CC Usage versus PIF Debate

[Lucid08]

I've read many threads on here where people say it's a good idea to PIF each month and to not go above 10% utilization. I fully understand the positive effects on ones FICO score by maintaining this type of CC usage behavior, but in talking with co-workers and family members, I'm finding that a lot of them actually use a good percentage of their available credit limits and instead of PIF'ing, they're carrying out their balances over many months while making more than the minimum monthly payments.

Most, if not all of those I have spoke with seem to indicate that CLI's have come just as often when maintaining a balance, as others here who practice the PIF and <10% method of usage.

I guess I'm wondering what all the fuss is about, with everyone reccomending PIF'ing each month and carrying low utilization all the time. My brother has very good credit scores, is a blue collar worker and he uses his CC's like short term loans, where he'll buy a big ticket item using one of his CC's, but then turns around and budgets himself to pay off the balance over 12 months or so.

It just seems that the conventional wisdom of PIF'ing keeps people from enjoying using their credit cards to the fullest extent possible. One would think that the CC companies would want someone to make usage of their cards, and pay them interest in return for doing so. But I'm also reading where CC companies get nervous and resort to CLD's when someone makes heavy usage of their available CL.

So what's your perspective on all of this, and which manner of CC usage do you prefer or employ?

[marty56]

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@Lucid08 wrote:

It just seems that the conventional wisdom of PIF'ing keeps people from enjoying using their credit cards to the fullest extent possible.

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I enjoyed using my CCCs so well I wound up in 70k of CC debt, lost a relationship and almost my job.

I dont have a problem with people carrying a balance on their CCCs as long as they have an exit plan that states when the balance will be PIF'd.  As one of many people here who got into trouble with CCCs, I would say that most of us PIF or dont carry a balance longer then 6 months to a year max.

In terms of FICO scores, I have found that having one CC report any amount less then 10% gives the best result and I usually have an amount under $100 reporting and I always pay well before the due date since I never want to be late.  Sometimes I miss and have 0% util report but my score will recover the next month.

[Anonymous]

When I was rebuilding and using my Merrick Card (very high interest) alot I used to get clis all the time. Now I use them every 3 months or so and pif I have not had cli in two years or so.

[Anonymous]

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@Lucid08 wrote:

So what's your perspective on all of this, and which manner of CC usage do you prefer or employ?

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I've had my cards five years and I've never paid interest charges to the credit card companies. It'd be different if they offered 0% rates or even 2 or 3% but I've never seen them permanantly offer a 0% rate. Rather, they are usually in the 8-18% range and I personally would never want to pay that much for something I "want" rather than "need". To me it means living within my means. If I truly "need" something I'll go to my emergency fund. If I want something, I'm not going to pay 115% of the price just because I want it right now. It'd be like giving someone $1150 for a computer that costs $1000. To each their own, I suppose.

[Comp5569]

Heres how I look at things..

I hardly ever carry cash.  My paycheck is direct deposited into my checking account.  So basically, when I buy something, I have to use a card either way.  Whether it be my check card or my credit card.  Rather than use my check card, I just charge everything on my credit card.  This way it gets used like crazy.

However, when it starts to get close to my limit, or the end of the month I immediately pay it off.  First of all to pay without having to pay interest, but also to avoid getting myself in trouble.  The balances can add up quickly and I pay while I have the money rather than carrying the balance and risk not being able to pay later.  

[wmarat]

Why to pay financial charges?

[MidnightVoice]

Piffing early is good for the score.

Piffing on time is good for finances.

Carrying a balance is bad for the score and bad for the finances.  Credit cards can be used for loans, but they are not usually cheap loans

[My2cents]

PIF/Low utilization is a little known secret that we forumers very well understand.  The main goal to many in the forums is to improve their score, and increase their knowledge about all aspects of the credit market. 

My2cents

[Lucid08]

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@marty56 wrote:

I enjoyed using my CCCs so well I wound up in 70k of CC debt, lost a relationship and almost my job.

I understand that people tend to get into trouble using revolving credit unwisely, but is this really a mechanic of the system providing people with too much credit, or with people just not being responsible with what they have? Or both?

I dont have a problem with people carrying a balance on their CCCs as long as they have an exit plan that states when the balance will be PIF'd.  As one of many people here who got into trouble with CCCs, I would say that most of us PIF or dont carry a balance longer then 6 months to a year max.

I agree. I think that the convenience factor plays a lot into the ease with which people make the decisions to use their CC's for purchases. It is much easier to buy an item on a CC than it is to go thru the hassles of going into a bank or loan institution, and going thru the approval process, paperwork signing...ect.

At the end of the day a person is still going to pay interest if they budget themselves to pay for something over time. Whether it be CC interest, or the interest on a secured or unsecured loan.

So if a person has issues with paying CC interest, shouldnt the motive be to improve your credit scores to the point where you can get lower interest rate cards in the long run, while at the same time keeping your available limits within reason based on your income and ability to pay?

I know that my FICO score is going to take a huge hit if I make a large purchase and increase my utilization beyond 10%. But I also know that even if I PIF each month, or pay off the balance over 12 months or so, my score will rebound either way.  So either I want to have a nice and shiny FICO score each and every month, or I might want to use some of my available CL and buy something I need, pay it off over the course of a few months, and STILL have my nice and shiny FICO score at the end.

In terms of FICO scores, I have found that having one CC report any amount less then 10% gives the best result and I usually have an amount under $100 reporting and I always pay well before the due date since I never want to be late.  Sometimes I miss and have 0% util report but my score will recover the next month.

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[haulingthescoreup]

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Lucid08 wrote:

At the end of the day a person is still going to pay interest if they budget themselves to pay for something over time. Whether it be CC interest, or the interest on a secured or unsecured loan.

So if a person has issues with paying CC interest, shouldnt the motive be to improve your credit scores to the point where you can get lower interest rate cards in the long run, while at the same time keeping your available limits within reason based on your income and ability to pay?

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For me, the question is why on earth would anyone "budget themselves to pay for something over time"? I can see the occasional rare major appliance purchase that might take 3-6 months to kill off, but whether the APR is high or low, it means that your purchase costs more. The exception would be if the APR is equal to or less than what I can get on a CD, etc. Then there is a valid argument that your savings are making you more money than you are paying out. (I have a 0% BT that I'm slowly killing off, from home improvement expenses that I took off the HELOC.)

IMO, the decision to carry a balance of any amount should be given a whole lot of thought. Do you have enough reserve funds in savings to easily carry you through 6 months of payments if the you-know-what hits the fan? Are your other card-holders apt to react negatively when they see you're apparently unable or unwilling to pay off balances immediately? Will the CCC on the card with the balance think, A-ha, this person is willing to pay us interest; let's see if we can double the APR and make more money?

In this day and age, I can't fathom carrying balances, other than at 0% or extraordinarily low APR's, and even then, it's smart to have enough money to knock it down fast or PIF it, if lenders start freaking out.

(As to the carrying balances vs PIF'ing question, it's an easy guess which I do! )


eta: essentially, I don't want to give a bank (or anyone else) control over me, and carrying balances does exactly that.

Message Edited by haulingthescoreup on 10-20-2008 09:21 AM