Using 0% period on purchases

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Jnvlv247
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Using 0% period on purchases

Postby Jnvlv247 » Sun Jan 24, 2016 7:33 pm

New credit card user here

I FINALLY got approved for a Chase Freedom Card after a back and forth with the fraud dept about acceptable documents to prove who I was and my address

ANYWAY, now I am waiting for my card in the mail and have a few questions

I plan to use this to build up some credit. I noticed that the first 15 months were 0 apr and was wondering if I purchased something during this time period in which I could pay off, I know for sure, in 2 months, would that be OK? Otherwise I'd use it and stay well below the 1500 limit and pay it off each month. I plan to use it for normal purchases in which I know I can handle and this one large one would be an exception and not something I'd do when interest kicks in.

Thanks :)


4ktvs
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Re: Using 0% period on purchases

Postby 4ktvs » Sun Jan 24, 2016 10:52 pm

Congrats on the first card!

As for the 0% APR period I would recommend avoiding putting anything on the card you couldn't pay off that same day. But if you wanted to you could carry a balance the full 15 months only paying the min payment and then pay off any remaining balance before the normal APR kicks in.

Kevin86475391
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Re: Using 0% period on purchases

Postby Kevin86475391 » Sun Jan 24, 2016 11:24 pm

Hi and welcome to the forum! Congrats on getting your first card! The Freedom is a great card!

Jnvlv247 wrote:I plan to use this to build up some credit. I noticed that the first 15 months were 0 apr and was wondering if I purchased something during this time period in which I could pay off, I know for sure, in 2 months, would that be OK? Otherwise I'd use it and stay well below the 1500 limit and pay it off each month.


Well, IMO, it really depends on what you mean by "OK."

Are you talking about for your credit score? To avoid adverse action from Chase? To develop good credit use habits?

My gut reaction, if you can truly pay off the charge in a couple of months and don't plan to not pay in full once the 0% APR period is over, would be that yes, that's probably fine.

A big factor as far as how it will impact your credit score is how much of the $1,500 limit the large purchase would take up. Ideally you want to keep your credit utilization low. However, damage to your credit score from high utilization will rebound quickly once you pay off/pay down the card. The more important thing to remember is to always make on-time payments for a least the minimum or more. Damage done by missed or late payments DOES NOT go away quickly - you'd be looking at about 7 years of impact from it; although, with it gradually decreasing in impact.

Also, in case you're unfamiliar with the term 'utilization' that just refers to your debt-to-credit-limit ratio. So for example if you had a $150 balance reporting and have a credit limit of $1,500, then that would be 10% utilization (150/1,500). The main thing to keep in mind is that lower is better, but some activity is better than no activity. As a rough estimate:

1-3% is ideal ($15-$45 on a $1,500 limit)
less than 10% is 'good' (so under $150 on a $1,500)
10-30% is 'okay' ($150-$450 on $1,500)
30%+ is 'bad ($450+ on $1,500) - and the higher the worse it is (so of course 80% util would be worse than 31%)

Also, note that those amounts are based on what REPORTS to the credit agencies, generally around your statement closing date, but it's best to check with Chase for the exact date yours will be reporting. So it's fine to carry a higher balance throughout the month as long as you pay it down before it reports.

Personally, if it were me I'd try to give the account a couple months of routine, lower charges before making the bigger charge if possible - perhaps not necessary, but that's what I'd do to avoid 'spooking' Chase/their algorithm. Then I'd feel comfortable making the large charge as long as it doesn't exceed 50% of my limit (and ideally I'd want to be able to pay it down to under 30% before the reporting date) and as long as I could definitely pay it off in full in a couple of months at no interest. But that's just me. What you're comfortable with may vary.

Anyway best of luck and enjoy your new Freedom! :cheers:

Jnvlv247
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Re: Using 0% period on purchases

Postby Jnvlv247 » Mon Jan 25, 2016 6:36 am

Ok so the purchase I calculated would be about 36% of the limit. I think I could use the card a little on everyday things first for a while then use it for the large purchase and maybe I'd have enough to pay that off before the next month. Perhaps if it was purchased in the beginning of the month so the money builds up by the end of the pay cycles.

But as a back up I know for sure, at least, right now that I could pay it off in 2 cycles.

takeshi
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Re: Using 0% period on purchases

Postby takeshi » Mon Jan 25, 2016 9:01 am

Jnvlv247 wrote:I plan to use this to build up some credit. I noticed that the first 15 months were 0 apr and was wondering if I purchased something during this time period in which I could pay off, I know for sure, in 2 months, would that be OK? Otherwise I'd use it and stay well below the 1500 limit and pay it off each month. I plan to use it for normal purchases in which I know I can handle and this one large one would be an exception and not something I'd do when interest kicks in.

All depends on the revolving utilization. It matters whether or not you have a 0% offer. Your question is really too vague for us to provide an answer. General advice is do not exceed 30% revolving utilization and both individual and overall utilization matter.. Your entire credit profile matters -- not just your usage of this particular card.

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Vattené
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Re: Using 0% period on purchases

Postby Vattené » Mon Jan 25, 2016 11:43 am

You should be fine doing this since you are aware of the consequences as well as the importance of otherwise keeping a habit of paying every credit card statement in full.

As mentioned, your utilization will take a hit, but utilization is a "snapshot in time" credit factor with no memory. It will rebound. If you needed to apply for any credit in the next few months while this large purchase was reported in current balances it might be a problem; otherwise, I wouldn't worry about it if I were you.

The most important thing about credit cards is to treat them like debit cards: don't let them run up your spending and don't use them for anything you wouldn't be able to pay for anyway. It can be easy to spend yourself into a hole and cause a lot of trouble for yourself down the road. Definitely be careful with this new card and keep track of your spending, but you sound like you are going into this with the right frame of mind.

Welcome to the forum and welcome to the credit card world!
-Vattené
FICO-8:
EX - 805 (2/17) | TU - 787 (2/17)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now

Jnvlv247
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Re: Using 0% period on purchases

Postby Jnvlv247 » Mon Jan 25, 2016 2:32 pm

So I should be OK doing this but probably not in the first month or so of having the card. I don't plan to apply for any credit in the near future either.

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Vattené
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Re: Using 0% period on purchases

Postby Vattené » Tue Jan 26, 2016 12:37 pm

There's nothing wrong with doing it in the first month. Chase isn't going to punish you for using the credit limit they gave you (now if you max out the card and start making only the minimum payments on it, that's a different story). Your score may dip, but if you don't need to apply for anything it won't matter. The only issue would be if you applied for credit and have a very thin credit profile. Over 36% utilization on one new account could be trouble, but if this is your first credit of any kind then any credit approval could be iffy at this stage.

From a credit-scoring perspective there's nothing to worry about. Yes, it will impact your utilization and yes, you can manipulate the utilization that gets reported on you by how you time your payments, but IMO this isn't necessary when you're not planning on applying for any new credit. I think people are urging more caution just from a financial perspective. Running up credit card debt can be a very easy trap to fall into, and even if you're in a 0% period and won't pay interest for now, you don't want to have a habit formed of spending more than you can pay when interest does kick in. Again, it seems to me that you're aware of this danger and have a plan to make this an exception that you'll pay off soon anyway, so I don't see a problem with it.
-Vattené
FICO-8:
EX - 805 (2/17) | TU - 787 (2/17)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now



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