So I got a credit card as a way of establishing credit history...

[Jeff7]

...and despite 6 months of 100% on-time payments, my credit score has dropped 45 points. Is this normal?
:\

- No loans to my name. Student loans were paid off in less than 3 years after graduating, and that payoff date was at least 2 years ago. Car loan was paid off early as well.
- Utility bills are paid on-time.
- No balance is carried on the card.
- Never maxed out the card. I sometimes come close to 50% utilization. (I could only get a $500 limit, because paying off loans on-time or early doesn't do jack for showing that you're responsible with money.)
- No delinquent accounts or negative records

Is it the "high" utilization percentage that's hurting the most?
So what happens if I get a card with a $3k limit, but still only use $250 of it?
Score gets dinged for opening a new card, but then improves because of low utilization?

Or do I just need to wait until I have >25 years of history? I've only got 8 years right now.

 

[GagHalfrunt]

Is it the "high" utilization percentage that's hurting the most?

Probably that. They don't like to see high utilization month to month. Even with a low limit it appears that you're living on the edge of what you can handle and it tosses up red flags. $1000 on a $5000 limit is no problem, but $300 on a $500 limit looks bad. Especially on a newer card.

 

[Imp]

Credit utilization ratio?

 

[Jeff7]

So I guess I'll throw <$5 a month onto the thing and see how that goes.

 

[AznAnarchy99]

Request credit line increases down the road and apply to a few other cards but barely touch them.

My credit utilization is great but that's because I have like 8 cards but use only 2. Some of the cards I rarely use will keep on sending me letters raising my credit limit too.

 

[GagHalfrunt]

So I guess I'll throw <$5 a month onto the thing and see how that goes.

Don't sweat it to this degree, it's a fluid number. If high utilization ratio dings you a little short term it will bounce back once you establish a history of paying on time. Keep it at $150 a month or so, pay on time for 6 months and your score will reclaim the the lost 45 points and then some.

 

[boomerang]

I completely agree with high utilization because it bit me on the butt. We had been running everything through a card that gave us dollars off a GM car. I had a car coming off lease that needed to be replaced and reducing the net cap cost on a lease can make a big difference. In other words, a little can go a long way.

So, on this new card with a $6500 limit, we were running through $4K plus a month for about three months leading up to the new lease. (It helped that we were replacing some furniture.) Mind you we always pay the bill in full every month.

I decided it was time to do some insurance shopping. In Michigan, your credit score is a determining factor in the cost of your insurance. I called up an agency I had been with in the past. She called back the next day to tell me that she didn't know what had occurred but in the past, we had the highest credit score she'd seen at the agency and now we had dropped and that I wasn't going to like the rates she had for me. She was right, I didn't like them.

We've switched back to the Costco AmEx with a $25K limit and our spending is now back to normal so by March when we're up for renewal, we should be back in business.

I've been trying to find the "definitive" treatise on credit scores and haven't had that voila moment yet.

 

[brianmanahan]

you just got one? dang. i got one as soon as i turned 18. they are a lot harder to get nowadays for young people though.

having a few of them helps keep utilization low. my total credit limit is around 50$k so whatever i spend per month is usually like %1-2.

 

[kranky]

A $500 limit is pretty low and it does make it hard to keep utilization low.

Is your credit score decent, and with no derogatory info? Maybe your bank would give you a card and it would probably be with a higher limit.

 

[DesiPower]

credit cards are OK, but mare sure you never use more than 40% of your credit limit. Also, never pay minimum payment or the statement balance, always pay "other amounts", a little bit more or less than the statement balance.

Best way to improve credit it to take a home loan, but if you cant, atleast get a car loan and keep it for more than a year

 

[RockinZ28]

May just take some time, but certainly not many years. I started with a $500 limit card with no prior credit history. About 8 months in finally started getting the credit card offers in the mail. Got a Cap1 card with a $1k limit. Checked my score for the first time about 2 years in to my credit history. Was 704. Added several more cards. Increased credit limit many times over.

Bought a house in April, almost exactly 4 years after getting my first CC. Scores between 755-765. Never had loans of any kind prior.

Keep your balance under 10% total utilization. Do not let $0 balance get reported on all cards.

 

[PenguinPower]

credit cards are OK, but mare sure you never use more than 40% of your credit limit. Also, never pay minimum payment or the statement balance, always pay "other amounts", a little bit more or less than the statement balance.

Best way to improve credit it to take a home loan, but if you cant, atleast get a car loan and keep it for more than a year

Why would you not pay the statement balance? More importantly, why would you pay a little less than the statement balance...I'm not a fan of paying 15% interest on purpose.

 

[Imp]

Why would you not pay the statement balance? More importantly, why would you pay a little less than the statement balance...I'm not a fan of paying 15% interest on purpose.

Not sure if true, but someone once told me that credit card companies like balance carriers because they make them more money. They also, apparently, like people who overpay their cards because they get a free loan that way.

 

[DesiPower]

Why would you not pay the statement balance? More importantly, why would you pay a little less than the statement balance...I'm not a fan of paying 15% interest on purpose.

my mistake, not less for sure, but more if possible. just choose the other amount option.

 

[nickbits]

When I started my US credit history a few years back, I got a secured card I just used for gas, so <100 month on it. Surprisingly, after a couple years I had a 750 score and had no trouble getting a mortgage. I didn't think so low utilization would get me anywhere but it did.

 

[pete6032]

Keep the utilization under 30%. You can charge money to it and pay it off a few days later to get back below 30% if you need. The only time it matters is when your statement is generated. At that point you need to be sure your utilization is between 5% and 30%. Zero balance statement will not help, nor will a statement with over 30% utilization.

 

[PenguinPower]

my mistake, not less for sure, but more if possible. just choose the other amount option.

Why?

 

[Svnla]

Do NOT use over 30% of your credit line.

Experts advise keeping your use of credit at no more than 30 percent of your total credit limit.

How to get good credit score = http://www.consumerfinance.gov/askcfpb/318/how-do-i-get-and-keep-a-good-credit-score.html

 

[Gunslinger08]

I'd recommend Credit Karma, if you're not already using it. Free "fake score," warnings about potential dings, and suggestions for improving your score.

If this is your first credit of any kind, your score is going to take a while to build up. I would suggest opening 1 or 2 more cards, if you aren't the type of person who will max them out/spend any available money (which it sounds like you aren't). Just put a few charges on each one every month and pay them off. Give it a few years (you'll temporarily drop your average account age by opening new cards) and you should have a pretty decent score.

 

[Gunslinger08]

Not sure if true, but someone once told me that credit card companies like balance carriers because they make them more money. They also, apparently, like people who overpay their cards because they get a free loan that way.

An entirely too prevalent myth. Pay off your cards every month. If you can't afford to and your purchase wasn't a dire emergency, you shouldn't be using credit cards.

 

[Stopsignhank]

...and despite 6 months of 100% on-time payments, my credit score has dropped 45 points. Is this normal?
:\

How often are you checking your score? Each time you check your credit score you are probably doing a hard pull. A hard pull will lower your credit score.

 

[stlc8tr]

Just put a few charges on each one every month and pay them off. Give it a few years (you'll temporarily drop your average account age by opening new cards) and you should have a pretty decent score.

On my Discover FICO page, it said that my score is lower than it should be because I had balances on too many cards. So it might be better to get 7-8 cards but only use 2-3 of them.

I have balances on a bunch of cards because I use whatever card gives me the best cash back for that purchase. Gas, restaurants, Amazon, etc.

 

[RossMAN]

Which credit card, issued from where? Is it at least a rewards cc where you get % or miles?

Charge everything, except for <$10 restaurant purchases when you can pay cash.

Pay it off every month.

Rinse and repeat.

 

[Exterous]

An entirely too prevalent myth. Pay off your cards every month. If you can't afford to and your purchase wasn't a dire emergency, you shouldn't be using credit cards.

Agreed. I haven't carried a balance in years yet my score keeps going up even though I accumulate more and more cards with no carried balance

Which credit card, issued from where? Is it at least a rewards cc where you get % or miles?

Depending on his score he might not be able to get a card that offers rewards. Sometimes the best options available to a person are those without annual 'security' fees or absurd interest rates

 

[kranky]

Another thought - if utilization on a low-limit card is causing problems, then pay off the balance BEFORE the statement is cut. That way your utilization is zero or close to it.