Credit Card Q
I am just starting to build credit with my first credit card and have two questions.
I know that I am only suppose to use about %20 or less of my credit limit, however to build the MOST credit, should I be making A) total payments B) minimum payments or C) Most of the bill leaving a little bit behind?
Secondly, what is a good amount of cards to have? I currently have a Capital One, am thinking about getting a discover for the %5 cashback and a good mileage reward card as soon I see one pop up and build credit for it.
Thanks!
No you can use as much of the credit allowed as you want - just don't go over, and always always ALWAYS pay it in full.
I dont get why people think the 'minimum amount payable' = 'amount they will pay'
Youll still be charged crazy interest on any amount thats not paid in the min amount.
Pay everything by the due date and your score will rack up in no time.
Also, having >1 card reduces your score.
I have 1 for gas which gives me $0.02 back on each litre bought, and then a general card which gives me lots of points for trips etc.
I was under the impression you didnt not want to use more than 50% of the available credit to maximize credit scores...
and yes, ALWAYS pay in full... minimum is the devil
^^ you can use as much of your limit as you want, just don't be late on payments. If you ever get a credit report, all they report is whether you paid your bill off every period. Obviously you don't want to roll a balance over because you're just throwing money away at that point.
I'd get two personally. I have an Amex that I like to use for most purchases, because the rewards are so good, and a cash-back VISA for places that don't accept Amex. I honestly think there's only a handful of cards worth getting and they all fall into more or less the same categories:
1) No monthly fee cash back cards 2) Rewards cards (unless I'm mistaken, a decent Amex is better than anything else you're going to find) 3) Travel card (e.g. Starwoods)
Assuming that you're going into IBD, I'd guess you probably don't need a travel card.
you need to show a history of using the card to build credit (so charge stuff to the card), but you can pay it off in full every month.
assuming you have the liquidity, you should probably pay the balance in full every month before the end of the interest grace period. if you don't pay the full statement amount before the end of interest grace period, you will be charged interest for that month. also, the interest is not charged on the fraction of the balance that you left unpaid, it is charged on the average balance for that month (so if you have a 10k charge and pay off 9,999 1 day before the end of the grace period, you will pay interest for the month and your average balance for the month will be ~10K, even though you paid off nearly the entire balance...you have to pay the statement amount in full before the grace period ends to avoid interest).
also, keeping a high balance on the card will negatively affect your score, but this is fixable pretty quickly as you can just pay down the balance and the scores will adjust in a month or two. part of the credit score is based on "credit utilization." Utilization simply compares the amount of debt you have borrowed to your total borrowing availability (e.g., 10k charge on 20k limit card is 50% utilization). running high utilization signals that you may be stretching your credit and your borrowing needs may be outstretching you capacity and that you might run into a liquidity problem. this is bad for credit scores.
as to the number of cards you want to have, there are a couple considerations. applying for new cards or loans hurts your credit score. this is referred to as a "hard inquiry" and it stays on your credit report for 2 years after applying. if you have lots of hard inquiry's on your report, it again signals to creditors that you are stretching your credit and borrowing above your capacity. however, the more credit cards you have, the higher your credit capacity is. assuming that you don't run high balances on all the cards, having more cards and more capacity should lower your utilization rate which is good for credit scores. so having more cards open with with low balances is good for your score.
check out creditkarma.com. they have some credit advice, but more importantly, they give you a free credit score that is actually free (free except they have advertising on the site suggesting card offers).
if you have one card out, that's a good start. wait maybe 6 months with the initial card and then see if the issuer will increase your credit limit (raises capacity, lowers utilization). also, after some time with the initial card, apply for 1 or 2 other cards. these will ding your credit score a bit at first, but they will eventually help assuming you pay responsibly. also, keep your older accounts open. the amount of time that you've maintained credit card accounts is also important for your score, so you want to make sure you keep your first card as long as possible (don't have to use it a lot...maybe once every couple months to keep the line open after you've gotten other cards that you prefer to use regularly)
another good site for info on this is fatwallet.com in the finance forums. back when interest rates were higher, people used to arbitrage low interest promotional offers on credit cards (0% cash advance for 12 months), take the cash and invest it in interest bearing bank accounts and make profit. unfortunately, this opportunity isn't really available with today's rates and the new credit card regulations.
nice. saw your post on styleforum too haha
Thanks.
When I first started looking for cards I applied to 3-4 an got denied before I got the capital one because of lack of credit. Would that hurt my score significantly?
when i got my credit report, they said that i spent too close to my credit limit, and that reduces your score.
Also, considering that capital one sucks, would it hurt to cancel it so soon? I've only had it for a month and may just have my father create an Amex for me with him to cosign.
i would keep the capital one open. you just need to have some credit accounts open and active for a while to establish a real score. average age of your lines is important for your score...longer term when you have additional cards, the cap one card will help increase the average age of your credit lines. Why don't you just keep the capital one and get the cosigned amex with your dad?
The 3-4 inquiries before you got cap one will ding your score a bit, but you probably don't have much of a score to ding anyway. I don't think it's a significant problem. Maintaining accounts over a longer period of time and always paying them on time is much more important to the score. You just need to keep the accounts you have now open and maintained for a while and then the credit you establish by paying those accounts will outweigh the hard inquiries (hard inquiries go away completely after 2 years). Just keep in mind that if you keep applying for lots of cards and keep getting denied, you're only hurting your score.
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