Posted: 2/22/2017 8:43:32 PM EDT
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Finally got my first credit card after paying cash/debit card my whole life. All sorts of confusing opinions on the best way to use a card to build credit.
$300 credit limit to start with. Currently setup to automatically pay full balance from my bank account when payment is due (21st of each month). Options: 1) Use card for $200+ a month and have full balance automatically paid when payment is due each month. 2) Use card for 200+ a month but pay it all off before payment is due. 3) Use card for <$50 a month have full balance automatically deducted 4) Use card for <$50 a month but pay it all off before payment is due. 5) Use card for <$50 a month and let some balance carry over. I don't like the thought of paying interest when I have the money but if it's better way of building credit I can deal with it 6) Something else. I've read that using for than 30% of credit line could be a bad thing which is where the <$50 options come from. Also thoughts out there about having a balance on the card when getting reported to the credit bureaus. And go. |
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Quoted:
I don't think it will matter if your credit limit is only $300. This, just pay it off before the due date and you incur interest. Build a track record and get a higher limit. Hard pressed to buy an airline ticket or a hotel room in Vegas with a $300 limit. |
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This, just pay it off before the due date and you incur interest. Build a track record and get a higher limit. Hard pressed to buy an airline ticket or a hotel room in Vegas with a $300 limit. Well no kidding, thus the point of the question on building credit. Good think I have no desire to go to Vegas 
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If you goal is to improve your credit score you need to have a balance on it at the end of the month. If every statement is $0 it won't help you any.
But like others have said it is only $300. Not going to make a big difference no matter how you do it. edit: To be clear: get statement. pay off complete statement before due date. |
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All of your options are basically the same. Paying the balance before the due date or on the due date is irrelevant. You don't get charged interest until the statement due date.
So if your billing cycle is the 1st of the month, and you charge something on the 2nd and pay it off the 3rd, it's no different than charging it the 2nd and paying it on the due date of the bill which will probably be the 15th of the next month (bill closes at the end of the month, plus 2 weeks or so to pay the bill). As long as you pay the full balance by the statement due date you don't incur any interest charges. That said, if your goal is to build credit the fastest way possible you need to carry a balance. At a $300 limit the interest will be minimal, but you will still build credit, even though the credit line is low (you have to start somewhere). You want to keep a low credit utilization rate (how much of your overall credit you're using). Carrying about $100 balance will keep the credit usage at 33%, and the interest will stay low as well.. Pay more than the minimum each month, but not the full balance, and charge enough to keep the balance around the $100 mark. It will take time but you'll build credit over time. In a year or two you will be able to request a credit line increase, assuming they don't give you one automatically. Just remember if you request an increase, it's reflected on your credit as seeking credit, but if they give it to you, it's not. Seeking credit too often can have a negative effect on your credit. |
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Quoted:
If you goal is to improve your credit score you need to have a balance on it at the end of the month. If every statement is $0 it won't help you any. But like others have said it is only $300. Not going to make a big difference no matter how you do it. edit: To be clear: get statement. pay off complete statement before due date. I just signed up for their Credit Wise which has a simator to show how different things effect your score. If i select the option to spend the full $300 the simulator drops the credit score 100 points, so even though it's only $300 it seems like keep the balance lower is the way to go. So I either use it like a debit card throughout the month and pay off the balance each time I use it except toward the end of the month, or just use it for one cheap purchase a month. |
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Like others said, never carry a balance. EVER. If you can't pay it off you cant afford it on a credit card. I love GD's grand financial knowledge. Spending more than you can afford is bad, so maxing out a bunch of cards without the ability to pay them off is very bad, yes. But if your goal is to build credit, you need to carry a balance to build it quickly. Having no outstanding debt doesn't help your credit. If the OP only got approved for a $300 Limit he has little to no credit history....continuing that will not help him down the road. Keeping a balance that you are capable of paying off (ie - not overextending yourself) isn't necessarily a bad thing, you're just paying a little interest to build credit. |
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Quoted:
I love GD's grand financial knowledge. Spending more than you can afford is bad, so maxing out a bunch of cards without the ability to pay them off is very bad, yes. But if your goal is to build credit, you need to carry a balance to build it quickly. Having no outstanding debt doesn't help your credit. If the OP only got approved for a $300 Limit he has little to no credit history....continuing that will not help him down the road. Keeping a balance that you are capable of paying off (ie - not overextending yourself) isn't necessarily a bad thing, you're just paying a little interest to build credit. You can show a balance and still not pay any interest. Just let the card cycle the first month with something on it and then keep it paid in full by the due date still. Theres no need to pay a cc company interest to increase your credit rating or limit. |
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Quoted:
I love GD's grand financial knowledge. Spending more than you can afford is bad, so maxing out a bunch of cards without the ability to pay them off is very bad, yes. But if your goal is to build credit, you need to carry a balance to build it quickly. Having no outstanding debt doesn't help your credit. If the OP only got approved for a $300 Limit he has little to no credit history....continuing that will not help him down the road. Keeping a balance that you are capable of paying off (ie - not overextending yourself) isn't necessarily a bad thing, you're just paying a little interest to build credit. You said it better than I could have. We aren't talking about maxing out cards here for extravagant things I can't afford. We are talking about a $300 limit and how to build credit. I have 0 credit history (bad or good), which is why the limit is where it is. They mentioned in the email that after 5-6 months there will be an increase with history of on time payments. From the simulator app: 24% Of Credit Used VERY HIGH IMPACT ON SCORE BELOW AVG-More than 60% AVERAGE-30% - 59% GOOD-10% - 29% EXCELLENT-Less than 10% Why does how much credit you're using matter? Lenders look for signs of responsible credit usage, and the better you are at living within your means, the better it is for your score. If you are using most of your credit, it may be difficult for you to get additional credit or credit with a good interest rate. Credit Tip Using less than 30% of your available credit is a good goal, but keep in mind that using some available credit and paying it off monthly may be better than not using any credit at all. |
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I just signed up for their Credit Wise which has a simator to show how different things effect your score. If i select the option to spend the full $300 the simulator drops the credit score 100 points, so even though it's only $300 it seems like keep the balance lower is the way to go. So I either use it like a debit card throughout the month and pay off the balance each time I use it except toward the end of the month, or just use it for one cheap purchase a month. It's not the balance as much as it is the utilization percentage. if your limit is 300 and you have a balance of 300 it will show 100% utilization which is very bad. Use the card and carry a small balance from month to month if you're trying to build credit, like 15%. Yeah, you'll pay some interest, but it wont be much. Your Credit Score is just an indicator of how friendly you play ball with lenders. You need to actually play ball with them to grow your score. |
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use card for $30 a month.
Don't let any balance carry over. Pay in full by due date. Greater than 10% credit utilization can negatively impact your credit. Get more credit cards with good rewards. Number of revolving accounts and age if revolving accounts makes a bigger difference. |
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Quoted:
I love GD's grand financial knowledge. Spending more than you can afford is bad, so maxing out a bunch of cards without the ability to pay them off is very bad, yes. But if your goal is to build credit, you need to carry a balance to build it quickly. Having no outstanding debt doesn't help your credit. If the OP only got approved for a $300 Limit he has little to no credit history....continuing that will not help him down the road. Keeping a balance that you are capable of paying off (ie - not overextending yourself) isn't necessarily a bad thing, you're just paying a little interest to build credit. Quoted:
Quoted:
Like others said, never carry a balance. EVER. If you can't pay it off you cant afford it on a credit card. I love GD's grand financial knowledge. Spending more than you can afford is bad, so maxing out a bunch of cards without the ability to pay them off is very bad, yes. But if your goal is to build credit, you need to carry a balance to build it quickly. Having no outstanding debt doesn't help your credit. If the OP only got approved for a $300 Limit he has little to no credit history....continuing that will not help him down the road. Keeping a balance that you are capable of paying off (ie - not overextending yourself) isn't necessarily a bad thing, you're just paying a little interest to build credit. OP: A big chunk of your credit score is the debt to credit ratio, basically how much credit you have vs how much you are using. Even if you pay off the balance every month, if your utilization is reported while you're between payments, it will count against you. For example, say my statement comes out and I have a $1000 balance, and even though I'm going to pay that balance on or before the due date, between the statement date and the due date I run up an additional $500, bringing up my current balance to $1500. That may be the amount that gets reported for your credit score. Even if you pay off the balance every month and assume you should have zero debt to credit, it could actually be higher. So your case, if you have a $300 limit, and you run your balance up to $299, but you pay that $299 on the due date therefore paying off the balance completely and incurring no interest, you could still be seen as having 99% of your credit utilized. I'd say never charge more that 25% of your available credit, even if you can pay more when the bill is due. That will keep the debt to credit ratio at no higher than 25% which is optimal. |
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I just signed up for their Credit Wise which has a simator to show how different things effect your score. If i select the option to spend the full $300 the simulator drops the credit score 100 points, so even though it's only $300 it seems like keep the balance lower is the way to go. So I either use it like a debit card throughout the month and pay off the balance each time I use it except toward the end of the month, or just use it for one cheap purchase a month. Yes credit utilization impacts your credit score. The higher % of monthly credit line you use, it negatively impacts your score for the following monthly credit score. Trick to credit cards is : Having the largest possible credit line, using as little as needed and paying it off in fully every month (doesn't matter if before due date or at due date). I carry ~$65k in revolving credit. My credit score is +800. |
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Pay your credit card in full, every month. Idiots carry balances on credit cards. This is rule number 1. I use my CC all day long. I send a payment weekly/bimonthly to pay it off. My current credit score is 820. Anyone that tells you different is being paid to, or doesn't know how credit works. Never carry a blance. Never owe interest. 0% utilization. Check Credit Karma for an idea of how you're doing. |
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I love GD's grand financial knowledge. Spending more than you can afford is bad, so maxing out a bunch of cards without the ability to pay them off is very bad, yes. But if your goal is to build credit, you need to carry a balance to build it quickly. Having no outstanding debt doesn't help your credit. If the OP only got approved for a $300 Limit he has little to no credit history....continuing that will not help him down the road. Keeping a balance that you are capable of paying off (ie - not overextending yourself) isn't necessarily a bad thing, you're just paying a little interest to build credit. You are clueless. Carrying CC debt will not increase your credit score.... |
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Quoted:
All of your options are basically the same. Paying the balance before the due date or on the due date is irrelevant. You don't get charged interest until the statement due date. So if your billing cycle is the 1st of the month, and you charge something on the 2nd and pay it off the 3rd, it's no different than charging it the 2nd and paying it on the due date of the bill which will probably be the 15th of the next month (bill closes at the end of the month, plus 2 weeks or so to pay the bill). As long as you pay the full balance by the statement due date you don't incur any interest charges. That said, if your goal is to build credit the fastest way possible you need to carry a balance. At a $300 limit the interest will be minimal, but you will still build credit, even though the credit line is low (you have to start somewhere). You want to keep a low credit utilization rate (how much of your overall credit you're using). Carrying about $100 balance will keep the credit usage at 33%, and the interest will stay low as well.. Pay more than the minimum each month, but not the full balance, and charge enough to keep the balance around the $100 mark. It will take time but you'll build credit over time. In a year or two you will be able to request a credit line increase, assuming they don't give you one automatically. Just remember if you request an increase, it's reflected on your credit as seeking credit, but if they give it to you, it's not. Seeking credit too often can have a negative effect on your credit. No he does not want to carry a balance and pay interest that is retarded. Just make sure there is a balance when you get a statement and really that doesn't even matter. I have a ton of credit cards i haven't used in quite some time that still help my credit because they show up for the number of accounts as well as making my credit limit high enough that i only utilize less than 10% of it paying everything i can on it. Op check out credit karma too, they will give you recomendatiins |
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I am not sure why people keep telling you to carry a small balance each month. There is no reason to carry a balance. Each month the bank will report your high balance on the card and your current balance. I designed computer systems for a finance company and we reported this information every month. There is a standard format and I am sure that every bank will report the same information.
I would keep the amount charged in a month down to around $100. I am more concerned about staying under your credit limit then the 30% rule. If you go over your credit limit, the bank will charge you a fee, maybe $25-$50, as well as possibly giving your credit a ding for violating the terms. If you use the card this way and pay your bill on time, they will raise your credit limit. |
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Option 1 is what will result in you building a legit credit history. Do the $200, when the bit hits autopay, back to zero.
Three to six months of that and you'll start getting offers on higher credit limit cards. Trade up, and do the same thing with that card (use the card more, so you're building history at the higher levels, but don't carry a balance.) That's all I've done for years, and I turn down cards with scary high credit limits now. |
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Lots of irrelevant info in this thread. I had 800+ score by the time I was 20 years old. Sitting high 700s now. Do the following:
1. Charge as much as you want (up to the $300). 2. Pay off all but $25-$30 PRIOR to the statement closing. (The balance when the statement closes is what's reported to the bureaus). 3. Pay off (at minimum) the carry-over balance before the due date. (So you don't have to pay any interest). 4. Repeat. 5. Watch your score go up. You're basically paying them twice a month. ETA: Don't close the $300 card when you get a new one. The length of credit history + utilization is very important. |