO score is 784! This article is not only a quick review of the Secured Discover It credit card, but also how I responsibly used it as the primary means to take my credit score from irrelevant and useless to 784 in a span of 8 months.
Buying a Home
Let's backtrack a bit. Why did I even want to sign up for a credit card and increase my credit score? Well, I'm glad you asked. A couple of years ago I got serious about buying a house. Having never owned a credit card or had a car loan, I was curious if it was even possible for me to get a loan...and if so, for how much. Knowing that Dave Ramsey has often been a strong advocate of not having a credit score I decided to look in to how he advises you qualify for a home loan. Through a bit of research I learned about manual underwriting and reached out to a local mortgage company he suggested to see how much I would be pre-approved for using this process.
Getting Pre-approved for a Loan Without a Credit Score
In serendipitous fashion, the mortgage officer I connected with turned out to be an old friend from college! This made it quite an enjoyable and easy process. I went through all the steps and found I had a pretty decent chunk I was pre-approved for; more than I expected or would have felt comfortable paying for with my salary at the time. So, why did I start looking at creating a positive credit score after speaking with him? Again, your questions are great and I'm happy to share.
Why I Looked at Building My Credit Score Even After Being Pre-approved
As happy and surprised I was at the amount I was pre-approved for without a credit score, I was curious what would have been different with everything if I had a good score. When I asked him he shared that the main difference would not be the amount of the loan, but the interest rate itself. He said if I wanted to buy in the next few months, keeping my score nonexistent would give me the best interest rate, but if I spent about a year building up my credit score my interest rate would more than likely be .5 - more than 1 percent lower than what I was currently offered. This may not seem like a big deal but over the course of a 30-year home loan, this can be thousands of dollars! If you're still not convinced look at the different interest rates based on your credit score gathered by Informa Research Services:
- Someone with FICO scores in the 620 range would pay $65,000 more on a $200,000 mortgage than someone with FICOs over 760. (FICOs and VantageScores are on a 300-to-850 scale.)
- On a five-year, $30,000 auto loan, the borrower with lower scores would pay $5,100 more.
- A 15-year home equity loan of $50,000 would cost a low scorer $22,500 more than someone with high scores.
Since I was not planning on purchasing in the next couple of months I decided to try to build it up.
This may not seem like a big deal, but over the course of a 30-year home loan this can be thousands of dollars!
The Secured Discover It Credit Card is the Best Method to Build or Rebuild Your Credit Score From Scratch
Which brings us to the Secured Discover IT credit card. Now, if you have the option to become an authorized user on someone with a great credit score's credit card, by all means, do that as it will probably be the easiest and quickest way for you to build up your credit score. But, if you don't have that option like me, after doing a good amount of research I am convinced the Secured Discover It is your best bet to build your credit score fast.
What is the Secured Discover It Credit Card and How Does it Work?
The Secured Discover It credit card is just like the "normal" Discover It credit card. The main difference is that your credit limit is based on the refundable security deposit you put down.
At the time of this writing, to open the card you will need to deposit at least $200. However much you put down is what your credit limit will be (don't worry, you can add more if you want to later). Also, the security deposit is refunded to you in full when/if you graduate in full or close the card out completely (with no balance). Discover will automatically review your card for graduation to an unsecured card after you've had it for 8 months.
Like the unsecured card, there is no annual fee. This is big. I personally would never advise anyone to sign up for a credit card with an annual fee as this ensures you have to use the card to break even. Ideally, you don't want to close credit cards as part of your credit score is determined by the length of your credit. If you have a card with an annual fee it could prohibit you from signing up for a better card at a later date as you would want to cancel if you’re not using the card.
Discover offers social security monitoring for free with the card. This means they will alert you if your social security number shows up on any of the thousands of risky sites they monitor.
They also offer by far the best cash-back benefits of any secured card I researched. At sign up, the standard offer is 2% cash-back on all gas and restaurant purchases (up to $1000 at the time of this writing) and 1% on everything else. You can also ask them to change your set-up to the revolving categories cash-back option which gives you 5% cash-back on the category they choose for the quarter (up to $1,500 at the time of this writing) and 1% cash back on everything else (more on this perk later).
On top of that, they will match all of your cash back rewards with no limit for the first year. That can really add up!
Lastly, you get access to view your FICO score for free and most importantly, they report to all three major credit bureaus.
"The Secured Discover It credit card is just like the "normal" Discover It credit card. The main difference is that your credit limit is based on the refundable security deposit you put down."
How to Use the Card
This may seem like the most interesting or exciting part to read, but honestly, it's fairly simple. The short and sweet is: Use it on purchases you would normally make and always ensure to pay it off before your due date. That said, there are a few little tips and tricks I'll share that helped me along the way.
When I first got the card I was a little hesitant to use it because I didn't want to mess it up. I used it to purchase some gas or a small lunch here and there. Then I would just login to my account frequently through the app on my phone and always make sure I paid it off as soon as I could.
After a few months, I started seeing my credit score go up and the cash-back come in. This gave me a little more confidence to use it more often and for larger purchases, so, I (to my surprise) added $300 to the deposit and started using it for just about everything. To ensure I didn't carry a balance, I not only manually often went in to pay any balance, but I also set it up to automatically pay the balance in full before the bill. I use YNAB (You Need A Budget) and keep a decent track of what I am spending so I was never worried I would not have enough to pay it off in full. I would encourage you to do the same because carrying an unnecessary balance completely negates the purpose of the card (to build your credit score).
As I just stated, I do believe your main purpose in getting this card should not be for the rewards, but to use on and responsibly pay off purchases you would normally buy to build your credit score. That said, I found a not often used "trick" with the secured card that became a nice perk for me: if you call Discover’s customer service number and ask, they will switch your reward setup from the Discover It Chrome cash-back benefits (2% on gas and restaurants up to $1000 each quarter and 1% on all other purchases at the time of this writing) to the standard Discover It cash-back benefits (5% in the chosen category each quarter up to $1,500 and 1 % on all other purchases at the time of this writing). In 2019 (and it seems this is a fairly common Categories Calendar for them), the categories for each quarter are Groceries, Gas/Uber/Lyft, Restaurants, and Amazon.com. You get that cash back, plus the match, making the categories a whopping 10% cash back for the first year of the card!
Since I know I'll always need groceries I decided to buy multiple $50 gift cards to the local grocery stores I go to. I spent more than I usually do (one of the few times I would encourage you it's ok to make a purchase that you may not normally make for the rewards), because I know there is no doubt I will be buying groceries months from now. My plan is to just use a $50 gift card each time I go to the grocery store, and in the process, enjoy (basically) 10% off my groceries!
I kept paying my balance in full each month and on the first day my account was up for review I graduated to an unsecured card. I not only graduated to an unsecured card and was sent my $500 deposit back in a couple of days, but I was also given an $1800 credit limit. Then, the best part is, I checked my authorized FICO Score and it said 784! I know it could technically go up from here, and more than likely it will as I open some other cards/try to find a small, interest-free installment loan, but from what I've read, 784 will very likely qualify you for the best interest rate on a loan.
"You get that cash back, plus the match, making the categories a whopping 10% cash back for the first year of the card!"
Other Factors Impacting My Score
Now, here is full disclosure for any extraneous factors that could have also impacted my credit score going from 0 to 784. The Discover it card was my main tool, but I did have a couple of other factors. About three months after opening the Discover It card I decided to open a store credit card at Guitar Center as I was looking at a used acoustic. I know that one factor in your credit score is the number of accounts you have, so I was (and still am) looking for healthy ways to have a few more accounts open. They gave me a $500 limit on the card. I used it with the intent to immediately pay it off, but I ended up returning the guitar leaving a $500 limit, unused store card on my score.
During these last 8 months, I also started a new job and needed some new clothes. I went to J.Crew at the time and opened a card with them for the added discount at sign-up (I believe they actually gave me a $1000 limit). I immediately paid off the $300 I used it on in the store and haven't used it since.
Lastly, when I was still in early college my parents encouraged me to open a line of credit with the local bank I was at. I really didn't understand what I was doing and I think they gave me a $500 limit at the time. I used part of it somehow unknowingly (it was set up to cover any overdraft attempts), and I actually missed a payment because I didn't realize it. I closed it years ago, and if anything, it may have negatively impacted my score at the time as it showed a missed payment. I have seen some sites estimated credit scores show that account in my history which would help the age of my accounts, but, when I was getting pre-approved the loan officer said my credit score was literally non-existent, so I'm not sure if it is factored in.
Go Build Your Credit Score!
So there you have it! That's my experience going from a non-existent credit score to a 784 FICO score in a manner of 8 months, primarily by using the Secured Discover It credit card. To sign-up for the card and receive a $50 statement credit when you make a purchase within the first three months, please click here. I will also receive a $50 credit for referring you (please note, this is by far not my primary purpose in writing this article; it's just me wanting to share that benefit while I share my experience building my credit through the card).
I hope this helps some of you who are either looking to build your credit from scratch or build back up your credit for various reasons. If you have questions or any advice you can share with others on your experience, please share below in the comments! I would love to hear from you and I'm sure others could benefit from the conversation.