Credit Card Questions (Experienced Only)

[15-PSI]

Hello everyone! I'm currently new to the forum and after days of lurking I've decided to sign up and gain some serious knowledge about credit cards. I'm 20 years old, just got approved with a Capital One Platinum Classic card with a CL of $500. I've been doing tons and tons of research so please keep the answers with the questions! My first question is, Does paying the minimum instead of full amount increase your credit score?(I'm referring to your monthly statement). 

Example: CL = $500    Item = $200 Instead of paying the full $200 + Interest,fees,ect... I'd pay lets say $8/month.

Now I'm asking this specific question due to people saying paying on full is the correct thing to do. (I understand the whole keep it under 35% ect...) But on the other hand people on these forums and other sources are telling me the whole point of who ever issued you the CL is to make money off of you(which is interest). We all know that paying minimum results into long payments over time and a big fat interest over time. Which is what the credit issuers love and want. Therefore people say it's best to pay minimum which then results in a nice credit score.  I've also heard some people mix it with best of both worlds. Simply by paying the minimum for roughly 4-6 months then the following month paying the rest off in full. 

Question #2 I'd like to confirm exactly what these mean(My credit card RATES). I'm a bit confused but also would like to make sure I know what's going on and what they mean. 

Ratesurchase APR:Transfer APR:Cash Advance APR:Grace Period:

0% intro APR until August 2014; 22.9% variable APR after that

22.9% variable APR

24.9% variable APR

25 days on purchases

Purchase APR = 22.9 %, therefore 12months/22.9% = 2.7% Per month on whatever amount  use? Example(I spend $200 out of my $500 Limit therefore $200+2.7% =$205.4 aka $5.4. Also I'd like to confirm the whole 0% APR Until August 2014 means none of the APR % applys to me until August 2014 well after. 

Transfer APR(I have no clue lmao, I've read up it has to do with transferring your debt balances to a new card but I'm not understanding the whole point of it? Would it be something such ass Card A has $1000 debt, therefore Card B(the new card) Has a CL of $5000, I simply transfer the $1000 debt over to the new card along with 22.9% of $1000?

Cash Advance(Explain that to me) I did read up on all of these I'd just like to get legit feed back from you guys.

Grace Period(Explain that one swell).

Question #3

How does the whole credit card work?  By this I mean, My CL is $500, I use $125 that month. Therefore my balance is $125 + w.e fee's or apr. Now when I pay that balance of $125 does my CL go back to $500 the following month/Day/Week/Hour or what? Now what if  payed a minimum lets say $8/month from my balance of $125, would my CL reset and the balance be continue like $125 adds onto $500?

Thank everyone for even considering reading this or giving it a though, if I placed this in the wrong thread I'm extremely sorry. Keep the negative comments low. Don't be shy to cut the truth! This is what I need!!!(Sorry for the bad spelling in a rush).

So pretty much to sum it all up, I have a CL of $500, Usage will be 10-30%, 2 years of on-time payments

[JKXX]

#1: No. Unless you have a reason to carry a balance (0% offer, big purchases), you should pay in full. All you would be doing is wasting money by paying interest fees. This is a good thread for understanding credit scoring: http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Credit-Scoring-101-START-HERE/m-p/8169

#2: Never looked into these so someone else will have to answer. I've always PIF so never worried about APR.

#3: If you pay off the $125 balance, the CL should show a line of $500 available. In my experience (don't have Cap1 but I'm sure its similar), once I hit submit payment and its pending, the available CL went up immediately to what it was. If you carry a balance, the CL does not reset. If you pay the "$8" so you have a $117 balance, your available credit will be $383 out of $500.

[15-PSI]

Good response man! Extremely helpful and I was looking at that thread earlier. I'll look over it rite now again! Btw if anybody has skype or anything please! Please! Hit me up lmao. An since you say no it leaves me wondering, why would these companys even offer minimum payments? Is it either people are just slow and don't know how to manage money or they simply don't care, or it doesn't bother them? I mean Credit issuers are already slapping you with a high APR, I've just had a thought that maybe it does help your credit since you're giving them more $$ lol.

[JKXX]

They have minimum payments as they want you to pay at least a certain amount of your debt a month. As long as you keep up on the minimum, you will show as current and you can keep racking up more debt. CC companies would prefer that you don't pay the full amount and carry a balance so they can make more money off of interest. How much money you give the CC company based on how much you spend or any interest you accumulate has no effect on making your credit score improve faster.

[15-PSI]

So my best bet is to simply stay under the 30% Usage of $500/per month. Pay on-time/Full every month until I die? Lol Btw, have you tested the waters on this theory. Obvious I trust you it's just its kinda funny with the whole minimum. Like they say buy what you can pay for I suppose. 

[Walt_K]

1.  You're confusing what creditors might want you to do and how your score works.  Your score is determined by FICO based on their formula applied to the informaiton on your report.  FICO looks at your utilization percentage.  For most people, your ideal FICO utilization is to have all cards report $0 balance except one card.  On that one card, you want it to report between 1-9% of that card's credit limit (that is 1-9% of that card's CL, not 1-9% of your total CL across all cards).  

This is for reporting purposes.  After your card reports (most cards report statement balance), then you pay in full to avoid paying interest.

Now this illustrates part of the confusion.  If you didn't pay in full, but then paid your card down to the same amount again next month, your FICO would be the exact same.  FICO is just looking at what is on your report.  it doesn't know what you are paying in interest.  It is only interested in what your utilization is.  

Your creditors may prefer PIF (the general consensus is that Amex likes PIF), or might like you to carry small balances and pay some interest (I've seen people say that Citi likes this) (there's really no creditor who doesn't like PIF customers though).  They might reward you more with credit limit increases if you fit the payment profile they like.  But your creditors have no ability to award you with FICO points.  You earn more points by optimizing utilization, having a mix of credit, and then it's pretty much a waiting game to let accounts age.  

2.  Your interest calculations are good for a ballpark assessment, but it's a bit more complicated because your CC probably takes your average daily balance and may do so over a two month period.  You'll have to check your T&C to see exactly how they calculate it.   

ETA: Re 2, I didn't pay that much attention to the math assuming you had the right division.  It would be 22.9%/12 to give you 1.9%

[15-PSI]

So, you're telling me it's fine to have lets say 2-3 cards. Not using the 2-3 despite 1/3 and keeping the CL ultlization in the 1-9%? I thought you'd want to stay in the 20-30% range???? Also is having more credit cards better? Of course if you know what you're doing and manage them all. An I got  a email saying my card has been shipped today, as far as the Terms and agreements ect...i've tired to find information online for that card but no hard info...so I guess just wait until I get the card in the mail. Also is a business calculator worth it? I'm considering using it!

[Walt_K]

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@15-PSI wrote:

So, you're telling me it's fine to have lets say 2-3 cards. Not using the 2-3 despite 1/3 and keeping the CL ultlization in the 1-9%? I thought you'd want to stay in the 20-30% range???? Also is having more credit cards better? Of course if you know what you're doing and manage them all. An I got  a email saying my card has been shipped today, as far as the Terms and agreements ect...i've tired to find information online for that card but no hard info...so I guess just wait until I get the card in the mail. Also is a business calculator worth it? I'm considering using it!

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The 20-30% thing is something that floats out there by people who don't understand FICO.  Having your utilization at 20-30% isn't bad, it's not going to penalize you like having it up over 50% or near maxed out, but it isn't ideal.

Keep in mind that your score is determined by an individual report.  It is a snapshot.  You do not earn points for keeping a low utilization.  Each individual report is scored.  So if you let your utilization go up to 20% one month, it is no big deal.  The next month, if you pay it down, your score goes right back up.  Also, we're talking about optimization here.  There might not be a big difference between 20% and under 9%.

[mountainmom]

Credit Card companies also make money when you charge purchases on the merchant fees.

Re balance transfer: let's say you had a credit limit of 5000 and you make a 2000 purchase on that 0% offer. But the 0% expires and now you are paying that 22.9% interest. You might open a new card that has 0% interest on balance transfers and move the 2000 to save interest. But keep in mind most cards will charge you a one time fee of around 3% to do this.

[mountainmom]

Oh and on q1: some people have found if they pay only minimums and then suddenly pay in full or pay a large amount the credit card company will lower their limit. It's called a cld (credit limit decrease) or balance chasing.

(Sorry this isn't pretty and lined up with your questions. I'm sick and on my phone. I hope you appreciate the info anyway)