What is a good credit balance to have?

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Codeguru
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What is a good credit balance to have?

Postby Codeguru » Mon Mar 11, 2013 1:47 pm

I just got a Chase Freedom card and it is my first credit card ever. I have a $500 limit, which is good since I don't really want to spend any money in the first place. All I'm doing is filtering through all the purchases I can in order to improve my credit score and maybe get cash back points if I can.

The question is, what exactly do I have to do in order for them to report good credit? I've been told I'm suppose to keep my balance at 30% of the maximum, which would be 150 bucks, and just make payments on that. I've also been told that paying your entire balance off each month is what gives you good credit. So both of those tidbits seem to conflict. Also, my APR is 22%, but it's 0% for the first year. Does that mean if I do have to keep a $150 balance on there for my credit score to reoport positively, I'll be paying the huge amount of interest on it after this year is up?

If anyone knows actual facts about how I can navigate this situation in order to give myself the cheapest way to build my credit score, I would appreciate it. Apparently having no negative marks on my record at all, including no late payments, is not enough for the best score. Hence, why I got the card. I thought for sure a car loan would give me something. Unless they like it when you are late on payments and get hit with all the underhanded fees...


mattymatt808
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Postby mattymatt808 » Mon Mar 11, 2013 2:21 pm

Paying in full every month actually does not directly help or harm your credit, but it does prevent you from paying interest. If at any point you are paying interest on a credit card you are probably more than negating the benefits of the rewards it offers, so absolutely pay in full every month as it is the only way to "win" with a rewards card.

The balance is the amount that shows up on the bill at the end of each cycle and it is the sum of the purchases you've made over the past month (previous unpaid balances also roll over, but just don't let that happen). The cool thing is that you can "pre-pay" your balance throughout the month. If you've built up $300 in purchases and your billing cycle is going to end in a week, you can pay $290 before it reports and your actual reported balance will be $10, or a 2% utilization. Try to shoot for 10% or lower.

"Keeping" your balance at 10% or lower just means the REPORTED balance every month, not a daily total of how much you've purchased.
$2500 First Hawaiian Bank (6/10)
$4500 CHASE Freedom (2/13)
$3500 Citi Forward (2/13)
$2000 Discover it (2/13)
$9600 AMEX BCE (3/13)
$10000 CHASE Sapphire Preferred (7/13)
$5000 CHASE Ink Plus (8/13)

irvinfitness
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Postby irvinfitness » Mon Mar 11, 2013 2:29 pm

You do not need to carry a balance in order to build your positive credit history. Technically speaking, as long as you make the minimum payment (established by the CC company and listed on your statement), they will report "good" history.

However, the FICO model is complicated and to be honest, I'm not sure if anyone could tell you with 100% confidence what the optimum scenario is.

Roughly, you should use the card as needed and pay off the card so that it is down to 4-10% utilization before the statement is cut. (4-10% of your limit) Then pay it off the rest of the way when you get the statement. By doing that, it will report "good" to the credit bureaus and you should get close to the best possible FICO score based on their algorithms. You will also avoid paying any interest (even after the 0% promo ends) as long as you pay the balance in full by the due date.

Good luck with car loan!
(looks like mattymatt808 beat me to it and is absolutely correct)
[size=60]Chase Freedom Signature - 10k (rotating 5%)
Citi Platinum Select - 8.1k (rotating 5%)
Discover It - 12k (rotating 5%)
AMEX BCE - 20k (Groceries 3% / Gas 2% )
Regions Signature Visa - 5k
US Bank Cash+ - 5.5k (Restaurants/Fast Food 5% / Drug Stores 2%)
Navy Federal cashRewards Visa Signature - 20k (Business Purchases)
Care Credit - 6k (Vet Bills/Dentist - 0% APR)
Chase IHG Rewards (Priority Club) - 18k (Annual Night Certificate, Platinum Elite Status)

Not used except for occasional purchase with promo:
Jared - 7.5k [/size]

Codeguru
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Postby Codeguru » Mon Mar 11, 2013 2:48 pm

So, what I want to do is next year, when I have to pay interest, pay off all but like 5% (just an average number between 0 and 10), let the statement come and I will or will not have interest to pay on it? And then I pay it off fully?

Does paying it off fully after the statement do anything for credit scores or is it just good policy? I

mean, if I have to pay interest either way, I suppose having the rewards pay for the interest while still reporting positive credit would be an okay deal, not the best.

But I do need to buy a house and such some day, so I'm more worried about long term credit growth rather than the short term rewards. Where does this 30% number come from though? Is it just a untrue myth, or outdated info? I just kept hearing it over and over from different people...

namvet
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Postby namvet » Mon Mar 11, 2013 5:09 pm

Paying on time is all you have to do for "them to report good credit". If you want a higher score then you have to make sure you don't let your balance get higher than 30% of your credit line (at statement time).

Codeguru
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Postby Codeguru » Mon Mar 11, 2013 5:49 pm

namvet wrote:Paying on time is all you have to do for "them to report good credit". If you want a higher score then you have to make sure you don't let your balance get higher than 30% of your credit line (at statement time).


Some people were telling me that they always paid off their balance in full at the end of the month, hoping for a higher credit score, and it never moved it an inch. Is that untrue, or do you have to get reamed by interest in order for them to be happy and make your credit score go up? On credit karma, one of the only categories I have nothing on is credit card utilization. So it's good to keep that always under 30%? Or under 10%? I keep getting conflicting reports! :) ...

haikuginger
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Postby haikuginger » Tue Mar 12, 2013 12:41 pm

Note that although having a higher balance can hurt your score, it doesn't do so permanently in the way that a missed payment does. As soon as your balance is back within a good range, the fact that it was once at 70% won't hurt you anymore.

mattymatt808
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Postby mattymatt808 » Tue Mar 12, 2013 3:20 pm

Interest should never even be considered a part of your plan. Absolutely pay in full every month, no exceptions unless for some reason you are unable. For the purpose of credit building, paying in full is not better or worse than paying the minimum payment, but any time you get charged interest you lose money.
$2500 First Hawaiian Bank (6/10)
$4500 CHASE Freedom (2/13)
$3500 Citi Forward (2/13)
$2000 Discover it (2/13)
$9600 AMEX BCE (3/13)
$10000 CHASE Sapphire Preferred (7/13)
$5000 CHASE Ink Plus (8/13)

Daniel
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Postby Daniel » Wed Mar 13, 2013 5:18 pm

Credit Utilization ratios reflect, as a few members have said, your total outstanding as of the date of your bill. As such, to save yourself the most money, pay your bill in full every month and never pay any interest charges. To illustrate what we are all trying to say here are a few scenarios.

Across All Scenarios:
Limit = $500
Rate: 20%

Scenario A:
Monthly Spend: $150
Monthly Payoff Prior to Statement Date: $150
Monthly Payoff After Statement Date: $0 (and before payment due date obviously)

Total Interest Paid: $0
Total Dollars Paid: $150
Utilization Rate This Month: 0% (this is technically undesireable)

Scenario B:
Monthly Spend: $150
Monthly Payoff Prior to Statement Date: $0
Monthly Payoff After Statement Date: $150 (and before payment due date obviously)

Total Interest Paid: $0
Total Dollars Paid: $150
Utilization Rate This Month: 30%

Scenario C:
Monthly Spend: $300
Monthly Payoff Prior to Statement Date: $150
Monthly Payoff After Statement Date: $150 (and before payment due date obviously)

Total Interest Paid: $0
Total Dollars Paid: $150
Utilization Rate This Month: 30%

There are a number of other non trivial, interesting scenarios that I didn't include here. These three however, will help visualize what we are all trying to say, Don't pay interest. Just pay your bill in full every month.

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Calipso
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Postby Calipso » Wed Mar 13, 2013 5:55 pm

I would rather have a zero credit balance and excellent credit than have any balance and have perfect credit.
My Limits:
NFCU NavCheck: $15,000/NFCU Platinum: $11,500/NFCU nRewards: $8,000
Chase Freedom: $6,500/Chase Slate: $6,000/CSP: $5,000/Marriott Rewards Primier: $5,000/United MileagePlus Explorer: $5,000/Southwest Primier: $3,000
Citi Hilton HHonors: $9,700/Citi Simplicity: $8,200/Citi Forward: $5,500
AMEX Blue Cash Everyday: $8,000/SPG AMEX: $5,000/AMEX Everyday: $5,000/AMEX Delta Skymiles Platinum: $3,400
Discover IT: $7,700
Barclay's NFL Extra Points (Carolina Panthers): $5,000
DCU Platinum: $3,000
RTN FCU CC: $2,000
CCCU Platinum Rewards Visa: $2,000

Current total limit: $129,500



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