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how much revolving credit is enough?

New Member

how much revolving credit is enough?

I have to admit I'm pretty clueless when it comes to most things financial.  I'm preparing my finances and doing some preliminary research into getting my first mortgage, projected to be within the next two years.  I found out about this website service after doing some research online, and checked my FICO score and credit report for the first time ever.  I now realize I should have checked my credit report to ensure its integrity sooner and more regularly....but oh well, can't change the past.

 

In any case, I'm a couple points shy of 800 on my FICO, and my goal is to try to get my score >800 within the next two years so I can be competitive for the best interest rates.  It looks like I've done a couple things wrong in the past and recently. 

 

First, it lists as my one negative factor that I do not have any balance on my revolving credit.  I don't know what this really means, but I assume they want to see me use my credit card and leave a balance?  My habit is to pay for things with debit card because I only buy when I have the money for it.  I very rarely use my one credit card (have not opened a new credit card ever since the one I opened in college), and if I do, I pay it off the next day so I don't accrue interest.  I'm basically risk averse and fairly debt averse.  My plan is to use my credit card when I buy groceries etc. instead of using my debit card, and then paying them off the next day.  I don't know if that will be sufficient to show them that I'm using revolving credit "in moderation" or do I need to leave the balance on the credit card until it's time to pay?

 

Second, one of the positives is that I had a medical school loan that I paid for in automatic deductions from my bank account through residency and fellowship. In hindsight, I can see how regular payment of an installment loan can demonstrate credit-worthiness.  Unfortunately, I decided to pay off the entire principal last week, and I don't have any loans to which I'm making regular payments.  Will the lack of debt/loan obligations hurt my score?  I guess I will see in a few weeks whether my score drops when the lender reports that I've paid off my student loan early.  

 

Thanks for your thoughts and advice. 

Message 1 of 5
4 REPLIES
Valued Contributor

Re: how much revolving credit is enough?


nomenclature wrote:

I have to admit I'm pretty clueless when it comes to most things financial.  I'm preparing my finances and doing some preliminary research into getting my first mortgage, projected to be within the next two years.  I found out about this website service after doing some research online, and checked my FICO score and credit report for the first time ever.  I now realize I should have checked my credit report to ensure its integrity sooner and more regularly....but oh well, can't change the past.

 

In any case, I'm a couple points shy of 800 on my FICO, and my goal is to try to get my score >800 within the next two years so I can be competitive for the best interest rates.  It looks like I've done a couple things wrong in the past and recently. 

 

First, it lists as my one negative factor that I do not have any balance on my revolving credit.  I don't know what this really means, but I assume they want to see me use my credit card and leave a balance?  My habit is to pay for things with debit card because I only buy when I have the money for it.  I very rarely use my one credit card (have not opened a new credit card ever since the one I opened in college), and if I do, I pay it off the next day so I don't accrue interest.  I'm basically risk averse and fairly debt averse.  My plan is to use my credit card when I buy groceries etc. instead of using my debit card, and then paying them off the next day.  I don't know if that will be sufficient to show them that I'm using revolving credit "in moderation" or do I need to leave the balance on the credit card until it's time to pay?

 

Second, one of the positives is that I had a medical school loan that I paid for in automatic deductions from my bank account through residency and fellowship. In hindsight, I can see how regular payment of an installment loan can demonstrate credit-worthiness.  Unfortunately, I decided to pay off the entire principal last week, and I don't have any loans to which I'm making regular payments.  Will the lack of debt/loan obligations hurt my score?  I guess I will see in a few weeks whether my score drops when the lender reports that I've paid off my student loan early.  

 

Thanks for your thoughts and advice. 



Welcome to the forum!

 

You'll likely get other responses, I just wanted to say that, if you're hovering in the area of 800, you're doing mighty fine!  Generally speaking, one gets the best terms with scores of 760+, and with few exceptions there's not much additional benefit regarding rates beyond that.  Of course, having a score over 800 is definitely good for the ego!Smiley Happy

EX = 849 EQ = 850 TU = 850 as of 07/2017
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Message 2 of 5
Epic Contributor

Re: how much revolving credit is enough?


nomenclature wrote:

I have to admit I'm pretty clueless when it comes to most things financial.  I'm preparing my finances and doing some preliminary research into getting my first mortgage, projected to be within the next two years.  I found out about this website service after doing some research online, and checked my FICO score and credit report for the first time ever.  I now realize I should have checked my credit report to ensure its integrity sooner and more regularly....but oh well, can't change the past.

 

In any case, I'm a couple points shy of 800 on my FICO, and my goal is to try to get my score >800 within the next two years so I can be competitive for the best interest rates.  It looks like I've done a couple things wrong in the past and recently. 

 

First, it lists as my one negative factor that I do not have any balance on my revolving credit.  I don't know what this really means, but I assume they want to see me use my credit card and leave a balance?  My habit is to pay for things with debit card because I only buy when I have the money for it.  I very rarely use my one credit card (have not opened a new credit card ever since the one I opened in college), and if I do, I pay it off the next day so I don't accrue interest.  I'm basically risk averse and fairly debt averse.  My plan is to use my credit card when I buy groceries etc. instead of using my debit card, and then paying them off the next day.  I don't know if that will be sufficient to show them that I'm using revolving credit "in moderation" or do I need to leave the balance on the credit card until it's time to pay?

 

Second, one of the positives is that I had a medical school loan that I paid for in automatic deductions from my bank account through residency and fellowship. In hindsight, I can see how regular payment of an installment loan can demonstrate credit-worthiness.  Unfortunately, I decided to pay off the entire principal last week, and I don't have any loans to which I'm making regular payments.  Will the lack of debt/loan obligations hurt my score?  I guess I will see in a few weeks whether my score drops when the lender reports that I've paid off my student loan early.  

 

Thanks for your thoughts and advice. 


#1.  FICO dings you for having all of your CC reporting a 0 balance.  Let all but one report 0 balances and the other at 9% or below.

 

#2.  Installment loans play a very small factor in your score.  If this was your only active installment loan, it could cause a drop in score due to no credit mix.

Message 3 of 5
New Member

Re: how much revolving credit is enough?

re: #1, I only have one credit card, but I can easily use it instead of my debit card and leave a balance and pay off the balance at the end of each period.  I will not leave any balance that will accrue interest, however.  It's not acceptable to me, personally.

 

re: #2, interesting.  Unfortunately my school loan was the only installment loan I have and I made the mistake of paying it off too early.  Am I to assume that I should take out another loan, like a small auto loan, just so my FICO score doesn't get dinged for not having enough credit mix?  I see 2 problems with that: 1. I don't need a new car, so it's really not practical and 2. I'm concerned about the effect asking for credit will have on my score, since I read that asking for credit also negatively affects one's score. 
And there isn't anything I need right now for which I will need a loan, so it seems like it's a catch 22. 

Message 4 of 5
Highlighted
Epic Contributor

Re: how much revolving credit is enough?


nomenclature wrote:

re: #1, I only have one credit card, but I can easily use it instead of my debit card and leave a balance and pay off the balance at the end of each period.  I will not leave any balance that will accrue interest, however.  It's not acceptable to me, personally.  You don't have to pay interest if done correctly.  You let it report the small balance then pay it before the due date to avoid interest payments.

 

re: #2, interesting.  Unfortunately my school loan was the only installment loan I have and I made the mistake of paying it off too early.  Am I to assume that I should take out another loan, like a small auto loan, just so my FICO score doesn't get dinged for not having enough credit mix?  I see 2 problems with that: 1. I don't need a new car, so it's really not practical and 2. I'm concerned about the effect asking for credit will have on my score, since I read that asking for credit also negatively affects one's score. 
And there isn't anything I need right now for which I will need a loan, so it seems like it's a catch 22. 

 

If you don't need anything, certainly do not apply for any just for a FICO score.  The paid installment will still be included in your AAoA and stay for 10 years from date closed so it is helping you.


 

Message 5 of 5