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arfabe16 said...
Personal finance gurus of tRCMB, what's the best way to use a credit card to build credit?
I'm 23 and have very little credit history to speak of. I've never taken out loans nor had a credit card, so my credit history is limited to what one utility company reported (my credit score is decent... in the high 600s). So I just got a credit card to try to build up credit history...
Is it better to have no balance every month, or should I keep a certain % balance? Does my level of activity matter?
TIA
EdMartinsLoan
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Heat Miser
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Heat Miser said...
Reporting a bunch of zeros, assuming they even get reported, doesn't help much. Monthly activity is not reported. So the guy charging 10k per month and paying it off looks the same as the guy who never uses the card.
You need to carry some balances and pay them off. Keep your outstanding balance below 40% of your credit line.
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Beachnutts1 ●
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Beachnutts1 said...
You might want to get a Chase Freedom credit card. They were just running a deal where if you spend $500 in the next few months then they would give you a $350 bonus. Use it for all your purchases but pay it off every month. You'll get bonus points that way too to earn cash back or gift cards.
Guinness makes you drop mud.
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arfabe16 said...
Personal finance gurus of tRCMB, what's the best way to use a credit card to build credit?
I'm 23 and have very little credit history to speak of. I've never taken out loans nor had a credit card, so my credit history is limited to what one utility company reported (my credit score is decent... in the high 600s). So I just got a credit card to try to build up credit history...
Is it better to have no balance every month, or should I keep a certain % balance? Does my level of activity matter?
TIA
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JMSparty08 ●
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Heat Miser said...
Reporting a bunch of zeros, assuming they even get reported, doesn't help much. Monthly activity is not reported. So the guy charging 10k per month and paying it off looks the same as the guy who never uses the card.
You need to carry some balances and pay them off. Keep your outstanding balance below 40% of your credit line.
That's the dumbest idea I ever heard. So you're telling him to spend extra (in interest) to boost his credit??
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JMSparty08 said...
Actually, he's 100% right. It's counterintuitive, but you gotta look at it from a creditor's point of view. They want people they can make money off of, i.e., a person who carries a balance. And guess who's responsible for creating the credit scoring system? That's right, banks.
My wife works in a loan department for a major bank. Paying off a credit card every month makes you feel good and is sound financially, but it doesn't tell a bank jack squat about your ability to make regular payments with a balance outstanding. Therefore, it doesn't help your credit score much at all.
It is always funny to read the advice in threads like these where people come out and say "don't take on debt", "Just pay it off every month", or "I don't have any debt." That's all great and makes you sleep at night, but when you do need a loan, you're getting denied for your habits. Case in point, the OP who has a credit score in the 600s. That's low and will cause a lot of creditors in this economy (and post regulation changes) to deny you. Especially if you don't have a credit history.
To the OP, no student loans? No insurance? No car payment, etc.?
This post was edited by arfabe16 on 4/8/2012 at 5:42 PM
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JMSparty08 said...
Actually, he's kind of right. It's counterintuitive, but you gotta look at it from a creditor's point of view. They want people they can make money off of, i.e., a person who carries a balance. And guess who's responsible for creating the credit scoring system? That's right, banks.
My wife works in a loan department for a major bank. Paying off a credit card every month makes you feel good and is sound financially, but it doesn't tell a bank jack squat about your ability to make regular payments with a balance outstanding. Therefore, it doesn't help your credit score much at all.
It is always funny to read the advice in threads like these where people come out and say "don't take on debt", "Just pay it off every month", or "I don't have any debt." That's all great and makes you sleep at night, but when you do need a loan, you're getting denied for your habits. Case in point, the OP who has a credit score in the 600s. That's low and will cause a lot of creditors in this economy (and post regulation changes) to deny you. Especially if you don't have a credit history.
To the OP, no student loans? No insurance? No car payment, etc.?
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arfabe16 said...
No student loans. I do pay my own car insurance. No car payment (I bought it outright).
And I'm still confused since everyone disagrees on the proper course of action. I'm lucky to have never needed to owe money, but that also means that I have no effin clue how to build up my credit score for when I do need a loan/whatever later in life.
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arfabe16 said...
No student loans. I do pay my own car insurance. No car payment (I bought it outright).
And I'm still confused since everyone disagrees on the proper course of action. I'm lucky to have never needed to owe money, but that also means that I have no effin clue how to build up my credit score for when I do need a loan/whatever later in life.
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msusnee said...
The way I understand it, most merchants report to the credit bureaus once per month. They'll report your current balance, as well as if you missed a payment. For anybody that uses their card regularly, it is unlikely that their balance is ever actually $0, unless they pay their bill the day after their statement date and then don't make any purchases for several days.
For example, my billing cycle ends on the 20th, and my payment is due on the 17th of the following month. If the merchant reports my balance to the credit bureau at the end of the month they will report my statement balance plus the additional purchases from the 21st through the 30th/31st.
The key is to not miss payments, and to keep the outstanding balance below 35-40% of your credit limit.
You and others are correct. I don't know what the Hell I was thinking.
My official excuse will be that I was distracted by the Tigers.
Guinness makes you drop mud.
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OT Using a credit card to build credit history?