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Okay, I just got my credit card. Now what?
Drez
Registered User regular
Registered User regular
So a few weeks ago I made a thread about rebuilding my shitty credit from the ground up. I mean, it's shit. It's not as shit as I thought, but it's still shitty.
Anyway, I got a tiny credit card. I've been reading a bit on how to establish credit and I'm trying to understand and work out a game plan.
In the midst of all this, I also divorced myself from the Verizon Wireless family plan I was on and went on my own plan. My bill is going to be about $80 a month.
So, I think I will do this: I will set up my Verizon account to automatically pay the phone bill every month using my credit card. I will then pay off my credit card balance in full from my bank account immediately. I intend for that to be the bulk of my activity on this card, if not my ONLY activity on this card, at least for the next 6 or so months.
Will this help me build credit, or not really?
Also, I read something about utilization. I guess it looks better if you're only using 40% of your limit as opposed to 90%? How does that work? Do you get demerits for using close to your limit? Or does your credit score just not improve as quickly if you are doing that?
What if you make a purchase that uses up 90% of your limit but then pay it off or pay it down within a day or two?
Anyway, I got a tiny credit card. I've been reading a bit on how to establish credit and I'm trying to understand and work out a game plan.
In the midst of all this, I also divorced myself from the Verizon Wireless family plan I was on and went on my own plan. My bill is going to be about $80 a month.
So, I think I will do this: I will set up my Verizon account to automatically pay the phone bill every month using my credit card. I will then pay off my credit card balance in full from my bank account immediately. I intend for that to be the bulk of my activity on this card, if not my ONLY activity on this card, at least for the next 6 or so months.
Will this help me build credit, or not really?
Also, I read something about utilization. I guess it looks better if you're only using 40% of your limit as opposed to 90%? How does that work? Do you get demerits for using close to your limit? Or does your credit score just not improve as quickly if you are doing that?
What if you make a purchase that uses up 90% of your limit but then pay it off or pay it down within a day or two?
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http://forums.penny-arcade.com/discussion/125221/my-credit-is-terrible-how-do-i-fix-it/p1
For reference when I asked this same thing.
The key is, as you said, to pay it off in full every month. The cell phone is a good idea, and another good addition or alternative would be gas for the car.
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So I've read two pages of that thread and I think I need to leave it before my head explodes.
Yeah, there's not really any straight answer.
Just buy shit on the card, pay it off expediently, etc...
The bank sends me letters once a year offering increases to my credit limit (which I assume means I have a good credit rating). On average I use about 30% of my limit, although just last christmas when I was expecting my christmas bonus I spent up to 90% of the card.
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(Edited to fix the mistake that was pointed out, whoops!)
The credit card company sees the bill, then sees it get paid of whether you wait till you get a physical monthly bill or not. It doesn't matter.
If it helps, I posted in that thread and I was wrong. As long as you use your card during the billing cycle, they report it. You don't have to wait until your statement to pay it off. It doesn't seem to matter if your reported balance is $0 or $1.
I actually think just about everyone in that thread was wrong to some degree. I did some googling and according to what I read, utilization is 1/3 of what factors into your FICO. Utilization is Credit Used/Credit Limit. However, that only gets posted to the three credit bureaus once per billing cycle and is NOT necessarily your billing date.
According to some sites, showing low utilization improves your credit score. But that only gets reported once. You could use 90% of your card, pay it off completely, then use 40% of it the next day and if that happens to be the day they report to the bureaus, then you have a utilization report of 40% for that month.
Though of course I may also be incorrect and unfortunately I closed all the pages I was looking at. I'm kind of frustrated with all this.
Good to know, then (although I've never received a physical bill in the first place, but that's beside the point). At the moment I'm in a situation where I'm continuously paying things off a month after I charge them anyway, while putting other stuff on the card as I pay it off in a few installments over the course of the month, but now I know for future reference. Guess I had either old or incorrect info. Looks like I'm not the only one who heard this once, either, so that makes me feel a bit better!
Edit: Yeah, I think the primary concern with utilization is how much is on your cards when somebody goes to look at your credit score. As far as I've understood it. Like @Deebaser says, this stuff is some sort of black magic, especially when you're just learning about it all.
There's a difference between:
- What the credit card company sees.
- What the credit card company reports to the credit bureaus.
I mean, they are your credit company. They can see all of your activity. But they don't report all of your activity to the credit bureaus. The question is what credit activity does the credit card company report on. It's a given that the credit card company sees you paying off your balance whether it is pre-bill or post-bill; that was never in doubt. The question is: What factor does that have on their reporting.
I know it's just semantics, but asking or discussing "what the credit card company sees" is misleading and unimportant, because they see everything.
I actually did mean to say what the credit card company reports, my bad!
Paying interest is not good for anyone but the CC company. Honestly 'Big Credit' doesn't want you to know what their black magic is.
You buy shit, you pay it off when your bill posts. Try to avoid paying it off as soon as you buy something. Wait until you get a bill. Keeping a 0 balance with a debt to income ratio helps boost it. Paying on time is the biggest thing. It's not so much to carry a balance, it doesn't help, but it doesn't hurt too much so long as you're paying the minimum. It's when you don't pay or don't pay the minimum that shit gets real.
It is not "extra" money, so don't buy anything special just because you have a credit card. It's a convenience tool. It's much easier to buy a $1200 item using a credit card compared to paying cash, for example. And remember that paying interest is a penalty for not paying it off. A normal loan is under 10%, while a credit card is usually between 10-30%, because it's essentially penalizing you for spending beyond your budget.
The only way people get in trouble with credit cards is to overspend and then not pay the bill off. So, don't overspend, and pay your bill in full.
Edit: aside from the fact that when you die you don't pass your debt onto anyone.
The will report 30, 60 , 90 day delinquencies and longer. If you're not behind they will report that your account is in good standing or payed as agreed or something. They will report the balance and limit on the day they do the reporting (may be 0 if you just paid it off, may be whatever balance if your payment hasn't gone through).
FICO looks at length the revolving debt instrument has been active, is it in good standing, are there any delinquencies and if so how long and how many, credit utilization (debt/credit for the line of credit), and any chargeoffs or lines of credit that are in default. I don't know how they weight what in determining score. Mortgage underwriters will also look at debt to income ratio and overdrafts.