Credit Card question

[49erinnc]

I applied for an Office Depot card last month, solely for the purpose of getting a laptop with 18 months 0.00% APR. I intend on paying off the balance within 6 months of the purchase date. Other than the laptop deal, I have absolutely no interest in having a credit line with Office Depot (Citibank). My question is, is there any negative impact from getting a credit line for such short term use, paying it off fast and closing the account?

I've had some credit troubles in the past so I'm just now to the point where I'm even getting approved for such accounts. I only have one other line of credit open, which is a Visa I want to maintain. And my mortgage/student loans are the only other open accounts I have.

Eventually, I'd like to get a Home Depot/Lowes card but I don't want to do anything now to harm my credit score after spending so long to improve it. Just curious if it's better to leave the OD card open, despite never using it or just close it within 6 months of opening it? Thanks.

 

[BobDaMenkey]

I would just leave it open assuming that there are no fees.

However, I would also check over the contract deal that you signed. It might have some clauses about early payment on those kinds of deals, which will peanlize you for paying it off before a certain time.

 

[shadowplay]

http://creditboards.com

 

[CptObvious]

When I asked this question a while back the general consensus was to leave it open...somehow it will hurt your credit if you close it yourself, but not if it's closed automatically due to inactivity *shrug*

 

[blackangst1]

Here's the deal. Best to charge something on it every once in awhile. It will raise your credit score, and prove you can pay back what you borrowed. As previously mentioned, it will lower your score to close account. Ideally what lenders look at is percentage of credit used compared to credit granted. For example, if you have a 1000 limit with 250 charged, then youre at 25%. Thats about ideal.

 

[Reckoner]

It shouldn't hurt your score to shut down a Store CC.

 

[blackangst1]

Originally posted by: PaulNEPats
It shouldn't hurt your score to shut down a Store CC.

It shouldnt. But it does. About 15 points.

 

[Reckoner]

Originally posted by: blackangst1

Originally posted by: PaulNEPats
It shouldn't hurt your score to shut down a Store CC.

It shouldnt. But it does. About 15 points.

Yeah but aren't store cards treated differently?

 

[Viper GTS]

Originally posted by: PaulNEPats

Yeah but aren't store cards treated differently?

No, all revolving credit accounts are treated the same. Doesn't matter if it's an Office Depot credit card or an AMEX, revolving is revolving.

To the OP:

Definitely keep it open as long as it is fee free. From the sounds of it you probably don't have a lot of total credit (in $ value), so this probably represents a significant increase in total tradeline value for you. Absolutely do not close it, it will do wonders for your utilization (when it's paid off, of course).

Once you have tens of thousands in credit lines a $1-2K store card won't matter so much but for now you need all the help you can get.

Viper GTS

 

[NuAlphaMan]

Man, I open and close accounts all the time and it hasn't had a negative impact on my credit (781). I do the same thing, I'll open an account for something with no interest and/or no payments and pay it off in a few months. You must make sure you pay off the balance before the time because the interest is retroactive. Other than that, I have not had any ill affects from doing that.

 

[49erinnc]

Originally posted by: blackangst1
Here's the deal. Best to charge something on it every once in awhile. It will raise your credit score, and prove you can pay back what you borrowed. As previously mentioned, it will lower your score to close account. Ideally what lenders look at is percentage of credit used compared to credit granted. For example, if you have a 1000 limit with 250 charged, then youre at 25%. Thats about ideal.

Does the amount of credit used have an impact either negatively or positively on your credit? For example, once the laptop is paid off, leaving me with a zero balance, is there a different impact from buying $20 worth of media a month vs making a large purchase? More specifically, what's better for your credit:

1. Only using the card once a month to buy $20 worth of media and paying that off before the next billing cycle. Then repeating that process each month.

2. Making a larger purchase and paying more than the minimum due each month, while paying it off completely within 3-6 months.

Any difference or do both affect your credit exactly the same?

As for your other comments about credit used...because I'm rebuilding my credit, Office Depot gave me a pretty small credit line. I maxed that out completely but I'm gonna have it paid off pretty soon. As long as you pay it off quickly, how bad is it to do that? Keep in mind, we're not talking about $10K in credit. The amount didn't even cover the total price of the laptop. It was just enough to qualify for the 18 months of zero APR.

 

[dullard]

Originally posted by: 49erinnc
Does the amount of credit used have an impact either negatively or positively on your credit? For example, once the laptop is paid off, leaving me with a zero balance, is there a different impact from buying $20 worth of media a month vs making a large purchase? More specifically, what's better for your credit:

1. Only using the card once a month to buy $20 worth of media and paying that off before the next billing cycle. Then repeating that process each month.

2. Making a larger purchase and paying more than the minimum due each month, while paying it off completely within 3-6 months.

Any difference or do both affect your credit exactly the same?

As for your other comments about credit used...because I'm rebuilding my credit, Office Depot gave me a pretty small credit line. I maxed that out completely but I'm gonna have it paid off pretty soon. As long as you pay it off quickly, how bad is it to do that? Keep in mind, we're not talking about $10K in credit. The amount didn't even cover the total price of the laptop. It was just enough to qualify for the 18 months of zero APR.

There are two effects that show up on your credit report.

1) The (credit used)/(total credit available) ratio. This ratio can either (a) do nothing to your credit score or (b) harm your credit score. Keep the ratio low and you'll be in the no harm region. Keep that ratio high and you'll be in the harm region.

Since you have very little credit available and since you maxed out one of them, you are highly likely to be in region (b). Your credit score is probably lower because of you opening this account and because of you using far too much of your available credit. But, you do have to start somewhere. Just pay this thing off as soon as it is financially feasible for you.

2) The credit score can get a very small bonus if you have at least one card with $0 balance. This is not the same thing as you paying it off each month in full. It means you have absolutely nothing charged on the card.

Everything else that you typed is meaningless junk. The credit report doesn't know nor does it care when or how you pay it off. "Making a larger purchase and paying more than the minimum due each month, while paying it off completely within 3-6 months" is the stupidest thing you can do. Why fork over tons of money in interest when paying interest won't help your credit score? In fact, since your (credit used)/(credit available) ratio is so high, doing so will seriously harm your credit score. The best thing to do is to pay them off in full, on time, each month.

The size of your purchase also doesn't matter. All that matters is that you pay it off on time.

 

[49erinnc]

Originally posted by: dullard

Everything else that you typed is meaningless junk. The credit report doesn't know nor does it care when or how you pay it off. "Making a larger purchase and paying more than the minimum due each month, while paying it off completely within 3-6 months" is the stupidest thing you can do. Why fork over tons of money in interest when paying interest won't help your credit score? In fact, since your (credit used)/(credit available) ratio is so high, doing so will seriously harm your credit score. The best thing to do is to pay them off in full, on time, each month.

A little confused with some of what you were saying. I'm not paying any interest on the laptop for 18 months (if I wanted to stretch it out that long). So that's why my plan was to use the OD card to purchase it and pay the balance off within 6 months. Your comments make it seem really bad to pay off an outstanding balance in a few months as opposed to either making a minimum payment and really dragging it out OR paying off the entire balance in the first month. I don't really understand the latter because if you could do that, you'd just pay for the laptop with cash wouldn't you?

When you say "the best thing to do is to pay them off in full, on time, each month" are you just referring to the typical/small balances that people carry on cards? Because if you made a large purchase, such as a laptop, then I'm not sure why/how most people would be able to pay that off in full in one month.

 

[dullard]

Originally posted by: 49erinnc
A little confused with some of what you were saying. I'm not paying any interest on the laptop for 18 months (if I wanted to stretch it out that long). So that's why my plan was to use the OD card to purchase it and pay the balance off within 6 months. Your comments make it seem really bad to pay off an outstanding balance in a few months as opposed to either making a minimum payment and really dragging it out OR paying off the entire balance in the first month. I don't really understand the latter because if you could do that, you'd just pay for the laptop with cash wouldn't you?

When you say "the best thing to do is to pay them off in full, on time, each month" are you just referring to the typical/small balances that people carry on cards? Because if you made a large purchase, such as a laptop, then I'm not sure why/how most people would be able to pay that off in full in one month.

I was talking about credit scores and about losing money. It is stupid to pay the interest on credit cards by stretching it out. You lose a lot of money doing that, and you will not help your credit score. In fact, stretching it out, paying the minimum or even more than the minimum could hurt your credit score (if you have a high credit used to credit available ratio).

If you can't afford the item, don't buy it. So yes, you should have the cash available to pay for it. I wouldn't use cash, because I get 2% back by using a credit card, and I can delay the payment for up to 6 weeks (meaning that cash in the bank can earn interest). However, I realize that not all people are able to control their spending well enough to get the cash in the bank first. So, if you really must finance the large purchase, then get a real finance deal for it. Most computer stores will finance it for you at far less than the ~20% interest rates on credit cards. Again, it is financially stupid to pay interest on any credit card purchase.

For you, you found a 0% deal, which negates a lot of the paragraph above. Financially, if looking at that 0% deal only, you are good to take the 0% deal and stretch out the payments. However, doing so will harm your already bad credit score. There are threads here on ATOT about 0% deals and how they distroyed their credit score and cost them lots of money on other things (other loans, car insurance, etc). So, you are saving a bit of money with that 0% loan. But you may be costing yourself a LOT of money that you don't even realize on all your other transactions. These hidden costs may far outweigh the little you save with that 0% loan.

You asked about helping your credit score. If you want to help it, pay off that laptop as soon as possible.

 

[49erinnc]

Originally posted by: dullard

For you, you found a 0% deal, which negates a lot of the paragraph above. Financially, if looking at that 0% deal only, you are good to take the 0% deal and stretch out the payments. However, doing so will harm your already bad credit score. There are threads here on ATOT about 0% deals and how they distroyed their credit score and cost them lots of money on other things (other loans, car insurance, etc). So, you are saving a bit of money with that 0% loan. But you may be costing yourself a LOT of money that you don't even realize on all your other transactions. These hidden costs may far outweigh the little you save with that 0% loan.

You asked about helping your credit score. If you want to help it, pay off that laptop as soon as possible.

Yeah, I had the cash on hand to just pay for the laptop up front. But as I mentioned in a previous post, I'm in the process of trying to rebuild my credit. So, I opted to get the OD credit card to knock out two birds: One was to get a laptop that I actually needed and two was that I thought I could use the OD card as a way of building my credit up by showing I can make timely payments.

I'll have to poke around on here for some other threads because the last thing I want to do is hurt my credit through what I thought was a good way to help it. If you know of any threads off hand, much thanks for pointing them out.

 

[dullard]

Well, you did exactly what you should do. To build credit, you have to (a) get a credit line, (b) borrow money, and (c) pay off the money in time. All you have to do now is part (c), use your money to pay off that loan.

Because you have a low credit limit, and because you have used it all, I would suggest you do (c) sooner than later. At least pay off half of it now so that your credit used/credit available limit won't be so high. Doing that will minimize the damage from that ratio and will still allow you to get some of the benefits of the 0% loan.

However, in the long run, it is usually better to pay off the loans as soon as possible, because they won't all be 0% loans, and you may get into trouble where you can't pay it off. People can get dependant on the 0% loans, and it will come back to haunt them someday.

I had great links in my Favorites, but Anandtech archived them and I would have to do a lot of searching with Anandtech's crappy search to find them.

 

[49erinnc]

Originally posted by: dullard
Well, you did exactly what you should do. To build credit, you have to (a) get a credit line, (b) borrow money, and (c) pay off the money in time. All you have to do now is part (c), use your money to pay off that loan.

Because you have a low credit limit, and because you have used it all, I would suggest you do (c) sooner than later. At least pay off half of it now so that your credit used/credit available limit won't be so high. Doing that will minimize the damage from that ratio and will still allow you to get some of the benefits of the 0% loan.

However, in the long run, it is usually better to pay off the loans as soon as possible, because they won't all be 0% loans, and you may get into trouble where you can't pay it off. People can get dependant on the 0% loans, and it will come back to haunt them someday.

I had great links in my Favorites, but Anandtech archived them and I would have to do a lot of searching with Anandtech's crappy search to find them.

So, if I have the money on hand, it's in my best interest just to pay off the laptop immediately and carry a zero balance as opposed to showing that I can make timely payments for several months? I guess that's where I got/get the most confused.

Yeah, I looked through 6 pages here after searching for "credit" but I didn't really find anything specific to 0.00%APR deals that weren't just balance transfer discussions.

 

[dullard]

Originally posted by: 49erinnc
So, if I have the money on hand, it's in my best interest just to pay off the laptop immediately and carry a zero balance as opposed to showing that I can make timely payments for several months? I guess that's where I got/get the most confused.

Yeah, I looked through 6 pages here after searching for "credit" but I didn't really find anything specific to 0.00%APR deals that weren't just balance transfer discussions.

Your credit report says if you are late on payment or not. It does not really show if you stretched out your payments or not. Thus, you are worrying about something that doesn't directly show up on your credit report. If it isn't in the report, it won't affect your credit score.

Again, to build credit you must get a loan and pay back the loan. You must show people that you will pay them back if they loan you money in the future. As long as you pay on time, HOW you pay it doesn't really matter. Stretching it out isn't any more beneficial than paying it quickly.

And back to your original question: keep it open.