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Arctos
Posts: 1
Registered: ‎09-26-2009
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New Credit User - Balance Utilization and 0% Interest

Hello everyone!

 

I'm new to the myFICO forum - an appreciative reader. I've tried to familiarize myself with the acronyms and frequently requested topics. I've also tried searching for answers to my questions. Please let me know if the answer to my question can be found within another thread.

 

I just opened a college credit card with USAA. The credit limit is $500 and I have 0% interest for 6 months. I'm a college student. I have NO established credit aside from recent creation (<4 months) of a Comcast account. My student loans are currently in my parents' names.

Questions:
1. With 0% interest, I'd like to feel comfortable making purchases up to around 80-85% utilization, and I'd like to be able to carry that balance for a month or two. I have much more than $500 pre-allocated for credit pay-off in a savings account, and it will always be kept available specifically for the purpose of paying off the credit balance. Am I starting off on the wrong foot with this paradigm? Will it hurt my credit? Will it not make a difference?

2. If I reach 85% utilization during the month but pay it down to, say, 30% or 8% utilization before the official statement generation, how will this affect me? Does it change anything?

 

I'm trying to develop a "good practice" methodology for this specific card while I pay 0% interest and then make modifications to that methodology once the card transitions to its full interest rate.

 

Thanks much for any advice you may have!

 

Arctos

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haulingthescoreup
Posts: 28,115
Registered: ‎04-01-2007
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Re: New Credit User - Balance Utilization and 0% Interest

[ Edited ]
Hi, welcome to the forums, and congrats on the card!

A question: why would you want to carry a balance for a month or two? Just to take advantage of the 0%? Because I would note that these days, you're going to earn piddly-squat interest on your savings. For instance, $400 at 2% interest/ 12 (months) = 67 cents interest earned per month. (Yes, all you compound interest fans, I know that's not precise, but that's basically what we're looking at here.)

At any rate, since this is your only open revolving account, yes, it will hurt to have a good chunk of balance reporting, because your util will be very high. You never want to have 30% or more reporting, and ideally, it should be under 10%, as in 9% even or lower.

Also, if you want USAA to beam approvingly on you, I think you'd be better served by using the card a lot during the month and then PIF'ing. If you PIF before the statement date, that will be better for your scores, which is completely separate from making the lender happy.

We've never gotten anyone to report on how having a $0 balance on the one-and-only open CC affects their scores --whether it's better to PIF and have no revolving balance, or whether it's better to allow $10 to report and have "all" cards reporting a balance. (We'd love for you to be a guinea pig, if you like!)

But anyway, I don't see any advantage to carrying balances. USAA isn't one of those lenders who drool at making interest off of you. I think they'd rather see lots of usage with prompt paybacks, especially with a new + young consumer. That's my guess, anyway.
Message Edited by haulingthescoreup on 09-27-2009 06:13 AM
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
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MyFicoAddict
Posts: 284
Registered: ‎05-11-2009
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Re: New Credit User - Balance Utilization and 0% Interest

Welcome,

 

I commend you for finding this forum and being on your way to staying on track and learning on how to keep up with your credit and its scores. I wish I had found this forum when I started on my credit journey. Congrats on the card.

 

I am with HTSU on this one too - I am a banker and I have been in finance for 4 yrs now (only 26 yrs old) :smileyhappy: and yes you will probably not get much on your savings account right now and you always want to pay off debts is the way I look at it - 0% on the card is great but why carry a balance when you can pay the debt off?

 

Again, keep up with staying on track and you will be in good/fit shape in the future and going forward!

Aim to be fiscally and physically fit...
EQ - 723 FICO as of Aug 2010
TU - 757 FICO as of Sept 2010
EX - 742 FICO as of Oct 2010 (PSECU)
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Peach8321
Posts: 274
Registered: ‎12-31-2008
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Re: New Credit User - Balance Utilization and 0% Interest

Hi Arc,

 

I think you've gotten some good advice, but please let me throw my two cents at you.

 

First, USAA is an awesome company.  I'd suggest, if you haven't yet, opening a checking and savings account with them and adding renters insurance in your name only.  The more you have with them, the better they reward you.

 

Second, good for you for coming here to learn about credit.  My personal suggestion is to never never never carry a balance on a CC your whole life.  That being said, because USAA has such an awesome website, you can pay your CC off before the due date and then you'll have about 1-2 weeks that you can charge more and that balance will be reported so if you want them to report a balance, you can do that and still never have interest.  But again, I don't really advise this.  Especially since this is your first card and new to you, I'd suggest making sure you PIF each month and let $10 or less report for at least a year, so you get used to having a CC.

 

Third, and this is for you and Hauling:  My husband had one CC for YEARS and never carried a balance so it always reported $0 and his FICO was around 730-750.  Thus you can have a pretty good score and only have one thing on your report (although the "negatives" were not having enough revolving accounts).

 

Hope that helps!

Current Scores: EQ: 740 (2/7/13)


Starting Score: 799
Current Score: 762
Goal Score: 800

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haulingthescoreup
Posts: 28,115
Registered: ‎04-01-2007
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Re: New Credit User - Balance Utilization and 0% Interest


Peach8321 wrote:

...Third, and this is for you and Hauling:  My husband had one CC for YEARS and never carried a balance so it always reported $0 and his FICO was around 730-750.  Thus you can have a pretty good score and only have one thing on your report (although the "negatives" were not having enough revolving accounts).

 

Hope that helps!



Thanks for posting this! We've had maybe a half dozen people who, for various reasons, only want to have one card, and we've never known which was the better way to go. Please thank your husband for being an unwitting guinea pig! :smileyvery-happy:
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007

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