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DH has a credit card in his name only that he uses on the road. He pays the full balance off every month, which is what our financial advisor told him to do. I am not sure though!
@keepsmiling19: I pay mine off in full every month and never use more than 50% of my credit limit. I have a near perfect (if not perfect) credit score.
They keys are paying the card on time and not ever getting close to your limit.
Also, don't check your credit score too often as credit checks can damage your score.
Your credit is based in part on how much available credit you have, so right now if your bill is paid in full, you have 100% available credit. If you have a balance of $150, you suddenly only have 50% available credit, which might hurt your score, as they like to see lots of available credit.
I’m not sure what your friend meant by: “if I don't leave a little on there, they don't have anything to loan me”.
There are some great forums at myfico.com about building (or rebuilding) your credit. There are people there who are very knowledgeable about credit and whats best to do to build it, and keep it!
Agreed with the other PP's, but I wanted to touch on "getting a different card in 6 months"
If you cancel the card you get now, it will erase the history you've created with that card. Don't ever cancel an account unless you think it is absolutely necessary (like they have non use fees or yearly fees that you can't handle). Whatever card you get will be your longest history of credit, so use it wisely. If you get too many cards in a short period of time, that will ding your credit score as well. I'm not sure why you need a second credit card? If you maintain a good history with your CC company they will raise your limit, which is a good indicator that your score is going up.
Also don't apply to too many cards at once. Do your research, there are plenty of websites that will tell you the best value for your card. Get one with miles, or cashback. American Express requires that you pay your balance in full every month, and they have great rewards. You don't have to worry about the interest rate as long as you dont plan on carrying a balance.
Thanks everyone! Great suggestions!
@arenyth: The reason I was going to get a second card is because this one has a limit of $300. I got it through my bank. I met with a financial advisor, and because I have no established credit, there aren't many places that want to give me a card. I transferred $300 out of my own account to start this card. He said that I should keep it for a year and then apply for a new card. He was also the one who told me that I should pay 90% of my bill. This way, they're always loaning me "something", and if I pay my entire bill on time, there's nothing for them to loan me. It didn't make much sense to me.
I wanted to get a card that has a slightly higher limit for mainly emergency use. I always try to pay cash as often as possible. Plus, I'm just trying to figure out ways to help improve my credit score. FI has a really good rating, and I know we will apply for a home loan in a few years. I don't want those rates to be higher because of my score.
@keepsmiling19: You can get the limit on your current card increased in most cases, especially if it's through a bank that you have a history with.
@keepsmiling19: The bank rep told you to leave a balance on there so they could charge you interest fees. In fact the minimum interest charge is prob $2 so the rate you will end up getting charged will be waaaay higher than the stated rate for the card.
You have a good plan to get another card in about a year- the more available credit you have, the better your score will be. Don't check it too often, because every time you check your score it will go down slightly (it will go back up, nothing to be alarmed about).
I will say, though, that getting a credit card is only going to do so much for you in terms of building credit. My husband and I tried to buy a car several months ago, and wound up getting a crappy interest rate because of a lack of credit history. My husband and I both have had credit cards for about 6 years now and diligently pay them off. However, when we were buying our car, the sales rep said that doing a car loan is not so bad because it will build a stronger credit history for us and if we do well with this, it won't make homebuying such an issue with a lack of credit history and we can get a better rate.
It sounds like you have a “secured” credit card then. Banks can “unsecure” the card (I think they are more willing to do so after a year or so), and once its an unsecured credit card, the rate can be raised and it functions like any other credit card.
I agree completely with Arenyth – don’t close this card, because that will definitely damage your credit score. Even if you get a new (additional) credit card, just keep this one in a drawer somewhere and use it once every quarter to keep it “active” and open/reporting.
There are also some websites that tell you which credit cards you can get with X credit score, and compare points/rewards. Maybe check on your credit score 6 months or a year from now, and then figure out which card would be best for you
Multiple types of tradelines will raise your score as well. Basically, they want to see that you can manage different types of credit over a period of time: credit cards, car loans, other loans, mortgages, etc. Hope this helps, I really screwed up my credit in my early 20's, so I try to help if possible now so no one repeats my mistakes!!! :)
@Miss Burgundy: Yea, I've been struggling with something just like that. My rating should be perfect, I've paid off a car loan, have established fantastic credit history with multiple cards and a large available credit. But my score was still below what I wanted it to be, and was only considered "good" instead of excellent. And all it came down to was: time. My credit history is good, but I haven't had it for long enough. I was told that once I've had credit for about 10 years, then I will fall into the excellent category. I honestly think credit ratings are bullshit, I couldn't be a better customer and I still get penalized.
@keepsmiling19: Yea I'm not sure who you're banking with, but he is not helping you. Your credit limit can be raised, sometimes you have to ask, sometimes it just happens. I suggest when you do get a second card, do not go through a local bank - do some research online and find out what the best possible card is for you. I have been using Discover and I love their website, their communication and transparency of fees, and my cashback rewards have been very useful. They are not accepted everywhere however, and so I have my Visa debit/credit card for other times.
@kirabee: Don't request a limit increase if you don't have to. That will bring down your score.
As to the OP: There have been some cases where banks have done some shady things to people w/ great history who always pay on time and never carry a balance (i.e. customers they don't make money off of). Those stories are few and far between. I only have ever seen them on CNN. I would consider getting a new financial advisor. Or watching Suze Orman.
Something I did when I was just starting out was to get "Signature Loans" from my bank. They were usually $300 or $600 and I would pay them off over the course of 3 months or 6 months, directly debited from my paycheck. I did this about 9 times...blew the cash on whatever I felt like, paid the money back on time, and my credit score literally sky rocketed. Might see if your bank does something like this rather than messing with credit cards.
@deetroitwhat: Is that the same as a personal installment loan?
All of this is making me realize how uneducated I am! This needs to change.
You have a secured credit card, so it would probably take a good 6mo-1 year to be established enough to apply for your next card. You should wait at least the year before applying for another card. Too many inquiries also hurt your credit score.
Once you get another card, you shouldn’t cancel your secured one unless they are charging you yearly fees or something. Keeping credit cards (even if you don’t use them), increases your total credit so you shouldn’t really close any of them. Having a lot of cards that you don’t use (or only a couple but with large credit limits) is good in case you ever do get to the point where you need to carry a balance your available credit will still outweigh any balance that you carry.
If you’re looking for financial advice from a bank, I’d suggest going to a credit union instead. Typically the advice you get there would be better than at a for-profit bank.
But to go back to the comment about carrying a balance though, that is mostly to show a payment history. One of the things that banks look for when issuing new credit is your history of making payments on time. If you are paying the balance as soon as you charge it, your payment history isn’t really being recorded. However, since your credit is still pretty new in the grand scheme of things it isn’t going to make much of a difference.
Have you ever had a lease in your name? A cell phone bill? These are really important things that will build your credit as well (as are all utilities). I think it's also important for every woman to have had every type of utility/lease in their name at least once. When my parents divorced, she had trouble getting any of these in her name without huge deposits since she had always been dependant on my dad. It was extremely difficult for her. Something to keep in mind - always have your own back :-)
@crayfish: We are putting the cable bill in my name. I had bills in my name, but that was back in 2003, so that doesn't show up anymore. I have a car insurance bill. I have been thinking about getting a new/certified pre-owned car, but with paying for grad school and saving for a wedding, it doesn't seem like the best time to do that :-(.
You do not need to keep a balance to build credit. The most responsible way to use credit and to build your score is to only charge what you can pay in full each month, and then - pay it in full every month. Of course, there are cases in which it can be advantageous to pay less than the full balance, but that's largely in cases where your money is making more money elsewhere (e.g you have a low rate loan or balance transfer and higher earnings from some other savings vehicle). In your specific case, pay what you spend each month. Over time, that will raise your credit score.
Building credit can be tricky!! I agree with everyone else that you definitely should not close the account for your current credit card when you get a new one- it will be good for your credit history.
As for using and paying your credit card each month- unless a card has "no limit" as it reports to the credit agencies, you should try to keep a low (or zero) balance on the card and pay it off each month. A good part of your credit score is based on a debt to credit ratio- so with your $300 card, if you run your balance up one month to say $150 (even if you pay it in full), your ratio for that month will be 50% = 150/300. 50% is high. I always shoot for less than 30% and i've been told that if you are looking to buy something that uses your credit score information to cut it to less that 15%. But- that ratio changes based on your most recent payment so if this month you only spend $30 you'll show a ratio of just 10% after the credit card does their monthly reporting to the agencies.
It gets trickier with "no limit" cards (which i'm pretty sure yours is not) because the credit card company has no "credit limit" number to list with the agencies. It often causes them to submit the highest balance you've ever had on your card as something like the "limit". I had a card like this once and didn't realize it and it hurt my credit score. What I did to fix this is run up a high balance one month (say $1000), and then immediatly paid it off. It killed my debt/credit ratio for that month (because it looked like i spent $1000/$1000 = 100%) BUT the next month when i spent $150, it showed up as 15%. I don't know how long they hold your "high balance" for but i think its like a year. I'm wondering if that's where you got your "spend 90%" advice... but i really really doubt that your current card is "no limit" since you've been told its $300.
As for utilities, it sounds like a good idea, but i have no idea. I had 3 different utilities in my name at my last house and NONE of them were reported to the agencies... how cheap is that?!?! Can't a girl build her credit? :-)
@keepsmiling19: Pay your balance in full every month. This helps you avoid interest charges.
Having utility bills in your name and paying them on time does not affect your credit score. The only time utility companies report to the credit agencies is when you fail to pay your bills. Your credit report and score is based upon how you manage credit - auto loans, mortgages, credit cards, etc. If you want to keep building your credit file, start out small with one or two credit cards and go from there. The only way to get credit is to prove that you can manage credit responsibly.
Also, checking your own credit report does not affect your credit score. These are referred to as soft pulls and are only seen by you, not those who access your report. Hard pulls are associated with applying for credit products and result in an inquiry attached to your report which in most cases knocks your score down a couple of points. So check your credit report as often as you want. But beware, it can get spendy! lol
This is what I go by....
Don't apply for too much at once (think of your inquiries in 6 month chunks and only putting 1 or 2 inquiries in this timeframe max)
Have at least 3 trades (this can be a credit card, loan, cell phone bill- sometimes shows, cable bill- sometimes shows, etc). This shows trends and that you are able to handle more than one card at a time which is good (for example: you are not going to forget to pay the card you are applying for).** But don't have too many - you will look like a credit seeker.
Too little of credit isn't good, but too much isn't either... it's finding a food balance. You don't want to look like a credit seeker.
NEVER miss a payment. Even if you can only pay the minimum on all the card you have that month if it is tight. Once you go delinquent on something is shows on you credit bureau (which will affect you FICO). This can in turn affect the amount of credit you will qualify for if you're looking for an increase. The credit card company may decide to decrease your limit, and this can also affect interest rates too.
I always pay my bill 100% before the due date and use the card everymonth.
Keep your oldest card open if you can. Like PP this is what esablishes your credit age.
I think the bank you went to is being a little sketchy. I had no problem getting my first credit card and it came with a 2000 limit. Also, I've never heard the advise to keep a small balance on it.... as far as I know it's best to pay it off in full every month, and you don't want to give them money for interest charges if you can help it!
Oh... and like PP... soft inquiries (when YOU look into your credit bureau) DOES NOT affect your score. It is only when you allow someone else to look into your credit bureau that it affects you score (i.e. apply for a credit card, loan, lease, mortgage, etc.)
@pinkshoes: I agree it is sketchy. The bank is only telling you that (OP) because they want to make money off you.. and the way banks make money is from interest. Don't listen to them.
I second myfico.com. Join the boards and participate in the community forums. They have been a wealth of information for me. I recently got a collections removed from my credit report after I contacted them and explained why it went to collections in the first place (stupid billing error that resulted in non payment by my insurance company). After everything got squared away, my score raised 57 points! This was all because of info I learned from myfico.com.
I realize you don't have any issues with derogatory issues on your credit but they have a section on there that will educate you about building your credit.
Many of the responses above have contained inaccurate information. Do your homework over at myfico! Good luck! Your cable bill won't reflect positively only negatively if you miss a payment.
You would be amazed at how many loan officers at banks and credit unions are uneducated about FICO scoring.
@keepsmiling19: Yes.
@heather25: I am really trying to remember. Again I was military and it was a military bank (Air Force Federal Credit Union) but I think it was 4%, maybe 3%. My car loan with them was only 2.9% (this was also like 7-8 years ago).
Pay all the credit card balance off. There is no benefit from not paying the amount in full and you will waste money on interest. We have never had a balance on a credit card and still have good credit scores.
According to FICO score websites, you should use less than 30% of your available limit, though they are very secretive about how they actually calculate credit scores.
When someone looks at your credit, they don't always go off of your score. Granted, your credit rating is going to determine your interest rate, but a lender is going to look beyond on that to see what you qualify for.
When you look at your report, you are first going to see if there are any judgments against you (goverment leins, unpaid medicals bills, and so on). Then there will be a section on your revolving accounts (CC's and line of credits). This will show when you opened the account (and if you closed the acct), the status of the account , the balance, the credit limit, minimum payment, and the past 24 months of pay history (this indicates how many times you were 30 days late, 60 days late, 90 days, etc). This will also show if there were any charge offs and the balance.
Then the next section is the secured loans (automobiles, boats, mortages, etc) and it basically shows the same thing as the first section. When the account was established, beginning balance, balance owed, and monthly payment as well as 24 months payment history.
Then the next section is where is shows all the people/places that pull your credit. When people talk about having your credit checked too often hurts your score, this is where it can be seen. This isn't true if you are shopping for cars, you have 60 or 90 days of having your credit pulled by car dealerships and it does not negatively impact your score. However, if you have Chase, Visa, Mastercard, Discover and AmEx pulling your credit to see if you can get a CC, then that is going to hurt your score. Plus, no one will be willing to lend you any money in fear that you are over extending yourself because they cannot immediately know if you were approved eslewhere.
Wow, that was really long and might not make sense. But I wanted to give you a picture of what your credit actually looks like. And, if you made it to the end of this, unfortunately there is no right answer on how to perfect your credit score since the equation of it is way too complicated. Just always pay your bills and never over-extend yourself. And like a PP stated, cable and utilities do not report on your credit (unless they have a judgment against you). They do pull your credit though to judge your credit worthiness.
Soory for the length of this post!
@KatNYC2011: "Also, don't check your credit score too often as credit checks can damage your score."
The above statement is false. Your credit score does not get damaged if you check it. It only gets damaged (3-5 pts each time) if anyone else other than you checks it. I.e. banks (if you want another CC, mortgage), car dealer, mall CC people, etc.
You can also obtain a free credit report for yourself from all three of the major credit bureaus. I would suggest that you sign up at at least one of their websites and keep an 'eye' on your score every 4-6 months. (I am not sure if that service is available for free. It was not to me in Canada.) Your credit is updated every 30-60 days.
I have done the above to raise my credit, therefore I know for sure.
Also one more thing.... your credit score will damage if you ask the bank with which you already have a credit card to raise your limit. If they offer to raise it, then it is cool.
I know that the debate could go on all day about what you should and should not do regarding credit cards since there is not known exact science on how a credit report generates the score. However, I have to disgree with Sasha2011 about it damaging your score if you request a credit limit increase versus the bank offering an increase. A bank only sends numbers to the credit bureaus. It does not send a message stating that the account holder requested the limit increase. Either way, they are pulling your credit before they offer or approve a limit increase.
Some places say to pay off your CC monthly and some say to keep a balance of 15% of your TOTAL available credit from all your revolving accounts. It is up for debate which one is right, but I just pay all your accounts and you will see a great credit being built over time. And it definitely takes time.
I don't know about other credit card companies but I review credit bureaus all day for new applications and credit limit increases, and your score does not get damaged from the bank doing a increase for you, the only time it will affect your score is if you ask for it as it is an inquiry on your bureau.
Although... I can only speak for the company I work for and I have learnt from there... I may be wrong
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Right now, I have no established credit. Since we're getting married in about a year and a half, I wanted to start raising my credit, so I went to a bank and got a small credit card. I'm just putting gasoline on it (it has a $300 dollar limit, I am planning on sticking with this for 6-12 months, then getting a different card). I am also getting the cable bill put into my name. I know that paying the cable bill completely and on time will help to raise my score.
I have heard totally different things about paying off a credit card balance. Should I pay the entire amount right off the bat? Someone told me to pay 90%, because if I don't leave a little on there, they don't have anything to loan me, so my score won't go up. I'm just curious if anybody else knows anything about this.
Thanks!