Does NOT paying my interest free C/C affect credit score?

Discuss anything related to interest rates & fees, like balance transfer offers, low rate cards, annual fees, etc.
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bcourtney5965
 
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Does NOT paying my interest free C/C affect credit score?

Postby bcourtney5965 » Tue Jan 05, 2016 4:19 pm

Some prefacing: I will be attending a non-traditional educational program, specifically a programming bootcamp. The program is in an expensive city and I am looking to creatively financing non-tuition expenses - mostly food and rent. After an accountant's recommendation I am considering applying for a credit card with a zero interest introductory period (hopefully 1 year) and putting a large bulk of these expenses on it until I get a job afterward and can pay it off interest free. I thought this was a great plan until doing some research. Credit Karma lists payment history as "high impact" on a credit score.

My question is this: will putting expenses on a zero-interest card for ~6 months or a year and NOT paying harm my credit score? I would have it payed off before the zero interest period ends. It seems to me that since they are offering 0% interest, it wouldn't be right that making use of the 0% would affect your credit score. But from their perspective I can see how it could provide me interest free financing at the expense of damage to my payment history and therefore my credit score. I'm also no expert in this area. Will this plan of mine damage my credit?

The program has top notch employment rates and salary numbers - post program. And it is reputable so their data is trust-worthy. So this is a good move for my professionally, I just need to know if this will affect my credit.


takeshi
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Re: Does NOT paying my interest free C/C affect credit score?

Postby takeshi » Wed Jan 06, 2016 8:36 am

Any score is based on the data in a report. You can look at your own reports and see how interest is reported (it's not). What really matters as far as your credit cards are concerned in the context of your question is revolving utilization (balance/limit) for each of your credit cards as well as your overall revolving utilization (all balances/all limits).

bcourtney5965 wrote:Credit Karma lists payment history as "high impact" on a credit score.

Be very careful relying on CK. That said, CK is correct about Payment History. It is the biggest factor.
http://www.myfico.com/crediteducation/w ... score.aspx

However, Payment History is basically just a matter of whether you're on time or not and any derogs (lates, collections, etc).

Revolving utilization also matters and falls under Amounts Owed. It is not the only thing that fall under Amounts Owed but it does have a significant impact.

bcourtney5965 wrote:My question is this: will putting expenses on a zero-interest card for ~6 months or a year and NOT paying harm my credit score?

Not as far as Payment History is concerned if there is no minimum due while you're under the 0% offer.

However, revolving utilization will certainly matter and impact your scores.

bcourtney5965 wrote:It seems to me that since they are offering 0% interest, it wouldn't be right that making use of the 0% would affect your credit score.

Definitely read up. It's a risk factor. General advice is do not exceed 30% revolving utilization, however, scoring models favor lower revolving utilization and fewer reported balances as long as all your revolvers are not all reporting 0 balances. That's why the general advice to optimize revolving utilization for those seeking to eke out every possible point (i.e. when applying for new credit) is to allow only one balance to report at 10% or less. Some suggest allowing 1% or a $2 balance on the one card to report.

bcourtney5965 wrote:Will this plan of mine damage my credit?

We can't tell you that the impact will be X points. However, you can figure out what your revolving utilization would be. Your scores are impacted by high revolving utilization but they recover as your revolving utilization drops. Revolving utilization is based on current balances and limits as indicated on a report. Prior revolving utilization does not matter.

That said, a given creditor may take adverse action (credit limit decrease, balance chasing, account closure, etc) if you have high revolving utilization for a prolonged period of time. It really depends on the specific creditor's risk tolerance. Creditors are not all identical.

There are unknowns in all this but we can try to help if you can provide the amount you're thinking of charging and the limit on the card you're charging it to as well as how long it would take you to pay it down to different lower revolving utilization levels. Our feedback, however, is just a guess and not a guarantee. From what you've said so far, steadily increasing your debt while taking classes is probably going to be seen as risky to many creditors. On top of that, paying rent with a credit card isn't always an option and in many cases it comes with hefty fees.
Last edited by takeshi on Wed Jan 06, 2016 8:51 am, edited 6 times in total.

rockyrock
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Re: Does NOT paying my interest free C/C affect credit score?

Postby rockyrock » Wed Jan 06, 2016 8:44 am

If you are asking if not making payments will hurt your score the answer is yes. More than just about anything else this will impact your score and it will do so for up to seven years.

It also seems like you are equating 0% interest with no payment due. You will still have payments due, there is just no interest charged during the intro period. As long as you can make the minimum payment every month, your plan will work.

This whole situation is a risk. I'm sure there will be plenty of folks here telling you not to count your chickens before they hatch. Only you can decide if the risk is acceptable for you. If you are young and don't have much at stake you will recover if it doesn't work out in your favor. You are on the right path, keep doing research and then roll the dice!

Good luck.
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Re: Does NOT paying my interest free C/C affect credit score?

Postby Dcyphrz » Mon Jan 11, 2016 9:22 pm

Aside from "special financing" on one-time purchases, and balance transfers from other accounts, are there cards that actually offer 0% APR on purchases? Forgive my ignorance but I never heard of any.
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kdm31091
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Re: Does NOT paying my interest free C/C affect credit score?

Postby kdm31091 » Tue Jan 12, 2016 7:37 am

Dcyphrz wrote:Aside from "special financing" on one-time purchases, and balance transfers from other accounts, are there cards that actually offer 0% APR on purchases? Forgive my ignorance but I never heard of any.


There are often 12-18 month 0% offers when you first open certain cards. Some issuers like Discover even extend occasional 0% promos to existing cardholders. So yeah, it does happen, but never permanently, obviously.

Kevin86475391
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Re: Does NOT paying my interest free C/C affect credit score?

Postby Kevin86475391 » Tue Jan 12, 2016 9:37 pm

I'll reiterate that just because there's 0% APR that certainly doesn't mean there won't be minimum payments due in the interim, and it'll be EXTREMELY important for you to make these minimum payments. Not only will not making minimum payments hurt your credit, but failing to do so will also likely void your 0% APR and could result in higher-than-normal penalty APR.

Obviously it's completely your business and you know your situation better than anyone else, but personally I wouldn't advise using a credit card for educational expenses. If you would qualify, a student loan would be a much better option. Your interest would be tax deductible, you'd almost certainly have a much lower interest rate after your 0% credit APR would expire, and on a student loan payments typically can be deferred completely - again with a credit card you're almost certainly still going to have a minimum payment due.

But you said it was a non-traditional educational program, so it sounds like maybe it wouldn't qualify for a student loan? Personally, I'd probably still consider a standard personal loan over a credit card. Better yet, do you have a relative or friend from whom you could truly get a 'personal loan'?

Paying all your expenses with a credit card, even in the short-term, is a risky financial move that can get you into a lot of trouble. As was mentioned, often times paying rent on a credit card isn't even an option depending on your leasing property - personally I DO have the option of paying my rent on a credit card and do it every month for the cash back before paying the card off in full, but having that option at a given rental property is far from guaranteed. Paying all your expenses on your credit card will also likely eat up your limit pretty fast unless you receive a very high limit card. Using so much of your limit will in turn hurt your credit and could result in adverse action on the part of the creditor - like decreasing your limit! And again, regardless you're still going to need to make minimum payments on the card.

My opinion is thus that if this new career path DOESN'T work out you could be left with quite a financial mess. However, even if it does, you probably will damage your credit score at least somewhat in the short term (due to high utilization if nothing else, and also potential payment issues) which in turn could make for a less than ideal starting point for your new successful path. Either way you'd also be saddled with debt that will almost certainly be less wieldy than traditional student loan debt.

I certainly wish you the best either way, but personally I wouldn't go down this road except as an absolute last resort.

kdm31091
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Re: Does NOT paying my interest free C/C affect credit score?

Postby kdm31091 » Wed Jan 13, 2016 7:43 am

Kevin86475391 wrote:I'll reiterate that just because there's 0% APR that certainly doesn't mean there won't be minimum payments due in the interim, and it'll be EXTREMELY important for you to make these minimum payments. Not only will not making minimum payments hurt your credit, but failing to do so will also likely void your 0% APR and could result in higher-than-normal penalty APR.

Obviously it's completely your business and you know your situation better than anyone else, but personally I wouldn't advise using a credit card for educational expenses. If you would qualify, a student loan would be a much better option. Your interest would be tax deductible, you'd almost certainly have a much lower interest rate after your 0% credit APR would expire, and on a student loan payments typically can be deferred completely - again with a credit card you're almost certainly still going to have a minimum payment due.

But you said it was a non-traditional educational program, so it sounds like maybe it wouldn't qualify for a student loan? Personally, I'd probably still consider a standard personal loan over a credit card. Better yet, do you have a relative or friend from whom you could truly get a 'personal loan'?

Paying all your expenses with a credit card, even in the short-term, is a risky financial move that can get you into a lot of trouble. As was mentioned, often times paying rent on a credit card isn't even an option depending on your leasing property - personally I DO have the option of paying my rent on a credit card and do it every month for the cash back before paying the card off in full, but having that option at a given rental property is far from guaranteed. Paying all your expenses on your credit card will also likely eat up your limit pretty fast unless you receive a very high limit card. Using so much of your limit will in turn hurt your credit and could result in adverse action on the part of the creditor - like decreasing your limit! And again, regardless you're still going to need to make minimum payments on the card.

My opinion is thus that if this new career path DOESN'T work out you could be left with quite a financial mess. However, even if it does, you probably will damage your credit score at least somewhat in the short term (due to high utilization if nothing else, and also potential payment issues) which in turn could make for a less than ideal starting point for your new successful path. Either way you'd also be saddled with debt that will almost certainly be less wieldy than traditional student loan debt.

I certainly wish you the best either way, but personally I wouldn't go down this road except as an absolute last resort.


I agree that one has to be really careful with the "living off of CCs" thing. CCs are unsecured. You have no guarantee that just because your limit is 10k today it will remain so. Start racking up charges and paying the minimum? Over time you may see the limit reduced and oh look, you can no longer rely on it.

CCs are great tools for rewards but I don't think relying on them as a long term crutch is a good idea.

There was someone on MF who said something similar; he was "going to live off of CCs for awhile due to high nursing school debt" or something. I'm sure people told him it was a bad idea but some people don't want to listen.



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