Using credit cards "intelligently"

[YabbaDabba]

So. I'm 24, have really good credit, and have had at least one credit card since I was 18. But, the problem is that I barely use my credit cards--to the point that Capitol One closed my account because I hadn't used it in over 2 years.

 

Part of the problem is that I'm wary about credit cards and the associated pitfalls, but I also realize that to create a solid credit history, I need to show that I'm able to use these cards "intelligently." And, since I'm about to rack up close to $7,000 in academic-related expenses this summer, it seems like a good time to use one of my credit cards.

 

Don't get me wrong; I have the cash on hand, so I'd only be putting the amounts on the cards as a way to help with my credit history/rating, but I'm not sure how to approach this.

 

Like...I have the option of paying for several school-related expenses online, so what makes most sense in terms of my credit score: putting large sums of money on my card (say, $1,000-2,000), only to pay it off the next month? Or should I break it into smaller payments, to avoid such a huge jump in useage?

 

And should I pay off the total each month in one lump sum? Or carry a balance for a bit? (I'm reluctant to carry a balance, though, because I HATE paying interest).

 

Anyway, tips, tricks, insight and/or advice are all more than welcome.

[orchidrose]

You don't have to carry a balance for it to show up as "good" credit; you just need to use it. Many experts suggest charging something and then paying it off almost as soon as it shows up on your bill. This shows that you're using the card, but you're being diligent about paying it off. I used to charge my groceries every week, then pay them off the next week.

[Stella Sleepwalks]

The first amount you spend on your card doesn't matter. I would look at your finances and see how long it would take for you to pay off say $2,000 over a 12 month period. Don't put anything else on that card and make regular monthly payments. If you can pay off 3/4 of the amount by the end of the year then you've done really well.

 

It's trial and error. I don't think anyone ever feels comfortable using a credit card.

[mfan]

Agree with [aneffigy]. Pay the credit card off in full each month (to avoid late fees/finance charges) and you'll build great credit. If you have a phone bill, you can have that automatically charge your credit card, so that'll give you a monthly thing to pay off that helps your credit.

[sidehop]

What is your current FICO if you don't mind me asking.

 

The balance is very important. If your score is already good (725+ or so), don't go over 35% of your available balance. If you have two cards and say your available balance is $10,000 'total'. Don't show anything more than $3,500 in debt. Lower the better obviously.

 

There are some studies that show paying it off each month isn't necessarily a smart choice if you're trying to build credit. Leave some balance, even say $25 if your interest rate is low. If you spent $1,000 today and pay it off after the statement cycle, obviously FICO will see that $1,000 balance until the next reporting. But if you pay before the statement cycle FICO will never see that $1,000.

 

So it depends how your report looks like, your FICO, and what you're trying to achieve.

[YabbaDabba]

What is your current FICO if you don't mind me asking.

 

The balance is very important. If your score is already good (725+ or so), don't go over 35% of your available balance. If you have two cards and say your available balance is $10,000 'total'. Don't show anything more than $3,500 in debt. Lower the better obviously.

 

There are some studies that show paying it off each month isn't necessarily a smart choice if you're trying to build credit. Leave some balance, even say $25 if your interest rate is low. If you spent $1,000 today and pay it off after the statement cycle, obviously FICO will see that $1,000 balance until the next reporting. But if you pay before the statement cycle FICO will never see that $1,000.

 

So it depends how your report looks like, your FICO, and what you're trying to achieve.

 

Great response! The last time I checked, which was about 3-4 months ago, my credit score was--off the top of my head--somewhere in the 780 range.

 

Thanks for the info. about sticking to 35% of my available balance. That's a really helpful tip.

[sidehop]

That's a VERY good score. You're only 60 points away from the golden number most people never reach in a life time. I'd say pay it off if you can; no reason to drop the score when it's already good. I will guarantee you though if FICO sees you cross the 35% mark on the revolving accounts (as a whole), your FICO will drop.

[Intense]

Here's my advice on credit cards: Don't!

 

If you don't have the money to buy something, don't buy it. Unless it is something you can consider an investment and it gives more ROI% than the expense of interests from loan/cc usage.

[Godless_Heathen]

Credit cards are a useful tool, if you use them as a plastic checkbook, and not as credit. Churning a lot of money through a credit card by paying off your balance each month will be fine for your credit rating, and it won't cost you any money in interest either.

 

You credit report is all about bills you've paid and, possibly, bills you haven't. Not how much of a balance you carried.

[Intense]

Credit cards are dangerous. I have a friend who ended up with the equivalent of 10,000$ in depth after a few months of unemployment. I had to bail him out or he would go to jail. Personally I am glad I stayed away from credit cards. If there is something you can't afford to pay with your regular bank account card or cash, just find a way to afford it.

Don't borrow money unless it is for an investment.

[renaissancewoman101]

Credit cards are dangerous. I have a friend who ended up with the equivalent of 10,000$ in depth after a few months of unemployment. I had to bail him out or he would go to jail. Personally I am glad I stayed away from credit cards. If there is something you can't afford to pay with your regular bank account card or cash, just find a way to afford it.

Don't borrow money unless it is for an investment.

 

You don't go to jail for credit card debt.

[CaptainNapalm]

I was in the exact same boat as you. I had a credit card since I was 19 and almost never used it. When I turned 28 I asked them to raise my credit limit from $500-$1000 and they refused even though I had $15,000 in my bank account and a job generating $60,000/year and no debt. They simply said without a credit history they can't do it. So I then started using my credit card regularly for certain fixed purchaces ex. gas, clothing shopping and electronics (when I needed them) and within half a year they raised my credit to $1000 and after another year and a half of consistently using my card and always paying off in full every month they raised the limit to $13,500 (just recently actually). Now when you say you have good credit I'd be careful throwing around that phrase. Just because you have no debts you don't have good credit, you just have no credit and there is a big difference so I suggest you start using your card for weekly purchases and within a year you should have developed a very good credit provided you pay it on time. And don't worry about fraud related things when it comes to credit cards. My cousin had his VISA ripped off in a major way on two occasions and never had to pay a penny. Most credit card issuers are very good like that.

[CaptainNapalm]

Who ever tells you to never use your credit card unless you have to is completely wrong. Key is, use it when you have the money to pay things off so that you develop good credit. Good luck trying to get a mortgage, line of credit or a personal/business loan without a credit history. You'll get laughed out of the bank.

[Intense]

Being broke and in depth often leads to crime which usually leads to jail. This guy could barely buy food. He told me how he would prefer to be in jail and how stealing/robbing money would be a win-win situation even if he got caught.

[sidehop]

Is this a law in Norway? The debt collection works different here in the US, unless there were criminal intent there's no law that state a debtor will go to jail. Consumers are protected by FDCPA and FCRA. Credit will be ruined obviously but just because you don't pay a credit card bill doesn't mean he/she will land in jail.

 

And credit card isn't just about how you paid bills, it shows a lot more how you've managed money. Sure, you don't need a credit to show that you are financially responsible but financial institutions and lenders cannot tell that without a history of credit. People claim you don't need credit, etc and I agree for the most part. But for most average working people a house or bigger purchase is not something you can afford without the use of a loan or credit of some type.

 

The OP has an excellent score, more so than average score. If the OP had say below average FICO say in the 600's or lower, it would be absolutely critical for the credit to be used cautiously. The 35% rule is probably borderline, people with low credit need to keep the utilization as low as possible. They estimate 10% or lower until the score reaches in the 700's and good history for number of years.

[capbit]

I use my credit card for most purchases since I don't like carrying large amounts of cash on me, so I use it on anything from food to plane tickets. I was taught to never spend money I didn't have, and I've kept that mentality when making purchases. I also make it a habit to pay off my credit card when I see my purchases reflected online. Most months I don't even receive a bill in the mail because I'll usually pay it off before the end of the month. That's how I've been operating since I got my credit card when I was 18 and no problems here. You just need to be responsible and have self control when using a credit card.

[waveseer]

Here's an idea. Send the credit card company a check and then use the card up to the amount you've already sent. That way you will never end up in the red.

[Pressfit]

You don't go to jail for credit card debt.

 

In some countries you can and still do go to jail for debt. Not specifically credit card debt either, just all debt in general. The United Arab Emirates (UAE) is just one of them. Hundreds of people fled Dubai in a flash to keep from getting thrown in jail when they lost their jobs and couldn't pay on their cars and leases. They said the airport there looked like an abandoned car lot. This happened last year and '08.

 

Can you say: "Next plane to London"?

[OntheWire]

Just pay your balance off in entirety each month. While it's true that holding a balance over time might improve your score slightly, I don't see any reason to pay the credit card companies for that... and every time you hold a balance, you're paying them.

[fLuiD]

You always want to carry a balance on your cards. The key to this is keeping it manageable. You also want to build history with the card company so you never pay off the monthly balance on the card. When the card company reviews your account every couple of months, they will look at payment history. If they see you have made consistent payments on your card, they are more likely to increase your available credit.

[turnera]

I was taught that your credit looks better if you charge something, and then show that you will make regular payments to pay it off, in the range of at least 3 months, and up to one year, depending on the amount - that way you have a record of paying DOWN a debt, not just using your card like a debit card. It shows that you can control yourself and not let the debt run into years.

 

fwiw, a lot of employers now look at your credit score before deciding to hire you. If you have NO credit score, by having no credit cards, you can be hurting yourself.