I have never been very smart about finance stuff. Don’t know why but I checked my credit score today and it is not as good as I expected.
I feel very very confused. I look through the report, there are no late payment, no bad debt and so on. I have only one credit card and I pay every dam bill on time. Why I don’t have a hight score?!!
So I start doing my research. And I guess I find the reason.
When I was in college, I believed I have been taught that “use your credit card and remember to pay it on time and you will have a high score!”
I now know that is wrong. So wrong.
It is about a thing called Credit Utilization. What it means is that the credit company not only will look at if you paid the money on time, they will also pay attention to how much Credit you will use in total.
Say you have a $3,000 credit limit card. And you use it for everything. Just as I do since it gives me a good reward. Now after a month you spend $1,500 on it. That will be 50% utilization.
And that is bad. The recommended line is 30%.
I have been doing it so wrong for years!
And it doesn’t mean that it will be better off to not use credit card at all. That also won’t help about your credit score.
So based on that, the smart way is, apply multiple cards, used for different things and keep every card’s monthly balance below 30% of their limits.
This is so frustrated.
Some useful comments and info I found:
I use to be a mortgage loan officer. The way I understand it, you should only use 30% of whatever your limit is on any card you hold. If you have a limit of $1,000.00 for example, you want to keep your balance at or below $300.00. Totally ignore the real limit and treat the card as if your limit is just $300.
To avoid paying high interest, pay off all but $5.00 of your balance (or as much as you can afford) each billing cycle. Leaving a $5.00 balance will automatically register with all three credit bureaus that your manageing the card at less than 30% usage. Bottom line, never allow your limit to go over $300.00 /or 30% of your actual limit. If you do this with each of your cards, you should have an “A” for credit card usage within a years time.
I’m not sure where you folks get your information that says you have to leave a balance on any credit card. A year and a half ago I had never owned a credit card my entire life, however I had a lot of collections for medical since I didn’t have insurance. There was close to 25k worth of this. I paid quite a few of them in full and settled about 5 that still show on my credit report as settled in full. No company would give me a credit card. I started with a 572 credit score and by the time all of my debts were paid or settled, I had a 620 credit score. I had to get a capitalone prepaid card. After a few months I applied for Bank of America and they denied me even though I bank with them. So what I had to do with Bank of America is give 500 cash as a deposit. So my limit was 500, then six months later I called them and asked for a real credit card. They finally approved me and gave a 1k limit. After 9 months of using that and the Capitalone.. I was approved for Chase Sapphire. My score had raised to a 705 with a 5k limit.
My wife had zero credit and I had her get a credit card. She started off with a Kohls card to establish some credit. About six months later she had a 720 credit score strictly because of that card, and later she got a Bank of America, then after a few more months her score raised to 750. She then applied for Chase Sapphire and got a 11k limit.
The point of this story is.. my wife and I pay our credit cards the same day we use them. We never wait until the due date and we never carry a balance. My wife has a 780 credit score and I now have a 705. My advice is do not fall into the carrying a balance trap. It’s not needed.
I have had a Capitol One card for 2 years now. I use it to pay several of my bills, and 95% of all other purchases;. I have only had a $0 balance twice in the last year. Yet, I have paid $0 in interest, and have cashed in over $100 in rebate credit this year. That means they have paid me over $100 to use their card.
I do this, because I make a payment every week. The rule is: Every purchase has a grace period until the due date following the 25 day minimum . So as long as no 1 purchase makes it to its due date, there is no interest. Basically, I average $1000/mo in transactions, so I pay them $250/wk. This means I always have a balance to report, but I never pay interest. They have also, increased my credit limit twice in 2 years.
I also have a Chase card that I quit using, so they lowered my limit and increased my interest rate. So, for that card, I started using it for my netflix bill. I let it sit for a month so they could charge me interest on $8. Then I paid my balance minus $5 every time my card was billed. After I cancelled Netflix, I started making one purchase per month, and I pay all but $10-25. I let them charge me interest on that. Then, I use it again and repeat. They have increased my limit again, and always report a balance. It cost me about $10/yr in interest.
And a good article: