New to Credit. Is Little to No Usage Okay?

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NTL1991
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New to Credit. Is Little to No Usage Okay?

Postby NTL1991 » Fri Jan 24, 2014 10:45 pm

Hello everyone,

As you can see, this is my first post here. I'm 22, and relatively new to credit. I got my first credit card a year ago. It seemed like nobody would approve me due to a lack of credit history. I had no car loans, personal loans, or utilities in my name. I ended up getting a secured card through my credit union (ELAN Secured Visa). I used it every month since then (usually 30 - 60% utilization, it only has a $300 CL) and paid it off fully every single month. I believe I am eligible to convert the card to a standard credit card after a year (which is this month). An off-topic question is whether this conversion will effect the account age of this account. This is my oldest account.

Before the holidays, I tried applying for the Apple Barclay credit card, and was declined. Shortly after that, I applied for the American Express Blue Cash Everyday card. To my surprise, I was approved with a $2,000 CL. Since then, I've been using the AMEX anywhere from about 10 - 40% utilization, also paying the bill off fully every month. It was very nice to be able to get cash back on holiday purchases that would've otherwise been paid for with my debit card.

Earlier this week, I applied for the Discover It card, and was approved. I'm not sure about the specifics on the card (CL, etc.) as I haven't received the account information and card in the mail yet. The 5% cash back will be a nice benefit.

I haven't yet actually checked my FICO score, so I'm not sure what it is. I'll be ordering the 3-in-1 FICO later this month.

So, my question lies in the utilization of these cards. I'm typically modest with my spending, and I'm not sure if there will be negative implications from not using any one of these cards from month-to-month. I believe I'll keep using the AMEX monthly for fuel purchases to get cash back points. I'm still used to using my Debit card for most purchases (groceries, household expenses, vehicle purchases, etc.). Is is detrimental to not use these cards from month-to-month, or to under-utilize them (maybe under 15%)?

Any tips or advice? When I first started this journey, I was a bit discouraged. Now, a year later, I'm feeling pretty good about it. A huge factor is that I have a great job with good security, which I'm lucky to have.

Thanks for the help,
Nick


mathman314
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Postby mathman314 » Sat Jan 25, 2014 5:18 pm

It's not terrible to under-utilize them. You don't want it to appear that you don't use the card at all. With money and reporting in stuff, what I do is, keep a figure in my mind of what I want the issuer to report. With that figure I try to stay under it, if I go over it, I will make payments until I can get the figure that they will report down to what I want them to. Most people say to pay off any purchases after you make the purchase. While that is sound advice, you don't want to make it appear that you never use the card.
Most issuers report a balence the day of or 1-2 days after the statement is calculated. The number that they report plays into your overall UTL. UTL is a percentage which comes from the sum of your purchases on your cc divided by the sum of your CLs.
For example, my AC (available credit) is 5650 so if I want to keep my UTL under 5%, then my total expendiatures across all credit cards cannot exceed $282.50.
Cards:
1FBUSA: 5.75k
Discover IT (for students): 4.6k
Chase Freedom (signature): 5k
Target REDcard: 1.5k
AmEx BlueCash Everyday: 5.5k

FICOs:
TU - 785 (December 2015)

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otter
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Postby otter » Sat Jan 25, 2014 7:07 pm

Hi, Nick... welcome to the forum.

It's not a bad thing to use your cards that much, but ideally, you want to maximize your rewards.For example, you say that you are still using your debit card for grocery purchases. Well, the BCE card gives you 3% back on groceries so you are missing an opportunity. It took me a while to make the transition from paying with my debit card to paying with my credit card, but once I did, I never looked back...

Used responsibly, credit can be a tool which can improve your finances. Use it in the wrong way and it could ruin you. I have a few rules I use when paying with credit cards:

  • Every card should have a purpose If it doesn't have a purpose- why keep it? Try finding cards which match your spending well to maximize your rewards. I will likely reap close to $1000 in bonus money this year. Others here get much more.
  • Pay in full every month. Unless you have a card which has an intro 0%.
  • Don't buy anything unless you have cash in the bank to pay for it. Right now... I have $3000 in credit card debt, but I could pay it all off tomorrow if need be. The same rules apply when you have credit cards as without. Income > spending. You may be able to violate that rule for a while, but it will catch up with you.
  • Avoid using credit cards for emergencies. Credit is only a small part of your financial health, but an important one. You should keep an emergency stash somewhere (bank, credit union, etc.) to use in an emergency. Credit cards should be only a last resort option in a crisis and then you should pay them off ASAP.

Hope this helps. Good luck!
In my Wallet:
  • Amex PRG NPSL[3-14, bd 91]
  • Sallie Mae MC $8000[1-14]
  • Chase Freedom $4700[1-14]
  • Discover It $2750[8-13]
  • BoA UCF Alumni Cash Rewards $5000 [3-15]
Sometimes in my Wallet:
  • GM BuyPower WEMC $5000[9-14]
  • Wells Fargo Propel 365 Amex $7000[4-14]
  • Barclaycard Arrival WEMC $7000[3-14]
  • BoA Better Balance $3000[2-15]
In my sockdrawer: Amex BCE $1000[10-13, bd 91], OCCU Duck $10000 [11-13], The Sportsman's Guide Visa $8000[8-14], Chase Slate $4000 [9-14]Delta Gold Amex $2000 [2-15 bd 91], Diners Club MC $20000 [10-14] Commerce Bank Visa $2000 [3-15] Citi Double Cash $1000 [3-15]
Total CL: $90450

NTL1991
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Postby NTL1991 » Sat Jan 25, 2014 10:32 pm

Thanks for the replies, Mathman and Otter.

I'll most likely be using the AMEX Blue Cash for groceries, gas and department store purchases, unless Discover has 5% cash back in those categories during that quarter. It should get pretty regular use each month just from those purchases alone.

Once I get the ELAN card converted to a conventional credit card, that'll be the hardest one to justify using. There's no cash back, but at the same time, it's also my oldest account, (if the account age doesn't change after converting from secured to conventional) so I'd be apprehensive to close it.

I've never once carried a balance on any one of my cards, although I do have 0% interested on the AMEX until March of next year. Even so, I still don't see a reason to. I like having it back to zero every month.

I strongly agree about living within one's means, and that means not buying things you can't afford. I sometimes splurge here and there, but I'm still very modest when compared to friends my age.

I purchased the 3-report FICO and have the following scores:

Equifax - 681
TransUnion - 699
Experian - 695

The main negative factors are my short 1-year credit history, high utilization (39%, the Discover card hasn't been reported yet, and with the increase in credit from these cards, it'll hopefully bring the percentage down), as well as 2 reported inquiries in the past year.

Thanks for the all the great advice!
Nick

JoDa
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Postby JoDa » Sun Jan 26, 2014 11:49 pm

Those scores probably have more to do with your age than much of anything else.

At your original question, so long as you use the cards occasionally (I try to use mine at least once every 3 months, though some people say every 6-12 months will do...ultimately depends on the issuer), there's little risk of being cancelled. Right now, that's really all that matters.

When you go to buy something big, you want to show a history of paying off regularly and SPOT low utilization. Buying a house? You report balances at least every few months and you're never late? Should do. BUT, *no* credit card balances on your report for 2 months before (they'll be calculated into how much you can borrow). See how wonky that is? Use them now...I don't think it really matters the AMOUNT as much as showing reported usage...pay them all off before you buy big things. If you run them up, yes, it will hurt your credit, but only for a minute (the reporting periods where you have a high balance). Once you pay the balance down your score recovers.

Of course, always spend responsibly. Don't dig yourself into an early grave with debt. If you feel like you need to use a card because it's been a while, just buy something you would have anyway. It sounds like that's your plan, so STICK TO IT. If you use credit responsibly at your age you'll be a super-star pretty young.
CSP $19K
BOA $4K
UMP $11.5K
Target Visa $1.5K

takeshi
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Postby takeshi » Mon Jan 27, 2014 7:51 am

NTL1991 wrote:Is is detrimental to not use these cards from month-to-month, or to under-utilize them (maybe under 15%)?

15% isn't underutilizing. It's approaching what's generally regarded as ideal utilization. My typical utilization is about 12%. The only concern about not using a card is whether or not the creditor will close the account due to inactivity.

NTL1991 wrote:I'm still used to using my Debit card for most purchases (groceries, household expenses, vehicle purchases, etc.).

If you thought getting cash back on holiday spend was nice you might want to look into getting rewards on your regular major spend categories. Additionally, while your debit card may have fraud protections it can be beneficial to not have your banking account balance put at risk.

NTL1991 wrote:There's no cash back, but at the same time, it's also my oldest account, (if the account age doesn't change after converting from secured to conventional) so I'd be apprehensive to close it.

Keep in mind the closed accounts in good standing continue to report for 10 years and continue to factor into AAoA.

JoDa wrote:If you run them up, yes, it will hurt your credit, but only for a minute (the reporting periods where you have a high balance). Once you pay the balance down your score recovers.

High utilization over long periods of time can certainly lead to AA though. I don't recall how long I was over 60% but I did run into balance chasing (and paying down your balance does not improve your score with balance chasing) as a result.

NTL1991
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Postby NTL1991 » Mon Jan 27, 2014 11:58 pm

Thanks once again, everyone.

It's good to know that closed accounts in good standing still report for 10 years on credit histories. I may in fact look into converting the ELAN Secured over to a conventional, which hopefully would be seen as a positive thing. (Although, I'm not sure if the credit history actually differentiates a Secured and Conventional credit card...)

Another question I have is about credit limit reductions. If I use certain cards only every couple/few months, and have generally small balances, is it likely that my credit limits will be reduced? I've read a few reviews on the AMEX Everyday Blue Cash about credit limit reductions, even reduced as low as a small amount above one person's balance. What sort of circumstances would provoke a credit card company to do this?

Thanks again,
Nick



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