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Building my credit / managing credit
streever
Registered User regular
Registered User regular
Hi folks,
I'm 30, and have no credit cards. My credit history is mostly a blank slate right now, with a small utility bill I hadn't realized I owed money on until I just checked my credit, and a small ambulance bill I am paying (It will be paid off this month). The utility bill is small enough that I can pay that right now, too.
I have about 2k in savings, and just got an Express Credit Card.
The Express card can only be used on their items, and has a small limit. I buy about 300 dollars of clothes a year (2-3 pairs of pants and about 6 shirts) for work, at Express, and plan to keep doing that, and paying off the bill immediately--not carrying a balance at all.
I was thinking I should get a small credit card just to use for groceries--only--because that is a cost that doesn't scale, I always spend the same amount, every month, and it is well within my finances. I am thinking I'll charge all groceries, then pay the bill in full, not carrying a balance.
I started budgeting last year and have had no problem sticking to it, including setting aside a few hundred from every pay check. (I live in a small city, do not own a car, and have very reasonable rent)
My questions:
I'm 30, and have no credit cards. My credit history is mostly a blank slate right now, with a small utility bill I hadn't realized I owed money on until I just checked my credit, and a small ambulance bill I am paying (It will be paid off this month). The utility bill is small enough that I can pay that right now, too.
I have about 2k in savings, and just got an Express Credit Card.
The Express card can only be used on their items, and has a small limit. I buy about 300 dollars of clothes a year (2-3 pairs of pants and about 6 shirts) for work, at Express, and plan to keep doing that, and paying off the bill immediately--not carrying a balance at all.
I was thinking I should get a small credit card just to use for groceries--only--because that is a cost that doesn't scale, I always spend the same amount, every month, and it is well within my finances. I am thinking I'll charge all groceries, then pay the bill in full, not carrying a balance.
I started budgeting last year and have had no problem sticking to it, including setting aside a few hundred from every pay check. (I live in a small city, do not own a car, and have very reasonable rent)
My questions:
- Does this sound like a smart plan?
- What card should I go for?
- Are there any obvious pitfalls I'm missing?
- I have no plans to buy a car or make any other purchase which would put me in hock. I've lived car-free for 8 years by choice, so this isn't an issue.
- The ambulance bill is being paid by a non-profit which held a fundraiser for me.
- Does it build your credit to pay your credit card bill in full each month?
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2. Check your credit score and see who will have you. Make a mint.com account and throw your score in, they'll make some recommendations.
3. It sounds like you know the deal.
4. This isn't a question
5. Neither is this.
6. Yes. If you make a purchase in ANY amount and pay it off they will show that you paid a bill, your balance is $0, and your limit is $X
I have a mint account, I'll look at the recommendations section! Thank you.
Glad to hear my assumption (re: 6) is correct. I've been told that it is a dumb thing to do, but never understood why people thought that.
From a data perspective it looks like they transmit
Who you are
Who they are
Payment Received/not received/in collections/charge off
Balance
Balance available
One thing I've been told to look for is to make sure they report every monthly cycle.
That's how I started. I'll just use it for gas!
I'm 99.99999% sure that the only thing that matters RE: your utilization is your debt-to-credit ratio when they actually transmit your monthly numbers
ITT you can make several payments over the course of the month to zero it out. That's what I do, anyway.
You want a good debt:credit ratio though, and depending on when they snapshot your account a nearly-maxed card could look bad - especially if it's your only card. 1:1 is not a good ratio.
Ok, for whatever reason, I've always shied away from continually paying it down to zero over the course of the month. Probably because of the delay in showing my transactions, and worries about the gap between the payment due date, and the end of the payment period.
Also, what's a recommended timeline for closing down a first, shitty credit card, and just sticking with a second, better card? My first one is just the worst, and I've had it for about 2 years now.
Additional question I forgot to ask before:
Retirement savings. How should I do that? Should I just use a program or go to a financial advisor?
Bowen: Good advice, and thank you. I think I'll be OK, because I really just don't spend a lot of money. I have a very active social life, but it is pretty organized. Like, I won't just go out drinking with friends, it is usually centered around some activity we are all engaged in.
Actually, talk to the benefits department of your company first. They may have some bitchin' info or a match program or something.
There are people much better at that stuff than me that post here.
Grace periods are your FRIEND! Most credit cards have a 20 day grace period. Now I have some confusion as to whether that grace period is from the date of purchase or the date the bill is issues. HOWEVER, do know that during this grace period, you will experience no finance charges on anything your purchase.
One you are past the grace period however they start charging you interest on every purchase you make form the second you make it.
Whats the best way to avoid finance charges? I pay my credit cards IN FULL every friday. This does two things. First it keeps me from having finance charges. And second it keeps me aware of just how much money I'm spending so I can plug it into my spreadsheet and stay on top of my monthly budget.
Of course, its only really feasible to pay it off weekly if the card has a good website you can go to that allows you to manage your account. Most do these days I believe. I have both my credit cards through Chase and they've been good to me. Wells Fargo not so much. And I've heard lately that Bank of America are being silly geese about their credit cards too, though I've never had one from them.
With my credit card I can use my points to get a 100$ or more certificate that can be invested in something like my RRSP (canadian equivalent of an IRA) so in the end it's a (very) little extra cash that ends up growing into more money.
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From a credit score perspective, you've no need to carry a balance. The revolving credit issuers update the bureaus every month (usually within a few days of your billing cycle closing or payment being due), and they update the balances there. In fact unless you're trying to increase the total revolving credit available (too much can be bad though) you don't even have to use the card, unless you carry no balance, in which case you'll want to use the card once a quarter/month to make sure they don't close the account.
Does the shitty card have an annual fee or something? Cause a longer history of a credit line being open is a beneficial thing. Meaning if you have 2 cards (1yr old and 2 yr old), and you close the 2 yr old account, it'll hit you negatively twice, once in making your credit utilization look poorer (less available credit) and second by reducing the age of your longest open line of credit.
Use a credit card with reward points or cash back for everything you possibly can, but always pay the balance owed on your card. Using cash is a waste of potential rewards. I personally get a $250 best buy gift certificate at least once a year from rewards. Who doesn't want that? Paying off your credit card every month also works to build your credit.
DO NOT hit your credit limit. Doing so hurts your credit.
Paying your credit card balance down to zero when billed is poor use of your money. You should pay only the amount you owe. There will inevitably be charges after the billing date but before you pay the bill. If you pay those charges off early, you are practically giving the credit card companies an interest-free loan. Instead, get interest on that money yourself for a month!
That sounds interesting, but I am a little bit lost--do you mean that there will be additional charges anyway, and as long as you pay what you owe, you don't get billed extra? (fees/etc)? Thanks in advance.
It does have an annual fee. It also has the worst customer service, and a website that refuses to show me a list of transactions. For a while now, I've been doing nothing with it, other than paying my $50 cable internet fee, but I'd love to close it.
Np! I'll make a little timeline to explain.
Jan 1 - Obtain credit card
Jan 2-30 - Spend $500
Jan 30 - End of billing cycle
Feb 4 - Buy a $1000 computer
Feb 12 - Receive bill for January, due Feb 25
Feb 20 - You decide to pay your credit card. Online, your balance is 1500, but you only owe $500 for January at this time. It would be a mistake to pay $1500 here, but a lot of people do it to zero out their credit card. You will not incur any interest charges for waiting until your next bill to pay the $1,000.
You mention fees on the credit card. You should never have to pay any fees or interest on a credit card if you pay what you owe on time.
I've always avoided that, by not charging anything too close to the due date, then paying it off, and not charging anything again until my balance reflected a zero. Probably because my first credit card(at least before the reforms) fucked me over in regards to that.
Interest rates are pretty bad these days but I'd still say it is less than optimal to pay that stuff early. 2k sitting in a savings account for month making a few percent is a free lunch. If you are remodeling your kitchen on your credit card you are talking a lot more money. It is one of those small practices that doesn't seem like a big deal but over the course of 40 years adds up to real money.
If it is easier to figure out your financial standing each month by paying it all off, by all means pay it, it won't kill you.
I think my bank is offerring a whopping %0.15 APR on money market balances between $10K-25K (0.05% on interest-bearing checking). So I think by in large it's a wash. If you've got some fantastic bank that's actually offerring multiple percentage point APRs on checking/savings under $250K then maybe you got something there, I'd also like to know which bank you're doing business with.
I think the interest I'd earn on $2K over a month is in the neighborhood of a dime.
ING offered as high as 4.75% before the economy crashed. Mind you, this is in savings, not checking. I realize that the current state of things is way less. I think I get something like 1.1% now...
Still, I gave my input because a lot of people don't realize that they don't have to pay their balance to zero each month. You can try to make your money work for you if you want.
The downside is that if anything goes wrong (you forget to pay, payment goes to wrong account, shit happens), you're subject to high credit card rates (20%+ is not uncommon) on the balance that you're trying to game interest rates on. At 5% it might be worth it to me, but not at current rates.
Absolutely, missing a payment entirely or whatever can screw you up a lot faster than you can come out ahead via diligent money management.
Even small things like atm fees and checking maintenence fees can seriously undo any slow gains via interest you make. When I first opened a Bank of America checking/savings account, I spent a year paying an $8-12/mo maintenance fee because I didn't transfer money to my savings account every month. I thought I was smart by moving all my money to ING for a better interest rate but was actually losing money every month due to the fees. Avoiding situations like that is more important than gaming interest rates.
Managing your own incoming interest rates is way less important than managing your outgoing interest rates.
You are super correct. I was focusing more on the amount you pay rather than like.. waiting to the last minute to pay your bill. Missing payments entirely is bad no matter how you slice it.
:^:
Thought you were implying otherwise. I wouldn't dare try it, I know how I am with late payments.