$500 limit, spending a lot more by paying it off every week, is this bad?

Discuss the Visa & MasterCard payment networks as well as cards that operate through them.
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ISX
 
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$500 limit, spending a lot more by paying it off every week, is this bad?

Postby ISX » Wed Apr 13, 2011 7:06 am

I got my first credit card so I can get some credit going since I am 21 and never had anything before. I got a chase freedom and it only has a $500 limit. Well I did the online stuff so I can pay it online. I constantly hit $500 so I just pay it off and spend another $500. This happens every week, if not sooner, so in a month I might spend $2000. I have never gone over $500 and pay it off in full so I never have to pay any interest. My question is, is there anything wrong with doing this? Will it hurt my credit or anything? I read a little about some things on this but I am still confused. Thanks.


craigm1
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Postby craigm1 » Wed Apr 13, 2011 8:45 pm

I did this with American Express last year at this time I had $1100 limit maxed it out half way through the month and paid it off usually charging 2k a month and they bumped me up to $3800 then kept maxing it out monthly paying it off and now less than a year later I have a $9800 limit if you want to raise your credit limit this in my opinion is a good thing.
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ISX
 
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Postby ISX » Thu Apr 14, 2011 9:08 pm

What I read was that using over 25% of your credit card meant you had a lot of debt so it would drop your credit score. That means I could only use $125 at a time. It said I could pay it down each week just to always keep it under 25% which would be a PITA. I just don;t know if what I read is right or what. If its true then my score must be way down now.

Iroquois
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Most issuers have their own scoring models and understand new credit

Postby Iroquois » Fri Apr 15, 2011 5:05 am

With a small amount of credit and a fairly new credit history profile it may not be worth worrying about the official credit scoring models in the very short term.
Most of the large general purpose card issuers like American Express, Citi, Chase have apparently taken the time to understand a great deal more about this emerging consumer than they have in the past.

The key here is how you handle the credit they give you. If you pay on time and in full is one scenario, use of credit is another. The person who maxs out and makes min payments is looked at much differently ( someone who needs credit and may have a challenge paying it back) than someone who max out pays it all off and repeats the cycle ( e.g. a traveler who is reimbursed by their employer). Most will look at types of transactions too in understanding the behavior ( e.g. was the card used as bail bond and is being paid off, or was the card used for office supplies and gets paid in full each month). The card issuers could care less about social behavior or how you live your life, that isn't the issue, it all will tie back to how people who historically act this way pay them back, or allow them to make money. The various elements that each issuer decides to use, and which have been tested for historical behavior are ranked for risk and applied to each customer. At least that's how I think it works.
So maxing out can work for you and it can work against you as a new card holder. Your individual behavior will dictate the outcome Over time, with history and more data to look at the generally cited "public" models take on greater meaning and too much debt does work against the individual.

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Postby Hermanator » Mon May 23, 2011 3:50 am

I had the same question too. I have a student card with a $900 credit limit (recently was $700) and to cover my monthly spending I am having to make 2 to 3 payments/month. i read up on this and there is not anything wrong with what we are doing other than the fact that we are using too much of our available credit since we are constantly maxing out.

craigm1
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spending

Postby craigm1 » Mon May 23, 2011 7:55 am

As long as you don't go over the limit and don't make any late payments, sooner than later your credit card provider will get the hint and raise your limit, I have done this with a few credit card providers with similar results amex seems to respond the quickest though.

Craig
Current Cards: American Express:Grandfathered Blue Cash CL 34k member since 89
Chase Freedom CL 7.5k member since 04
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Light fast
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Postby Light fast » Tue May 24, 2011 3:34 pm

You will need 16 credit cards (with $500 limit each one) to spend just 25% of your total credit!
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Mogul of Pineapples
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Postby Mogul of Pineapples » Sat May 28, 2011 4:47 pm

Light fast wrote:You will need 16 credit cards (with $500 limit each one) to spend just 25% of your total credit!


Actually there are two components for that part of the FICO formula. Credit utilization per revolving account and credit utilization across all revolving accounts. That means that having just one account with high utilization may adversely affect you, even if all the others have 0 balance and your average across all accounts is low. How much or little it affects you I think depends on a number of other factors like how long your credit history is. Those with strong credit histories I don't think will be affected as much if they have a higher utilization on one account for a couple months.
Disclosure: I am a moderator/paid staff of this site, which does have advertising relationships with some credit cards that are discussed and linked to. Regardless, anything I say is my honest opinion.

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jlk82
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Postby jlk82 » Mon May 30, 2011 4:05 am

Man banks are so cheap. I am not saying credit should be as easy to get as it was last decade but $500 when someone spends and pays back $2000 monthly is plain wrong. I hope your limit has since been raised and if not I would say adios Chase.

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tntexan72
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Postby tntexan72 » Thu Jun 09, 2011 11:11 pm

I would continue to do what you are doing. Use the card hard, PIF. In a few months, Chase will get the hint and bump you up. If not, call in and ask for a CLI. I know with Chase, if you get declined, you would have to wait 6 months before you can request another CLI.



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