Need some credit card 101 help

For just about anything you want to get off your chest about credit cards.
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chicadelcaribe
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Need some credit card 101 help

Postby chicadelcaribe » Tue Sep 22, 2009 10:38 pm

So I've heard from a few people different ways to boost your credit; usually they say to use your credit card, make on time monthly payments (of course) but only make the minimum payments or a little more, but not the full amount. I would think that if you paid it all off right away that would make you look good, but in actuality that doesn't build good credit? I would also think that if you had a balance of say, $400 and you only made minimum $20 payments a month that would make you look bad... am I totally off? I guess I don't understand credit cards... I got one solely to build my credit; I've been pretty good about not getting a high balance on my cards but now I think I might not have done anything to my credit because I pay them off... not right away sometimes, but I just hate knowing I owe someone x amount of dollars (especially when I have it in my checking account)
Also... could someone explain APRs to me? I mean I understand what they are, I just don't understand when/how they are applied.. am I still getting the APRs applied when I usually have $0 balances? I guess not, I would probably notice... I have a tendency to not pay attention to my transactions though, when I am racking the charges up - is that when they slip the APR in? I know I should keep better track of it, but they could be charging me ridiculous fees and I probably wouldn't notice at all (ok, that's an exaggeration... but $15-$30 I probably wouldn't notice)
Lame, I hope I've actually been building credit for all this time...


DoingHomework
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Postby DoingHomework » Mon Oct 05, 2009 3:21 pm

Credit card issuers are not completely upfront about exactly what they look for in assessing credit risk. This is partly because they worry about someone gaming the system and appearing to be a good risk when they are not.

I've heard opinions and supposed authoritative statements both ways on this.

When you apply for credit the lender (card issuing bank) is concerned about whether you will pay the loan back, how much risk they are taking, and how much money they will earn.

Your job influences your ability to repay. They longer you have been somewhere, the mor eyou make, and who you work for (government, small company, big company) influence this. If you have been a government employee for 20 years you are extremely unlikely to be laid off. If you've just started a job at a small company that is itself near bankruptcy....well you get the picture.

Your likelihood of repaying is determined by your history. If you have always paid your bills on time then there is a good chance you will continue to do so. This is basically a yes/no question they ask. Can they count on you to pay teh minimum amount due every month? Overpaying or not carrying a balance don't necessarily give you bonus points.

Finally, how much they earn depends on the interest rate, your average balance, and whether you pay off or pay interest.

If you pay your balance off every month to avoid interest (like I do) you are a low risk borrower but also a low profit borrower (they call this a deadbeat). That does not mean you have bad credit, you may have very good credit. But a lender may not want to give you a card/loan because they will make little profit.

So, basically, I think the best advice is to save yourself money and pay off you balance every month. This won't necessarily improve your credit but it will save you money.

The bottom line is that those who least need credit are the ones that find it easiest to get. If you live so that you don't rely on credit you will gradually become a good risk and have a good credit score. If you constantly struglle to pay your bills and have to borrow just to survive you will be a bad risk. It's not so much how you behave with one card but rather how you live your life and how that affects the big picture view of you in your credit report.

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fffresh
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Postby fffresh » Wed Oct 07, 2009 3:41 pm

When it comes to credit cards they do not use your job as criteria. However they do ask what your household annual income is. The definition of this is murky since it does not specify who to include nor does it explain what constitutes income. Ask if you are unsure but the odds are the CSRs on the phone won't be able to give you a straight answer either.



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