Post # 1
I’m back.. with another question *ashamed*
I’ll keep it brief! To build a good credit score, I’ve heard you should keep the debt-to-credit ratio, or credit utilization ratio, under 25-30%. Since I just started building credit, my limit is a low $1000 so I should only be spending about $250 a month. However, it is very hard for me to keep it beneath that amount. If I pay off my credit card twice a month (instead of the typical once a month) so that my outstanding balance is always 250 or less, does that work?
For example –
Feb 1st spend $200
Feb 2nd pay off $200
Feb 3rd spend $200
Feb 4th pay off $200
So I always keep my debt under the $250 limit, even though I’m spending $400 a month which is above my $250 limit. Does that count as keeping my ratio below 25%?
*off to try and find a good money forum… suggestions appreciated :)*
Post # 3
I think it should. The credit card companies only report the balance on occassion. As far as I know, it’s only the balance that they report.
Post # 4
Most CC companies report once a month, just like any other revolving account. Each company will have a different reporting date… some go by your statement closing date, some don’t…. but they pull from your most recent closing date so that’s all you should really worry about.
They will report your statement amount. So, if you spend $400 and pay $200 before your statement closes, they will report $200 out of a line of $1,000. If you wait until the statement period closes and then make a payment of $200, they will still report the $400 balance on your credit line.
25%-30% utilization is WAY TOO HIGH! For what it sounds like you want to do, I’d stick with a 10%-15% balance. Ideally, 5% is best.
If you have limited credit, try getting a gas card or possibly a store account, like Macy’s or Target or something along those lines. Now, interest rates on those are RIDICULOUS so I suggest rarely using them and to pay those in full every month. This will do a few things for you: open up your total available credit and thus lowering your overall debt utilization ratio AND if you open accounts within a relatively short amount of time (typically within 15-30 days) the inquiries shouldn’t be too harmful on your inquiries list. Be careful with this little trick, though; open too many accounts too soon and it is damaging, indicating to creditors that you are potentially financially irresponsible. The “trick” is more useful if you are shopping around for auto loans, morgtages, etc (more of an installment type account). Anyway, if you get do a gas card, put all of your gas on it and pay in full every month + a department store card, you’ll definitely be on your way.
For tons of resources, information, tips, and experts, I’d go to http://www.myfico.com. When I was first starting out, I learned TONS from reading their forums. Lots of helpful people there.
Post # 5
You don’t want to intentionally spend $250/$1000 if you can and will spend more. If you do that, they will never increase your spending limit. The debt ratio as I understand it is your existing balance at the end of the month after you get your statement. You never want to keep a balance on your card. Spend up to $1k a month and pay off 100% at the end of the month. After about 4-6 months of this, my credit line was increased fron $1,000 to $1,350. When a bank trusts you with more money, you earn more credit.
Post # 6
@MrsBroccoli: I don’t know how true that is. I have only once paid off my CC in full and pretty much always carry a balance. Even when I was unemployed and just paying the minimum the bank decided to up my CC limit to 9k (yes!). I’m not recommending that she do that and it may be different in Canada.
Post # 7
@Ms. Martian: If you carry a balance, they might up your limit, but your credit score is not going to improve. You will be charged interest every time you pay less than the full balance. In fact, you’re mostly paying interest by making minimum payments and paying little of the principal. Here are a few more reasons not to carry a balance, if you’re interested: http://www.talkingpoints.co/?p=617 There easy ways and very risky and high interest ways to raise your credit limit.
Post # 8
My recommendation for this is to never TRY to use the card, that just gets you in trouble, especially if you can admit that you have a hard time keeping your spending down. But having something such as your cell phone bill automatically deduct from that card once a month and paying the CARD instead of the actual cell phone bill will be enough to make your payment history and usage increase your credit score. I wouldn’t use it for anyone else. And 200 is still 20% which is too high, you want to aim for 10% ish.
Post # 9
@MrsBroccoli: I’m well aware that I’m paying interest. I was just pointing out that it is possible to have your limit increased even if you carry a balance. I now use my CCs for business purposes and sometimes paying interest and carrying debt is a just what I have to do to run my business.
Post # 10
Some credit cards actually don’t let you pay more than 4 times a month, so be careful with this plan. You don’t want to accidentally miscalculate a payment, make a 4th payment, and then get stuck paying interest on the remainder.
Post # 11
Also becareful around the time they pull your credit report for the pre apporval or refinance. They can pull at anytime once you give the your application so if you happen to not have paid your balance back down to the 25-30%, that may mess it up.
Post # 12
@sugarcube: Hey you are in CT just like me. Come to the CT board (look up top in local, then New England) we are planning a meet up for next month if you are interested.
Any way- I am on the credit learning ride just like you are, learning everything I can about credit. 20 – 25% useage is considered reasonable. I would have a hard time thinking someone should only use 10% or even 5% of their credit – with a credit line of $500, that would only be $25 dollars WTF?
Pay them twice a month to keep the balance low (if you don’t pay off) and that should work out. Remember, credit can also be decreased if you aren’t using it, which can impact your score as well. Using 25% is very reasonable, especially if you pay off the majority, if not all, the same month.
Post # 13
I pay off my credit card each month, have never carried a balance and have a great credit score. I don’t think you need to keep a balance to do that. My credit limits have also increased throughout the years.