How Do Credit Cards Work? (Simple Explanation & Tips)

For just about anything you want to get off your chest about credit cards.
19 posts
romaire
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Postby romaire » Mon Mar 19, 2012 1:00 pm

Lol, believe me, I've already activated them, and thank you for the help!


randeman
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Postby randeman » Mon Mar 19, 2012 7:57 pm

romaire wrote:OK so what should i do in an emergency situation, lets say i need to use $700 would it hurt me to do so? How would you guys recommend I handle a situation like this?

And thanks for the help in explaining how a credit card works!!!


If you go over 30% of your available credit line, your credit score drops. Temporarily. It isn't the end of the world, it just impacts your credit report if you have a somewhat urgent need to apply for additional credit in the near future. Of course, every time you apply for credit, your credit score drops as well. Again, temporarily. If you make a large purchase you simply ought to make an effort to pay it off as quickly as possible. You didn't mention if you have a 0% APR for a period of time after you got the card. If you did then you can take advantage of the APR by taking your time to pay it off. 0% APR is truly free money. If you do have a zero interest rate, make sure you find out when that expires so that you can have as much of the balance paid off as possible when the new interest rate kicks in. If you don't care about the interest rate or you don't care about the "ding" against your credit score because you have exceeded the 30% "limit," then don't worry about them. Discover will love you because you will be paying them a lot of your hard earned money.
Cards and Credit lines Acquired:

Escape by Discover (7.75K), Barclay Holland America Visa (7K), Macy's store card (7K), Bloomingdale's store card (2.6K), Citi Custom Credit Line (3.5K), PayPal Smart Connect credit line (2.7K), Chase Freedom Visa (5K), Chase United MileagePlus Visa (5K), Chase Sapphire Preferred Visa (6K), Amazon store card (2.2K), Lord & Taylor store card (550), Nordstrom store card (1500), Gold Delta SkyMiles from American Express (3K), Discover It (6.5K), PayPal Credit Line (1K).

randeman
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Postby randeman » Mon Mar 19, 2012 8:04 pm

Josea wrote:I have recently got a $2000 limit card, does this mean in any one billing period I can charge up to $2000 ? If my period is April 1 - April 30 and by April 15 I am up to $1500, can I pay at that point, then charge another $1500 from April 16 till April 30 ? Thanks I am a total newbie to credit cards. Thanks, J


Yes, to both questions. Just be aware that you have to save room for the interest that will be tacked on to your balance the day after the bill is due. If you have a 15% interest rate on a card with a $2,000.00 limit that you have $1,999.00 charged on on the day it is due, the interest will be added to the balance on your card and will put you over the limit. That's NOT a good thing. Some cards charge you for going over your limit, in addition to "dings" on your credit report/score.
Cards and Credit lines Acquired:

Escape by Discover (7.75K), Barclay Holland America Visa (7K), Macy's store card (7K), Bloomingdale's store card (2.6K), Citi Custom Credit Line (3.5K), PayPal Smart Connect credit line (2.7K), Chase Freedom Visa (5K), Chase United MileagePlus Visa (5K), Chase Sapphire Preferred Visa (6K), Amazon store card (2.2K), Lord & Taylor store card (550), Nordstrom store card (1500), Gold Delta SkyMiles from American Express (3K), Discover It (6.5K), PayPal Credit Line (1K).

romaire
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Location: New Orleans

Postby romaire » Mon Mar 19, 2012 10:50 pm

randeman wrote:If you go over 30% of your available credit line, your credit score drops. Temporarily. It isn't the end of the world, it just impacts your credit report if you have a somewhat urgent need to apply for additional credit in the near future. Of course, every time you apply for credit, your credit score drops as well. Again, temporarily. If you make a large purchase you simply ought to make an effort to pay it off as quickly as possible. You didn't mention if you have a 0% APR for a period of time after you got the card. If you did then you can take advantage of the APR by taking your time to pay it off. 0% APR is truly free money. If you do have a zero interest rate, make sure you find out when that expires so that you can have as much of the balance paid off as possible when the new interest rate kicks in. If you don't care about the interest rate or you don't care about the "ding" against your credit score because you have exceeded the 30% "limit," then don't worry about them. Discover will love you because you will be paying them a lot of your hard earned money.


yes I have 0% APR for the first 9 months, and afterwards I think it's 18.99% ,I'll have to check again to be certain, but would it hurt my credit score if i took time to pay off the balance during the 9 month period? And thanks for all the heads up, it is greatly appreciated.. ;)

randeman
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Postby randeman » Tue Mar 20, 2012 7:34 pm

romaire wrote:yes I have 0% APR for the first 9 months, and afterwards I think it's 18.99% ,I'll have to check again to be certain, but would it hurt my credit score if i took time to pay off the balance during the 9 month period? And thanks for all the heads up, it is greatly appreciated.. ;)


Your credit score will gradually go up as you pay it off, all things remaining equal. However, to answer your question, as long as your utilization (the percentage of credit you are using based on your limit) is above 30% your credit score will be lower then if you were under 30%.

Find out from the issuer when the 0% APR ends so that you can have all or most of the balance paid off before the 18.99% kicks in. That is, of course, if that is a goal of yours.
Cards and Credit lines Acquired:

Escape by Discover (7.75K), Barclay Holland America Visa (7K), Macy's store card (7K), Bloomingdale's store card (2.6K), Citi Custom Credit Line (3.5K), PayPal Smart Connect credit line (2.7K), Chase Freedom Visa (5K), Chase United MileagePlus Visa (5K), Chase Sapphire Preferred Visa (6K), Amazon store card (2.2K), Lord & Taylor store card (550), Nordstrom store card (1500), Gold Delta SkyMiles from American Express (3K), Discover It (6.5K), PayPal Credit Line (1K).

JCarter
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Location: Virginia

Postby JCarter » Tue Mar 20, 2012 11:30 pm

Yes, it would hurt your score (Albit temporarily) if you are above the 30% mark, and you are making payments.

Credit issuers want to see that you'll not only use the card, but be responsible in making your payments, so to answer your earlier question in how long it normally takes to establish credit; you've already done it. You don't have an excellent credit history yet, but you are on your way to establishing it.

Make payments on time (Always, even if you can only afford the minimum payment)
USE the card, as in if you have dinner out, put it on the card but be sure to put back the cash instead so you can pay it off. This shows Discover that you are a positive credit risk and they will avail you of a greater credit limit. Which will look better to future creditors/issuers.

If you follow these instructions, follow up in about 6 months with another student card (MasterCard or Visa logo) and do the same. Give it about 18 months and you should see a fairly positive increase in your credit score.

JCarter
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Postby JCarter » Tue Mar 20, 2012 11:32 pm

Josea wrote:I have recently got a $2000 limit card, does this mean in any one billing period I can charge up to $2000 ? If my period is April 1 - April 30 and by April 15 I am up to $1500, can I pay at that point, then charge another $1500 from April 16 till April 30 ? Thanks I am a total newbie to credit cards. Thanks, J


What this means is you can charge upto $2000 at any given time. If you for example were to charge $1500 between April 1 - April 15 and pay it off on April 16, then your available credit is now back to $2000 and charge upto that amount between April 16 - April 30.

romaire
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Postby romaire » Wed Mar 21, 2012 1:14 pm

JCarter wrote:Yes, it would hurt your score (Albit temporarily) if you are above the 30% mark, and you are making payments.

Credit issuers want to see that you'll not only use the card, but be responsible in making your payments, so to answer your earlier question in how long it normally takes to establish credit; you've already done it. You don't have an excellent credit history yet, but you are on your way to establishing it.

Make payments on time (Always, even if you can only afford the minimum payment)
USE the card, as in if you have dinner out, put it on the card but be sure to put back the cash instead so you can pay it off. This shows Discover that you are a positive credit risk and they will avail you of a greater credit limit. Which will look better to future creditors/issuers.

If you follow these instructions, follow up in about 6 months with another student card (MasterCard or Visa logo) and do the same. Give it about 18 months and you should see a fairly positive increase in your credit score.


thanks !!!

JCarter
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Postby JCarter » Thu Mar 22, 2012 1:11 am

No problem, good luck.



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