It all depends on how disciplined you are, but many people have given you good advice here, so make up your own mind.
However, I will give you one trick which, if people were smart like me, would make their lives much easier. I actually suggest everyone do this.
Go to your bank, and have them set up your bank account to automatically pay the minimum charge for your CC every month. After that, anything you put on is applied to the balance. So, even if you forget your bill for a couple months, or spend way too much money, you are autolmatically paying out the minimum payment (like 20 bucks on 1k balance or something). This saves the company from bugging you, and makes you look like a darling on your credit report. So many people get black marks just because they are too lazy to pay their bills.
On December 23 2006 00:22 NoNameLoser wrote: actually that high limit is not good for your credit score. The most balanced limit should be set such way that you would use up 20-40% of it monthly. If you use up more, it makes them think you have some short cash problems and cant pay -> lower credit score; if you use up less, they assume you dont have any cash inflow and there fore dont spend -> lower credit score.
Credit cards were meant for the banks to make money of you, the interest they charge is just crazy. If you want to buy something you dont have money for, just get a loan, itll be much cheaper.
The only good use off credit cards is that if you pay it all out monthly, you can, in such way, post pone payments on your purchases up to ~20 days, and if you keep you cash in bank money market account (especially those internet only ones), you earn extra interest that you otherwise would not have.
Your information regarding utilization (the credit card balance percentage against total credit limit) is very very false. In fact, the industrial credit score, FICO, favors low utilization. In general, the lower, the better. 40% is VERY high for utilization and can be a major score killer. Most people find their score to be the highest while they keep their utilization under 10%.
It is correct, however, that high limits sometimes "trigger" high spending which can put a consumer easily into credit card debts. It's a rather a matter of personal self control and financial responsibility.
Another potential drawback is that too much unused available credit can sometimes be viewed as potential high risk by some lenders. Please note that this also depends on one's income and overall credit history. In general, its not uncommon for US consumers to have very high credit limits these days simply because of the intense competions among banks. "Excessive available credit" is no longer a big concern nowadays. Let's put it this way. If you have very high limits, it means your credit is great. If a lender denies you for "excessive credit", chances are good that you can take your business to somewhere else.
For you guys who want to learn more about credit, please visit this site at http://www.creditboards.com It has lots of information about building credit and how credit score works. It also contains a lot of information on "credit repair" for those who once messed up their credit and wants a second chance. Do NOT learn that because you do NOT ever want to get yourself in that situation.
If you learn financial accounting or finance, you will know a lot more implications of these matters. However, if you want it simple - When you spend using credit card, just remember this:
you must pay it in a months' time, and with a little more interest to it...
If you buy a $500 item on credit, please, save a little more than $500 next month because this is what living on credit means. More hard work, which only the very disciplined can fair modestly. There is nothing very comfortable/soothing about flashing that card. The hard work to repay stays the same and a little more.
I'll leave the advantages of it out because the banks will be showering you with those informations till you are drunk..
interest isn't charged until the interest free period is up, meaning you can still pay only the original amount back if you pay your bill in full when it arrives (assuming the bill comes in quicker than the interest free period ends).
However if you don't, the interest you *would* have accumulated over that interest free period is added on the day you go over.
On December 23 2006 04:28 DarkYoDA wrote: If you learn financial accounting or finance, you will know a lot more implications of these matters. However, if you want it simple - When you spend using credit card, just remember this:
you must pay it in a months' time, and with a little more interest to it...
If you buy a $500 item on credit, please, save a little more than $500 next month because this is what living on credit means. More hard work, which only the very disciplined can fair modestly. There is nothing very comfortable/soothing about flashing that card. The hard work to repay stays the same and a little more.
I'll leave the advantages of it out because the banks will be showering you with those informations till you are drunk..
Most credit cards have a "grace period", that is a period of time you can repay the debt in full without incurring any interest. Please note that the balance must be paid in full, a partial payment will still result in interests being calculated from the day a balance occured. Grace period is usally 20-25 days from the statement date.
There are a few sub-prime cards on the market that do not have a grace period. These cards usually target those with damaged credit history and they often carry some other hefty fees as well. They should be generally avoided. For those with new or limited credit history there are much better approaches to build credit such as secured credit cards.
There are many advantages of using credit cards, wisely of course, such as:
1) Protection against theft/robbery etc as most cards offer 0% fraud liability 2) Convenience 3) Various rewards (cash, frequent flyer points etc) 4) Flexibility in case your cash flow is affected by certain events (sudden change in life etc, but should be ones you know that you can overcome) 5) Building strong credit for other financing needs such as vehicles and housing. 6) Higher score also helps reducing insurance rates and even some employers do credit checks.
1) building a good credit score 2) for emergencies when you do not have the money in your account then (I've had to do this with car repairs a couple times)
On December 23 2006 08:26 dronebabo wrote: i'm not sure i understand here- can you pay off everything in the month and have no interest to build up your credit score, or must you have to pay some interest?
if you pay your bill in full when the monthly bill comes in, you will not have interest accumulation, provided your credit card isn't from some scrub company
interest isn't charged until the interest free period is up, meaning you can still pay only the original amount back if you pay your bill in full when it arrives (assuming the bill comes in quicker than the interest free period ends).
However if you don't, the interest you *would* have accumulated over that interest free period is added on the day you go over.
haha i was gonna say how did you get a 20k$ spending limit at 18
my friend just got a card that was no interest for a whole year. while its notice to give your a little breathing room, its probably a better idea to get used to spending only what you have and paying it off right away. i pretty much use mine in place of cash. if you lose cash, its gone. if you lose the card, you just have to call and no problem.
so far, everyones given good advice. ill just add one thing that no one really talked about. if youre paying online and intend to use your card later that nite, you gotta know that payment doesnt go into effect right away. its especially bad on low max cards like urs. say you got ur 300$ limit card and use about 260$. most companies, if you pay after 3 pm, its not gonna go into effect unil the following day. so if you spend $50 that night going out, you just went over your limit, and kicked your credit in the balls.
even if you pay at noon, you should still check it before you use it because it doesnt always post quickly. that happened to me once. i had only about 20$ left so i paid around 10 or 11 am on a friday. after work, i filled up my gas tank and went out. ended up something like 50$ over because for some reason it didnt post til about 10 at night.
good luck with teh card. just remember to use it responsibly and youll be fine
On December 23 2006 08:26 dronebabo wrote: i'm not sure i understand here- can you pay off everything in the month and have no interest to build up your credit score, or must you have to pay some interest?
from what i understand, you gotta use it for something. i started mine off by just buying gas to get credit.
Yeah the first page of this thread has some great advice on it (Maybe second page too, didn't read it all). Basically, don't fuck with credit cards. trust me. As people said, only use it occasionally in place of money to build up your credit but do not use it if you know you don't have the money. That's completely stupid and will lead to financial disaster. The only condition you should ever do this is a dire emergency but even then, you're risking financial troubles for the next decade.
Basically, treat it as an ATM/check card and you will have really good credit. And if you are ever in question that something is a scam, it probably is, so don't do it.
On December 22 2006 23:55 NewbSaibot wrote: You probably have $20,000 because your mom cosigned on it, so the credit really reflects against her history. Dont piss her off by racking up a huge debt. Nothing has changed, no new doors are opened. You dont need that new pc for schoolwork, you dont need an 06 car for commute, you dont need a whole new wardrobe to attend class with your new classmates, etc etc.
On December 23 2006 08:26 dronebabo wrote: i'm not sure i understand here- can you pay off everything in the month and have no interest to build up your credit score, or must you have to pay some interest?
This is the biggest credit use fallacy out there. People think the credit companies only look to see that debt's are paid, not how theyre paid. So their idea is that "well if i spend $10,000 and pay it off in a week, i look like a responsible trustworthy borrower!". Wrong. Paying off the entirety of your bill every month does nothing to affect your overall credit score (or as mentioned earlier, can actually hurt it believe it or not). It certainly cant be used as a method to build strong solid credit. The super secret creditor computing algorithm's used to analyze customer risk is a bit more complex than that. For instance, my buddy paid off a credit debt of $10,000 over the course of a couple of years on his car in college. Once he graduated, he was able to secure a $250,000 mortgage on his new house. I cant even do this, my credit is fine, however I never made any large purchases.
Credit history shows a proven track record of debt repayment. If you can sustain payments on something for a year or more straight, that looks good. Anybody can pay off their bubblegum purchases in a month using a credit card. It's not stupid to pay interest, you are proving that you have the intelligence to manage a complicated budget.
Basicly, If you do not pay your bills within about 2 months, you'll be in the shithole of interest. Like one of the other guys said. Use it to get a good credit report. I only use mine on gas and well..... i dunno what else. Thats about it. Debit is where its at though. When i got my first credit card thats what my parents told me. Thier credit, at the age of 52, is high enough that basicly they can just buy cars on credit. Its nuts, banks go crazy over them.
On December 23 2006 08:26 dronebabo wrote: i'm not sure i understand here- can you pay off everything in the month and have no interest to build up your credit score, or must you have to pay some interest?
I disagree with newbsaibot's analysis. Here's why.
Paying interest in itself does not help a credit rating. I would guess that his friend got financing for his 10k car debt from the dealer. This is different than credit card debt. The debt is larger and the payments are created to be made over a long period of time.
If you did the same thing with a 10k credit card debt, not only would you pay an insanely larger amount of interest. (so much that it would be a moronic way to buy a car) But you would be carrying over short term debt for a long period.
In short, this is basically shitting on your credit rating.
If you use a credit card to pay for your bubble gum purchases, as newbsaibot said, you are creating a credit rating. A good one if you always pay on time, and a bad one if you don't.
But since the debt is so superficial, lenders don't care about it much. It may, however, help you to secure a car loan in the future and that car loan (properly paid) will lead to getting a mortgage.
Keep in mind that social factors, such as marital status, age, full time work vs student or part time, all effect your overall credit score as well. Particularly when you have very little history, when you're young like us.
To summarize, newbsaibot's post is out of place in this thread. If he was advocating paying your credit card late to pay interest to help your credit score (I'm not saying he did, but people seem to be interpretting it that way, mistakenly), it is bad advice.
To answer dronebabo's question, just paying it off every month without incurring interest charges is the best way too improve your credit rating using a credit card. It's true that it won't help you tremendously, but it certainly will help a bit.
Yes i actually dont know how he paid off the car, a loan probably is the most likely explanation. Interest in credit cards isnt that bad. To qualify for a loan though, you will undergo a credit check. You are much more likely to get an early credit card to build credit with than a loan, and trust me, you dont just walk into the bank at 19 and get a $10,000 loan because you paid off all your gas purchases each month with your visa. Im not exactly sure how he did it, i'll have to ask him, because his house is phat. Yes, i said that.
I also forgot to mention that yes, your employment and residency history is also a factor when it comes to improving your credit, albeit in different ways, which im not entirely sure about.
And again i stress the importance that paying off your credit bill each month does not help your credit score, not much anyway. And in some instances, can actually hurt it. Theres an entire article out there about it, but basically the general idea, as someone mentioned earlier, is that you should have some type of credit balance at different times rather than 0 balances. If you have 4 credit cards all with 0 balance, this actually HURTS your score. If you have 2 cards with 80% balance, this also hurts your score. The idea is to have 2-4 credit cards with a combined balance of roughly 20-40% of their limits. This builds your credit score. Nobody knows the exact inner workings because the FICA calculations are trade secret.
Using your credit card to buy groceries and paying it off every months is a waste of your time, unless youre building flight miles or something like that. Interest can be bad if you let it get out of control, but it isnt that bad. Typically you would start around 20%, and every 6 months to a year or so it will probably drop a quarter or half percent. My dad's interest rates are 7% i think. Paying $2000 above sticker price on a car that you couldnt afford but will have payed off in a year is an ok deal if you ask me. It aint pretty, but at least you got the car, and you got some nice credit out of it too.
And manablue, i just realised your avatar waves his finger from time to time
I would recommend not spending any money unless you know you have that money at THAT moment in time, or by the end of the month.
Use in place of cash, like someone else said. You have 200 dollars in your wallet and lose it...nobody cares....you have a credit card and lose it, one quick call and you're ok.
EPT
