Establishing Credit - tips and tricks please

[DouglasFiel 53]

You do not need to carry a balance to increase your credit score. The average balance gets reported and the current balance

is reflected. I think my avg credit shows a couple of grand a month even though I have always pay off my balance in full.

The only way I might be attempted to use credit on a credit card,,, was if it was zero percent interest and I have the cash

in savings. A good example of this might be,,, student loans. If someone will lend you 10k at no interest for 3 years.

Why not replace (student load debt which is not discharageble through bankrupcy) with unsecured debt (that is).

Regards,

dc

[Kazulie 132]

You DO NOT need to leave a balance on your credit cards each month.

Take, for example, cards that REQUIRE you to pay off your balance every month (American Express, Von Maur, etc). Who would own these cards If you got penalized for meeting the terms of the credit card agreement???

- pay your bills on time

- don't use more than 30% of your credit limit

- pay off balance each month

[alizon 77]

Paying off your balance every month and being assessed a bill that says you owe $0 are two different things. Your last bill's balance IS reported to the credit agency as your "current balance," and like I said, I noticed a 40 point drop when that was at $0 versus the next month when I let them give me a statement with some cash on it and my score went back up 40 points. If you get a bill in the mail that says you owe $200 on your credit card, and pay it before the end of the month, you ARE paying off your whole balance! Obviously, I'm not the one calculating the score, so I can't say for sure that's what caused it, but makes some sense. If the company continuously sees $0 as your balance, they're going to think that you don't use your credit card at all, which means you aren't actually showing them that you are capable if taking out a "loan" (in the form of using your credit card) and paying it back in a timely manner, so you aren't showing them that your behavior makes you credit-worthy for other loans.

[Stuart and Thea 95]

Every up to date site for US credit scores that I read during researching the topic(note, NOT financial planning, but increase score fast links) says to pay off your balance in full.

Yes, in some other countries carrying a balance is the way to go, because it shows you are using your credit, and not having too much credit available is the way to go, but here, for scoring, it seems to be about the ratio and history and nothing more. So... lots of available credit, with little credit used (esp a zero balance each month!) but a history of on time payments for as long as possible is the key to a good score. Add up different kinds of credit, such as retail cards, bank loans and leases and you're on your way to a great score! As to using a loan to build credit, it can be a LOT less expensive than some of the cards out there that have yearly fees, and high interest, so it can be a valuable way to build credit fast! Also, do not throw away older cards as newer ones with lower interest rates and fees become available, or you lose some of that history and can drop your score, just remember to use them once in a while.

As to adding your name to your spouse's card if they have bad credit, well, if you don't give them your SSN, remember that you might not be building a credit history with it, unless the issuer decides to link it to you anyway. There are a lot of other ways to link you with your spouse for AOS, adding your name to bills and the lease is a good one!

[alizon 77]

Yes, in some other countries carrying a balance is the way to go, because it shows you are using your credit, and not having too much credit available is the way to go, but here, for scoring, it seems to be about the ratio and history and nothing more. So... lots of available credit, with little credit used (esp a zero balance each month!) but a history of on time payments for as long as possible is the key to a good score.

But the history that they want to see is not that you just have had credit cards hanging around for years, but that you have actually used them appropriately: charged something, paid it off (preferably by the end of the month after you have received the bill, though obviously credit card companies would like you not to do that). As you said, they want a history of on time payments, but if they see a constant balance of $0 (meaning that you never charge anything, not that you charge something, get a bill, and pay it off), then they aren't seeing a history of payments. THAT is what proves credit-worthiness: that you are capable of owing money and paying it back.

Anyway, not a financial advisor here, just my opinion from what I have read.

Edited June 25, 2012 by alizon

[together4evr 360]

I think my way is quickest to raise your score. It only takes 2 months.

All my credit cards have very high limits and are paid in full (usually) lol

[Stuart and Thea 95]

But the history that they want to see is not that you just have had credit cards hanging around for years, but that you have actually used them appropriately: charged something, paid it off (preferably by the end of the month after you have received the bill, though obviously credit card companies would like you not to do that). As you said, they want a history of on time payments, but if they see a constant balance of $0 (meaning that you never charge anything, not that you charge something, get a bill, and pay it off), then they aren't seeing a history of payments. THAT is what proves credit-worthiness: that you are capable of owing money and paying it back.

Anyway, not a financial advisor here, just my opinion from what I have read.

You might want to do a little more reading, I've read on multiple pages that carrying a balance from month to month does not improve your score and can in fact harm it. Using your card and paying it off, will generate a history of on time payments, they report when they send you the bill, not when you pay it, so they will see that you are using your card. Carrying a balance only means you are paying interest that you don't need to be paying. See the following page from msnmoney, or just google "does carrying a balance raise your credit score" and read any number of posts on the subject. Yes, use your card, but pay it on time and in full!

I'm one of the moderators of the personal finance sub-reddit at Reddit.com, which routinely sees plenty of credit score-related questions. This recent one made my blood boil:

User "wooga" told me his lender advised him to carry a balance to improve his score. Wooga said: I was told by the lender that if I paid down to 1/3 of my balance that it would improve my score by 100 points in a few months, more than it would to keep a zero balance (or pay off each month) which is what I normally do. I didn’t believe it. …

I'm glad he didn't because it's flat-out wrong. Lenders would like you to believe that your credit score improves when you pay interest, but it's simply not true. Credit cards report your balance when your statement closes. They report it again when the next statement closes. These are snapshots in time with no information about what happens between those two moments. The reports are the same whether you carry a balance or pay off the balance in full, so carrying a balance does not improve your score.

link to article quoted

Edited June 26, 2012 by Stuart and Thea

[alizon 77]

You might want to do a little more reading, I've read on multiple pages that carrying a balance from month to month does not improve your score and can in fact harm it. Using your card and paying it off, will generate a history of on time payments, they report when they send you the bill, not when you pay it, so they will see that you are using your card. Carrying a balance only means you are paying interest that you don't need to be paying. See the following page from msnmoney, or just google "does carrying a balance raise your credit score" and read any number of posts on the subject. Yes, use your card, but pay it on time and in full!

We are arguing for exactly the same thing: not carrying a balance from month to month. From the beginning of my posts here I have been saying that you should pay off your entire BILL every month so that you do not pay any interest. The distinction I was trying to make was between letting yourself have a bill to pay off in full (pay May charges in June) vs. paying the card off in full before there is a bill (paying May charges in May). I repeat, I am not suggesting CARRYING a balance; I am suggesting having a small balance in a given month, and then paying it off AFTER you have been sent a bill.

I think maybe the confusion is that we are talking about two different ways of assessing interest on cards. My bank does not charge interest on purchases made that month, so if I make a purchase on May 15th, get my credit card bill on May 30th, and then pay the bill on June 3, then I am not charged any interest and the credit bureaus see that $100 purchase on my bill so they see that I am using my card. THAT is what gives you a credit boost, not the fact that you were charged interest, as your citation implies, but the fact that the credit bureaus can observe use of the card. Interest is only charged if June 30th rolls around and I haven't paid my May 30th bill, which NEVER happens because I always pay off my balance in full, just like we have all been suggesting. Paying off your bill and then charging something new is not carrying a balance; that's using your card responsibility, getting whatever rewards points it gives you, and not paying interest! Contrast that with constantly having a $0 bill reported to the credit bureaus (like buying something on May 15th, paying it off on May 18th, and having a $0 bill by May 30th). Like you said, they can't see anything between the May 30th balance and the June 30th balance, so they can only assume that I'm not using my card at all, thus not giving me a history of on-time payments.

If you are being charged interest on purchases that you made during the month you made the purchase, it's time to look for a new credit card.

Edited June 26, 2012 by alizon

[M&Pooh 12]

My bank does not charge interest on purchases made that month

If you are being charged interest on purchases that you made during the month you made the purchase, it's time to look for a new credit card.

Nobody can be charged interest for current purchases. The law ( I believe, it's called CARD Act of 2009 or something like that ) stipulates the minimum grace period. It's something between 20 and 25 days.

Contrast that with constantly having a $0 bill reported to the credit bureaus (like buying something on May 15th, paying it off on May 18th, and having a $0 bill by May 30th).

Are there people who are actually using their cards that way??? This looks like a perversion to me. The opposite way ( the one you're advocating ) is just natural way of using credit cards, the way they are designed for ( I am not talking about carrying balance here ), why somebody may want to pay the bill a whole month prior to the date it's due?

[alizon 77]

Nobody can be charged interest for current purchases. The law ( I believe, it's called CARD Act of 2009 or something like that ) stipulates the minimum grace period. It's something between 20 and 25 days.

That's what I always thought, which is why I didn't understand why everyone was freaking out when I suggested that you pay your balance down to $0 after you get your bill and use your card in such a way that you don't get $0 balance showing up on your credit report, and that this is in fact NOT the same as carrying a balance.

Are there people who are actually using their cards that way??? This looks like a perversion to me. The opposite way ( the one you're advocating ) is just natural way of using credit cards, the way they are designed for ( I am not talking about carrying balance here ), why somebody may want to pay the bill a whole month prior to the date it's due?

Yeah, that is how I use my credit card sometimes, charging something not because I don't have the money right then, but because you get 1-5% cash back from using it. Paying the credit card right after you make the purchase can keep you from overspending, but doesn't help the credit bureau see what you are doing.

Edited June 26, 2012 by alizon

[Stuart and Thea 95]

Are there people who are actually using their cards that way??? This looks like a perversion to me. The opposite way ( the one you're advocating ) is just natural way of using credit cards, the way they are designed for ( I am not talking about carrying balance here ), why somebody may want to pay the bill a whole month prior to the date it's due?

Yes, and they should, but not to keep their card at a zero balance, but to keep below that 30% mark, if you're going to go over it, because you use your card more often than the limit allows for, then pay it off midway through. Then when the balance gets reported you're okay, just use that mark, (like I said in another post for those with a 500$ card, that's only 150$) and any time you have to go over it, go home and make a payment!

[Kazulie 132]

Number 6....

http://finance.yahoo.com/news/6-ways-might-hurting-credit-144825674.html

[rade2rising 205]

You do not need to carry a balance to increase your credit score. The average balance gets reported and the current balance

is reflected. I think my avg credit shows a couple of grand a month even though I have always pay off my balance in full.

The only way I might be attempted to use credit on a credit card,,, was if it was zero percent interest and I have the cash

in savings. A good example of this might be,,, student loans. If someone will lend you 10k at no interest for 3 years.

Why not replace (student load debt which is not discharageble through bankrupcy) with unsecured debt (that is).

Regards,

dc

gr8 advise

[Angelica 0]

Secured cards are not eligable for an upgrade to unsecured for 1 year. Also being an "authorized user" on a credit card account does nothing for your credit, you have no legal or financial resposability for the account you see. You would need to be a joint account holder for your credit

to be impacted.

[Kazulie 132]

Secured cards are not eligable for an upgrade to unsecured for 1 year. Also being an "authorized user" on a credit card account does nothing for your credit, you have no legal or financial resposability for the account you see. You would need to be a joint account holder for your credit

to be impacted.

It can be done in 6 months.