Credit card/ establishing credit

[nkotselas]

Hello everybody,

I was planning on posting this in a credit card forum but I figured you guys know your stuff since most of you own nice cars

My concern is establishing credit. I'm 19 and I have two credit cards. $500 limit and $1000. I use them only to shop for my parents business twice a week so I end up maxing them both out weekly but pay them off immediately to repeat the following week.

I've heard that usin only 25% of the credit available is a good idea. But I end up being around 400% monthly . Is that hurting my score or is it okay since the balance in the end is 0?

I would also like to increase the limits for simpicity and the reason mentioned above. Is this advised by you on the board? I've only had the cards for about 4 months so I still have about 2 before I can apply for a higher limit. Or will they automatically increase it?

Thanks!

[Rick V]

Carrying a balance is better than paying it in full every month. The credit card companies like getting to hit you with an interest payment.
The best advice I can pass along is to view credit as a foundation to a house. Build it slow, make it solid, strong and make sure you don't put more on it that it is designed to hold.
Credit takes time.

[KFC911]

Having a CC at 19 is "alien" to us old farts! At that age, I established credit by paying off a new Jeep CJ5 that my parents co-signed for when I was 17. Nuthin' during my college years except paying my "bar tabs". Seriously though, I find the concept of using CCs to establish "credit" to be a ploy by the "pushers" (i.e. CC companies)...get 'em hooked early and you've got a customer for life . Obviously, I've never been a fan of CCs...

[widebody911]

Originally Posted by Rick V

Carrying a balance is better than paying it in full every month. The credit card companies like getting to hit you with an interest payment.

For the past years and a half or so, I've been paying off my CC immediately, and never carrying a balance. They rewarded me by dropping my FICO from 820 to 810.

[Christien]

Building credit is somewhat of a mystery. Everyone seems to do it a bit differently.

First, remember that lenders only report to the credit bureau once a month, so your weekly activity will go unnoticed. They'll take a snapshot of your account once a month and submit that. So one month you might by maxed, the other month 50%, the next 10%. So 2 CCs reporting will not be building much credit history. But, as Rick said, it takes time - lots of time.

A couple CCs are good, though you may consider raising the limits. A 3-6 year car loan will be excellent at building credit, assuming it's always in good standing and the balance is steadily declining. A mortgage should be good, but, at least here in Canada, many of them don't report to the credit bureaus, surprisingly enough. Cell phone companies report, so consider staying with one provider long-term, though again, minimal impact.

A large part of it is age, too. 10 years of history will be worth xx points, 20 years xx points more, etc.

Really, just ignore it and pay your bills on time, and you'll establish excellent credit by the time you really need it.

[ratpiper71T]

It's a Definite pain if you mess up. The key don't mess up. This could go on a mile long thread where no one ever would be able to pin down the definites of credit. If there's an industry that should be revamped and standardized in the financials bus., this is the one! I worked in a business where I learned a lot about credit, so I'll share it.
The three credit bureaus tha calculate a score and store information on you and everyone one else's financial identity are transunion, experian and equifax. They all use the same basic info to calculate your score, but they use different mathematical algorithm to get there so thats why if you pull your credit, you get three different scores. Getting your score the highest takes a few different things-- one- don't ever miss a payment-ever on anything. I think among the three this is one of the heaviest weighted factors. They tab 30, 60, and 90 day late pAyments and have a history trail showing the record. Second you need varied types of history visible: revolving(CC), installment,(car loans, term loans) and mortgage loans to get to the really high range AND have it mean anything. You also need time-- after there is months and years of history including the various credit line types it begins to positively affect your score. Keeping credit line open and active and low balance to limit ratio keeps your score high as well. If you close or open or max-out your revolving credit line it brings your score down. In short purchasing power(available balance), payment history is what pumps up the number.

[Steve Carlton]

The balance on your statement and the credit limit is what gets reported to the bureaus. If you're maxxed out or over you limit, your score will go down. You could ask the issuers to raise your limit, although only having them for 4 months means they'll probably say no. If you want to build credit, you'll need more accounts, especially an installment loan. You could ask immediate family to add you to their existing accounts, and you will likely gain the positive history they already have. Just be sure they pay their bills on time and don't run balances approaching their limits.

[Zeke]

Get more cards, use them, carry a small balance. Get a Sears card and buy some tools or buy a small appliance?

Not to be nosy, but why are you buying things for your parents' business? Sounds risky.

[Rick Lee]

If you want to carry a balance, be sure to make your payments on time each month. A late fee can be at least $40 and that will hurt your credit. These days there are very few things you can't buy with a credit card. My last flights to Europe and China were free because of mileage points on credit cards. And I don't carry a balance. So they're getting the $85 annual fee and nothing else out of me. The tickets I've had comped would have cost more than 10x that annual fee.

[Christien]

$85 annual fee?! What do you get for that? I absolutely refuse to pay an annual fee to a CC company.

[VincentVega]

Gas cards are a good way to build credit, same thing with store cards, Macy's... Just pay them off. Pay the off every month, no reason to pay a fee/interest.

[Rick Lee]

Originally Posted by Christien

$85 annual fee?! What do you get for that? I absolutely refuse to pay an annual fee to a CC company.

I normally would not pay that either. But when it gets me points and perks on the airlines I use the most for business and personal travel, it pays for itself many times over. Previously I had one that paid 1-3% cash back on purchases, depending on the type of merchant. When you spent $30k a year on such a credit card, the annual fee is a no-brainer. I make it back pretty quickly. Recently I sold excess points for ridiculous money too. If you know how to play it, it can really work out well.

[VincentVega]

ne that paid 1-3% cash back on purchases, depending on the type of merchant

Costco Amex, no fee. Great deal.

[tedg04]

The best way to start on real credit is with an installment loan of some sort - normally an auto loan. Starting out, you either need a great co-signer or prepare to put a ton down and pay a higher interest rate on your own. The reason I say real credit, not just credit, is that what you have is called a "thin file." Your score may be a 820, with with two small credit card accounts and a short time on them, the number is irrelevant and might as well be zero. If the accounts are over limit and the number is a 550, you would be better off with a zero.

First - stop going over limit with them. You don't know when the cards are reporting and therefore don't know what it's doing to your credit.

Second - get some sort of credit account that carries a balance. A CC that you pay off over six months or so is better than one you pay off every month. However, the best is an installment account that takes over a year.

Third - the 25% rule you mention is only really relevant for carried balances. If you have $1000 available and carry a $250 balance you're looking good to the credit agencies. Your score will be higher than someone who carries a zero balance, but the person carrying a zero balance isn't paying interest either - six one way, half a dozen the other.

Unless you have a plan to make a major purchase on credit soon, don't sweat it. Build credit as you need it, and make sure you understand that anything bought on credit will cost you more than if you bought it with cash. That means the new toolbox that Sears has for 0% for 18mos, only use the program if you can pay for it now. They design those plans for the purchaser to fail (one day late - 18%, etc.).

Credit's complicated, but stop going over limit. Now.

[Rick Lee]

Originally Posted by VincentVega

Costco Amex, no fee. Great deal.

I have an Amex Blue, no fee. I use it only for PayPal stuff.

[LSA]

Originally Posted by Rick Lee

I have an Amex Blue, no fee. I use it only for PayPal stuff.

Yeah, that's what I replaced my Visa with it's great. This thread has me wondering though if I shouldn't just leave a small balance monthly something like 10 dollars or so for credit reasons.

I've been using my cc for a few years now and I always pay in full every month so I've assumed my cc score was pretty good but who knows.

[scottmandue]

Originally Posted by KC911

Having a CC at 19 is "alien" to us old farts! At that age, I established credit by paying off a new Jeep CJ5 that my parents co-signed for when I was 17. Obviously, I've never been a fan of CCs...

This ^^^^

Feck the CC's most of them will find a way to screw you... plus in this day and age it is not a matter of if but when someone steals access and runs up your balance, yes the CC will not make you pay for fraudulent charges but it can take months to straighten out and generally a huge PITA.

I built credit same way as KC, first was a loan on a new Honda XL500... second a Hobie cat.

It helped that my dad (without telling me) deposited $70,000 in a bank account in my name. I think he did that for tax purposes, I accidentally found out about it but never touched the $$$.

[nkotselas]

Wow thanks for the response everyone!

I understand the dangers of a cc thanks especially to my grandmother. I pay everything in cash except for the business purchases. I consider myself fiscally responsible and will never miss a payment (I hope )

Problem is I already have a car, go to communit college, and live with my parents. I have virtually no expenses which works wonders for saving but not so much for building credit. I need to find something!

To zeke,
I work there and my parents are gradually working less and less. So I do the shopping for them (it's a restaurant). The idea is that I get paid to do the shopping but the primary goal is to build credit and get rewards points for vacation. They give me cash immediately for the purchase that I use to pay the card. What aspect do you find risky? Is it not good to show high purchases without high income?

[Zeke]

Originally Posted by nkotselas

Wow thanks for the response everyone!

To zeke,
I work there and my parents are gradually working less and less. So I do the shopping for them (it's a restaurant). The idea is that I get paid to do the shopping but the primary goal is to build credit and get rewards points for vacation. They give me cash immediately for the purchase that I use to pay the card. What aspect do you find risky? Is it not good to show high purchases without high income?

I was just thinking of your liability not knowing the circumstances. I mean, if the place burned or faced another disaster, insurance money to pay for that food will be a long time coming.

"Is it not good to show high purchases without high income?"

Yes.

[nkotselas]

That makes sense, the place has been there for over 20 years so it's secure and I would be unnafected if any disaster did come.

And for others in the thread, I never exceed my limit. I use part or all of it. I don't even think I can go over limit, it would get denied