You credit card fans explain something to me

[Texashiker]

A lady I carpool with was telling about her credit card usage. She has a card with a low limit (she said $500 limit), which she uses to buy various stuff with. The items usually include her lunch and fuel for her truck.

Every month she pays the card balance off.

The credit card company is reporting her as having a high balance on the card, and its having a negative effect on her credit score.

She thinks that the high balance is using a certain percentage on the limit of the card. That if she goes over 50% of the card limit, the card company reports her as having a high balance.

Why would a credit card company give you a penalty for using the card, and then paying the balance off every month?

 

[KeithTalent]

What? That makes no sense. For every credit card I have ever encountered, if the balance is paid every month, there should be no penalties and it should not have a negative impact on someone's credit score.

Something is messed if they are saying she has a high balance when she does not.

KT

 

[fatpat268]

A lady I carpool with was telling about her credit card usage. She has a card with a low limit (she said $500 limit), which she uses to buy various stuff with. The items usually include her lunch and fuel for her truck.

Every month she pays the card balance off.

The credit card company is reporting her as having a high balance on the card, and its having a negative effect on her credit score.

She thinks that the high balance is using a certain percentage on the limit of the card. That if she goes over 50% of the card limit, the card company reports her as having a high balance.

Why would a credit card company give you a penalty for using the card, and then paying the balance off every month?

Trying to understand the logic behind your credit report is a failing proposition.

 

[MotF Bane]

Doesn't make sense.

 

[rcpratt]

Credit utilization (what % of your available credit that you use) is something that affects your credit score.

They're not charging any fees or anything though, are they? And are they reporting these high balances directly to her or is she finding out through her credit report?

Does she have any other credit cards?

 

[Pantlegz]

Doesn't make sense.

neither do the way they calculate credit ratings.

 

[nanette1985]

Never heard of this. But anything is possible in credit card land.

 

[Arkaign]

As far as I understand it, they dislike this because it minimizes the money they can make off of you directly though fees and such. It's bad for your credit to have too much out there, like at or near the limit and paying minimums, but it's also frowned upon to not have any revolving debt at all.

The rest of the $ they make is by squeezing it from merchants via their 3rd party infrastructure hookups.

 

[KeithP]

Why would a credit card company give you a penalty for using the card, and then paying the balance off every month?

I would say either your friend is giving you incorrect information about what is going on or the credit card company is in error in its report to credit rating agencies.

There is a process to dispute information on your credit report.
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm

-KeithP

 

[Texashiker]

Credit utilization (what % of your available credit that you use) is something that affects your credit score.

They're not charging any fees or anything though, are they? And are they reporting these high balances directly to her or is she finding out through her credit report?

I do not know how she found out. She just told me the credit card companies were reporting her as having a high balance almost every month.

The reports seemed misleading, because she was paying off the balance every month.

She did not say anything about being charged extra fees.

Does she have any other credit cards?

I dont think she does.

She is single, and she watches her money pretty close.

 

[novasatori]

she just needs to have her limit increased probably

you usually want <30&#37; of limit

I don't really understand why they are reporting a balance though if she is paying it off on time, but who knows.

I went many years charging like 90% of my limit every month and my rating never went down, only up, and I did pay it off every month.

 

[rcpratt]

Tell her to call her card issuer and ask for them to raise the limit, or apply for another card with a higher limit.

General rule is to keep your credit utilization below 30&#37;.

 

[Net]

You can read the breakdown of how your credit score is calculated. I read the breakdown on about.com a while back, in regards to this they said you don't want to go above 20&#37; usage of your available credit.

Your credit is pulled at an unknown time during the month, so if she spent $400 and paid it all off next week then in her score there is a possibility it would say $400 revolving debt.

That wouldn't be bad if it was 20% or below her available credit. If its above then it will ding her credit score.

http://budgeting.thenest.com/improve-credit-score-determine-creditworthiness-4163.html

 

[IceBergSLiM]

Depends when in the cycle of her billing the CC is reporting to the CB's.

The CBs make the determination if a balance is too high not the CCs. The CC's just report the numbers. The CBs interpret them.

 

[Texashiker]

General rule is to keep your credit utilization below 30%.

That is a good topic for another thread.

 

[AMDZen]

You credit card fans

A credit card is a tool, you're not a fan of it anymore than you are a screwdriver. Its a tool you use when you need it and thats the end of it.

Just because you have no idea how to use them doesn't mean the rest of us don't either

 

[rcpratt]

That is a good topic for another thread.

Ahhh, no more Texashiker CC threads...

 

[Kev]

She's either not telling you the whole story, or an idiot. Tell her to get another CC with a higher limit, which would be no problem given her good payment history.

 

[Saint Nick]

Mr Hiker, who cares. Credit cards are worthless and a waste of time.

 

[Elbryn]

She's either not telling you the whole story, or an idiot. Tell her to get another CC with a higher limit, which would be no problem given her good payment history.

if that's her only credit card then yea having a high utilization % affects your credit score, depending on when it's run.

if all your credit cards total 50k and you have 10k used, you have a 20% util rate. if you got a 500 dollar total and use 300 bucks, you got a 60% util rate. when the score is run you get penalized for having a high util rate. means you're using a significant portion of your credit. i dont know if they skew the score based on size but there is a hit for having that high util %.

easily solved by getting a higher cc limit and continuing the existing pattern of spending.

 

[goog40]

Easy, just pay off most of the balance before the credit card closing date, so the utilization &#37; that gets reported on the statement is low. Oh, and get a larger credit line. If she is spending close to the max each month but paying it off, the credit card company should be willing to increase her credit line.

 

[Scarpozzi]

1. What they're talking about is when the balance on the card is 50&#37; or more of the limit, it can negatively affect her card. Despite the fact that she pays it off monthly, she's still paying interest (daily) on the card. A lot's changed in the way this stuff is handled. It's not a big deal though for the amount that she's working with.
2. If she extends her line of credit to $1000 a month and doesn't exceed $300-400, it will help her numbers...but then she'll have more available credit, which can also hurt her FICO.
3. The credit bureau is applying generic one size fits all logic to generate her FICO score. She shouldn't take it personal. If she wants to improve the score, she can simply change her habits to adapt to the system.
4. Finally, I have to ask. (and maybe you should ask) What difference does it make to her? Is she planning on purchasing a home/condo? The only time it would make a difference to her is if her FICO is below a key number to a particular lender. Some lenders rate consumers as having REALLY good credit, (FICO over 750 for example), or good credit (FICO over 715), and for those with FICO scores in the 600s, these days are typically docked a few percentage points when taking out large loans.

If she goes to get a free credit report (she can get one per year from the big three), she might be able to figure out which credit bureau is being the asshole about it and take it up with them to get her FICO back up.

 

[rcpratt]

Despite the fact that she pays it off monthly, she's still paying interest (daily) on the card. A lot's changed in the way this stuff is handled. It's not a big deal though for the amount that she's working with.

What? No.

 

[gorcorps]

Mr Hiker, who cares. Credit cards are worthless and a waste of time.

Maybe... if you're in any country other than America. (and potentially Canada)

 

[Elbryn]

1. What they're talking about is when the balance on the card is 50% or more of the limit, it can negatively affect her card. Despite the fact that she pays it off monthly, she's still paying interest (daily) on the card. A lot's changed in the way this stuff is handled. It's not a big deal though for the amount that she's working with.
2. If she extends her line of credit to $1000 a month and doesn't exceed $300-400, it will help her numbers...but then she'll have more available credit, which can also hurt her FICO.

1. what are you talking about? you dont pay interest from day 1. you start paying interest if you dont make the payment in full at the next billing cycle. if she charges $250 in month 1 and pays it all off at month 2 bill she doesnt pay any interest. if she doesnt pay it all off, then interest starts rolling.

2. more credit generally doesn't hurt your credit score. it helps because of utilization %. new credit reduces your average length of credit. that can pull your score down. that's why you should never close your oldest cards if they are free, just set them aside.