You credit card fans explain something to me

[dank69]

ITT: Lots of disinformation :thumbsdown:

 

[paperfist]

I wonder if she had to secure the card to get it if that would have any effect?

 

[waggy]

hmm weird.

I do the same thing she does. i use it for a lot and pay it off at the end of the month. It has not hurt my Credit score in the least.

 

[kranky]

The credit card company (i.e., the bank) is not doing anything to her score. They simply report the credit limit and the amount that is in use. They don't create a score, they don't report a score.

The credit SCORE (again, which does not come from the bank) assesses various factors to create a score. One of the factors is the amount of credit being used (which is called utilization). The higher the utilization, the more it negatively affects your score. Credit scores are derived from various formulas - FICO, VantageScore, etc. - created by different companies.

The utilization calculations are not public, but it is generally understood that they fall into brackets. Under 10% has little impact on your score. At 30%, you get dinged more. At 50%, even more. At 80% even more than that. Scoring does not say "She's using 80% of her credit, but that shouldn't count against her very much since it's only $500." It only sees the percentage in use.

The typical advice given to someone in her position is: Pay the card in full. Stop using it. In a month or so, her utilization will be zero. Then her score will no longer be affected by the utilization on that card. Her score might go up enough to enable her to get a card with a much larger credit line which is the best way to solve the problem.

If she had a card with a $5,000 credit line, her typical monthly spending on that card would hardly affect her score at all.

 

[Scarpozzi]

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.

It depends on your card. More of them have started doing daily periodic charges to counter the rules Congress put in place. It's one of the reasons I cancelled 2 of my cards and don't charge anything unless I have to. Typically, they acrue the charges and apply them in bulk with little or no explanation to mask what they're actually doing.

Number 2 totally depends on if you need to take out a loan and who the underwriters of the loan are. Many of them aren't looking at just the utilization these days, they're trying to make sure you're not going to owe more than you can make the minimum payment on. So if you increase your credit limits and have 10 cards you don't use, you're better off closing these accounts than keeping them open. The underwriters look at those ancillary accounts as liabilities.

My best advice is to get a credit report and call up the cards you'll never use again to close them out. If nothing else, it may help reduce your odds of identity theft in the long run.

 

[Spikesoldier]

The credit card company (i.e., the bank) is not doing anything to her score. They simply report the credit limit and the amount that is in use. They don't create a score, they don't report a score.

The credit SCORE (again, which does not come from the bank) assesses various factors to create a score. One of the factors is the amount of credit being used (which is called utilization). The higher the utilization, the more it negatively affects your score. Credit scores are derived from various formulas - FICO, VantageScore, etc. - created by different companies.

The utilization calculations are not public, but it is generally understood that they fall into brackets. Under 10% has little impact on your score. At 30%, you get dinged more. At 50%, even more. At 80% even more than that. Scoring does not say "She's using 80% of her credit, but that shouldn't count against her very much since it's only $500." It only sees the percentage in use.

The typical advice given to someone in her position is: Pay the card in full. Stop using it. In a month or so, her utilization will be zero. Then her score will no longer be affected by the utilization on that card. Her score might go up enough to enable her to get a card with a much larger credit line which is the best way to solve the problem.

If she had a card with a $5,000 credit line, her typical monthly spending on that card would hardly affect her score at all.

there ya go, shot down a lot of FUD ITT

 

[DrPizza]

What kranky said.

The credit bureaus aren't asking "does she pay it off in full every month?" The credit bureaus are saying "Hey credit card company, on the 14th, what percentage of available credit was being utilized?" 30 days late, 60 days late - these types of things are extras that are reported as penalties. But, the percentage that is utilized is normally reported; not as a penalty, but as a matter of fact.

This has been pointed out in a couple of threads with people claiming "I put 100% of my bills, etc., on my credit card, and pay it off in full every month." Depending on your credit limit, it *could* have a negative effect on your credit score, regardless of the fact that you pay it off every month.

 

[DrPizza]

It depends on your card. More of them have started doing daily periodic charges to counter the rules Congress put in place. It's one of the reasons I cancelled 2 of my cards and don't charge anything unless I have to. Typically, they acrue the charges and apply them in bulk with little or no explanation to mask what they're actually doing.

Number 2 totally depends on if you need to take out a loan and who the underwriters of the loan are. Many of them aren't looking at just the utilization these days, they're trying to make sure you're not going to owe more than you can make the minimum payment on. So if you increase your credit limits and have 10 cards you don't use, you're better off closing these accounts than keeping them open. The underwriters look at those ancillary accounts as liabilities.

My best advice is to get a credit report and call up the cards you'll never use again to close them out. If nothing else, it may help reduce your odds of identity theft in the long run.

That's nice, but this has nothing to do with the issue in the OP. And, you're right, it's not just utilization that they look at. Nonetheless, the moment you close an account with a zero balance, your utilization goes up. Not a big deal if it moves your utilization from 10% to 15%. But, say, for an extreme example, you have a $500 card and a $5000 card. Your $5000 card has a zero balance, while you have 400 on your $500 card. At this point, you have 400/5500 , or about 7% utilization. Not bad at all. But, if you close that $5000 card, then your utilization is now 80%. That's bad.

Again, note: "utilization" does not mean "the amount of revolving debt." It means... (drum roll) the amount you utilize! (Imagine that.) So, if you utilize 400 on a 500 card, you've utilized 80% of your credit. That doesn't have *anything* to do with whether or not you paid it off at the end of the month.

Unless I'm mistaken, your utilization rate is reported on the statement date - not on the due date. So, if your statement date is the 15th of the month, and you pay it off in full on the 25th, then it's going to report that 80% or whatever it is on the 15th. However, if you know the statement date is on the 15th, and you pay it off in full on the 14th, then your utilization rate would be reported as zero.

 

[Texashiker]

This has been pointed out in a couple of threads with people claiming "I put 100% of my bills, etc., on my credit card, and pay it off in full every month." Depending on your credit limit, it *could* have a negative effect on your credit score, regardless of the fact that you pay it off every month.

Thank you, best answer so far.

I think what the lady is doing, she is trying to use a low limit card so that she can not spend too much in a single month. With a $500 limit, the card stays within a limit where she can pay it off with a single paycheck.

The problem seems to be that she is using a high percentage of her limit. She does not want to get a card with a higher limit, so that she can not overspend.

The solution seems to be to buy less stuff with the card. If I remember right, she mentioned trying to stay around the $200 - $300 balance on the card.

 

[Viper GTS]

Wow there is some serious disinformation in this thread (and finally some good info).

Rather than stop using the card to get her utilization to report to zero have her:

1) Pay attention to the next statement date
2) Pay the card off in full the day before the statement cuts

All this does is shift when she pays, and her utilization will be at or near zero. Then get a bigger card, $500 isn't enough to do anything useful with.

Viper GTS

 

[Viper GTS]

Thank you, best answer so far.

I think what the lady is doing, she is trying to use a low limit card so that she can not spend too much in a single month. With a $500 limit, the card stays within a limit where she can pay it off with a single paycheck.

The problem seems to be that she is using a high percentage of her limit. She does not want to get a card with a higher limit, so that she can not overspend.

The solution seems to be to buy less stuff with the card. If I remember right, she mentioned trying to stay around the $200 - $300 balance on the card.

See my post, she can keep low utilization with that limit. She just has to be aware of when the creditor reports (virtually always based on the statement balance).

Just make sure it's zero or near zero on that one date and you won't have a problem.

Viper GTS

 

[soulcougher73]

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?

Because they are not making any interest off of her. They dont like that LOL

 

[SunnyD]

High credit usage ratio is a hit on the credit report. It sounds to me like she's rolling the card over from one month to the next, THEN paying it, perpetually showing the card as high usage.

 

[bobdole369]

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

It is all about the timing. When the statement is produced, the balance is usually pulled that day. If the billing cycle is such that a balance exists, there ya go.

Also lots of people simply don't understand this:

The "Maximum Positive" benefit to a credit score, "with regards to balance" is if that balance is at 0.1%-5% (subjectively). A completely clear balance has ever so slightly less of a "Positive Impact" than the slight balance. A totally maxed out card has the "Least Positive" impact to a credit score. It isn't "Negative" until we start dealing with lates and brand new accounts, and over the limit situations.

 

[KeithTalent]

It is all about the timing. When the statement is produced, the balance is usually pulled that day. If the billing cycle is such that a balance exists, there ya go.

Also lots of people simply don't understand this:

The "Maximum Positive" benefit to a credit score, "with regards to balance" is if that balance is at 0.1%-5% (subjectively). A completely clear balance has ever so slightly less of a "Positive Impact" than the slight balance. A totally maxed out card has the "Least Positive" impact to a credit score. It isn't "Negative" until we start dealing with lates and brand new accounts, and over the limit situations.

Weird, I thought everyone understood that; that's why there is a statement date and due date. I always check when my next statement date is and pay the balance prior to that and I've never run into any problems.

KT

 

[overst33r]

I read an article somewhere that the people with the best credit tend to utilize <10% of their credit and have around 6 lines of credit.

I think it was a yahoo article...

 

[Svnla]

Ok, this is how I see it.

She has a $500 limit CC, she SHOULD have a balance of up to $150 (30&#37 MAX or less if possible. Around 10-15% would be ideal.

If she wants to use more, either pay the balance down to 30% (I do it via online payment) or less BEFORE the closing date of that month (NOT due date) or get a higher limit CC.

OP, ask your friend to look at the statements for the last few months. I bet her balance due amounts were $250 or higher ,that would be 50% credit utilization rate, and it would not be good.

she mentioned trying to stay around the $200 - $300 balance on the card

There is her problem. That is too much credit utilization rate for that $500 limit (over 40%). See my suggestion above.

Some of the posters in this thread need to get a basic class in finance.

 

[SZLiao214]

It is either a fresh card or she is hiding stuff from you. I got my first credit card a year or two before going to college but didn't use it much till i started. I had a 500 dollar limit and would put 150-250 dollars a month on it for food/groceries/gas.

7 years later the same card now has a 5k limit but i still only spend 150-250 a month on it. Most credit card companies will usually increase your limit automatically. Mine tends to go up randomly a few times a year.

 

[RockinZ28]

Just use the card less until her credit is sufficient enough to get a new card with a higher limit.

I started with only a $500 limit on my first card, and would try to keep it under $100 balance. Yea it sucked cause I couldn't take advantage of rewards points in full, because the only way to earn them was to let the balance post at the end of the statement for that month. Pay it off early, you get no points.

Now I have a couple other cards and can easily keep my utilization under 10%. I use the Capital One for larger purchases, because as soon as the transaction posts you get your cashback. Can pay it off the next day and still retain the CB.

 

[TakeNoPrisoners]

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

Wrong, they are great for building a good credit history.

 

[flvinny521]

A few commenters have given the correct info. The credit card companies have a schedule as to when they report your balance information to the credit bureaus. Let's say this date happens to be the 15th of every month. They report the exact balance on that specific date, regardless of whether or not she pays it off every month. They send a snapshot of her account status at that exact moment in time.

Your carpool friend might pay off her card on the 20th of every month, meaning that her balance on the 15th is relatively high, so they are reporting correctly. Her best option is to apply for a higher credit limit on that card and/or get some more credit cards. The utilization percentage of revolving debt is not calculated on a card by card basis, but as a total of all revolving debt.

For example, if I have one card with a $500 limit and it is maxed out, I am at 100&#37; credit utilization. If I get 4 more cards and now my total credit limit is $5,000, then my utilization is now 10%. It doesn't matter that one card is maxed out, because my overall utilization is low. (OK, it might matter to some small extent, but not nearly as much as your overall utlilization does)

Edit: Now I have read the second page and realize that there are several posts conveying this same message...

 

[Texashiker]

(I do it via online payment) or less BEFORE the closing date of that month (NOT due date) or get a higher limit CC.

Having 2 different dates seems like a scam on the consumer.

1 card - 2 dates to watch
2 cards - 4 dates to watch
3 cards - 6 dates to watch
and so on,,,,,,,,.

It seems that is credit card companies wanted to be fair to the consumer, they would report the balance on or after the due date. What the card companies are doing seems like a deceptive business practice.

 

[AMDZen]

Having 2 different dates seems like a scam on the consumer.

I could argue the same thing for how our entire western economy is built. Mortgages, student loans, etc. Impossible interest rates, exponential debt and easy access. Thats why the bubble popped.

And yet like mortgages and student loans, they're an essential part of life for a lot of people. You just learn how to use them properly and even how to work the system. Or you learn the hard way, like yourself, and then spend the rest of you life arguing to every other normal person that knows how to use credit that its a huge scam perpetrated by the masonic rich and elite.

 

[DesiPower]

its good to have less the 25% balance when the statement is generated

 

[lord_emperor]

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

That's funny, I've seem multi-page discussions about Robertson vs. Phillips vs. Flat.