topic Avoiding interest while reaping the benefits on my credit report in Credit Cards

Avoiding interest while reaping the benefits on my credit report

Anonymous — Tue, 03 Mar 2009 19:09:47 GMT

I passionately believe that paying interest for the privilege of using someone else's money is the biggest trap consumers are victim to in the realm of personal finance. Unfortunately, this is how the average consumer chooses to do business. Conversely, I believe that by paying in cash for purchases, avoiding interest and keeping your money in your own pocket, you can get ahead financially. In short, if the "norm" is accruing debts and paying interest, then I believe by behaving abnormally, you will prosper. This means that you have to live by the age old mantra of " If you can't afford it, you can't have it". I and my wife do just that as much as possible. We pay cash for purchases including cars, have no debt except for our mortgage, refuse any new debt, and until recently avoid credit cards like they're poison. Our credit scores from the big three range from 700-720. In doing the research to discover why my scores aren't higher, we found that because we haven't any revolving credit accounts, we are actually penalized in our scores. Credit cards are so well marketed a product in our country that now you are forced to have them if you want the best credit score. I've known this for a while, but I just didn't care. My conclusion was that if I don't ever borrow money, why do I care what my credit score is. Nowadays though, employers check your credit score when you apply for a job. I'm recently married, and my finances are not yet such that I can afford to pay cash for a home, and there is a certain level of safety and quality in a house I have to insist on for my family to live in. So, OK..Now I have to care about my credit score, which means I have to get a credit card if I want the benefits they provide in improving my credit. But I still don't want to pay interest. It's my money...I earned it...I don't need there credit...so I don't need to pay them..Right? According to my research, that's wrong. I and my wife have now opened the following credit card accounts.

USAA(MC), 15,000 limit

Edward Jones(MC), 7,000 limit

From talking to these companies, it seems that if I pay in full each month and avoid interest payments I also lose the benefit on my credit file, because they both report to credit bureaus once a month after I pay my bill, which means they will report a zero balance....which gives me absolutely NO benefit. If the bureaus see a zero balance, they have no way to determine if I used the cards responsibly and paid them off or simply didn't use them at all.

From reading this forum, I have recognized like souls that know you have to play the game in regards to credit cards...so I pose this question...HOW DO I AVOID PAYING INTEREST AND AT THE SAME TIME AVOID THE ZERO BALANCE?!?!?!?!??!?!

Re: Avoiding interest while reaping the benefits on my credit report

Anonymous — Tue, 03 Mar 2009 19:23:12 GMT

you don't have to pay interest as long as you pay before your due date.

a) if you you pay what you owe before your statement closing date, then you CCs will report zero balance to your CR

b) if you pay after your statement closing date and before your due date, then whatever balance shows on your statement will be reported to CBs and you don't pay interest.

Re: Avoiding interest while reaping the benefits on my credit report

GregB — Tue, 03 Mar 2009 19:53:07 GMT

I agree with most of the intent of your original post. You are missing a few details, though.

If you use a credit card for some purchases and pay in full before the due date, there are several advantages.

1. You don't have to carry as much cash.

2. You have the card for emergencies such as an unplanned car repair, medical treatment, etc.

3. You have an improved credit score, which you have found is more important than you might think.

4. You can't rent a car without a credit card.

5. You can't stay in a motel or take a cruise without a credit card. Well, you probably can with great difficulty.

6. You can get cash back or rewards on some cards.

The only way that a CC reports a zero balance is if you pay before the statement is generated. If you make a charge for $100, the statement is generated with the $100 balance. That is the amount reported to the CRA. You then pay the $100 before the due date, which means you pay no interest.

My personal standards for acceptable interest:

1. Business truck financed in 2005 for 4.6% interest. As a business expense that is before taxes so actual rate paid is about 3% or less than what I could make on an investment.

2. Personal vehicle financed in 2007 at 1.9% interest. Again, less than I could make on an investment.

3. Only acceptable interest on a mortgage would be the lowest available rate, which generally requires a FICO of 760+. No escrow for taxes or insurance, which also requires "excellent credit".

4. An "extra" vehicle, that is NOT my required transportation. In this case that was a motorcycle, but has been a luxury car in the past: CASH ONLY.

People expecting to buy fancy things just because they can get them on credit are a disaster waiting to happen.

Re: Avoiding interest while reaping the benefits on my credit report

MidnightVoice — Tue, 03 Mar 2009 20:07:49 GMT

Creditcardskeptic wrote:

Conversely, I believe that by paying in cash for purchases, avoiding interest and keeping your money in your own pocket, you can get ahead financially.

I passionately believe I get ahead faster financially by paying with the money of someone else, getting rewards for doing it, accruing interest myself in the interim, then paying them back the original ammount just before it is due

Re: Avoiding interest while reaping the benefits on my credit report

Anonymous — Tue, 03 Mar 2009 20:50:03 GMT

As I replied to your post in another thread, you really have to time payments and charges carefully to get an oft-used card to report a $0 balance. If you simply charge purchases, wait till you get a statement, then pay they total amount due (the total charges on the statement) you will never pay interest, but a balance will be reported to the bureaus. I did this for years and never paid a cent in interest before realizing that having 6-8 cards all report a balance, no matter how small, looked bad to FICO, and when I was getting preapproved for a mortgage. If you have 2 cards, have one report a $0 balance each month, and the other report less than 10% of the available credit for maximum FICO points. Some people would say to alternate; I don't know if that really helps.

So if your USAA card is to be the one that reports a balance, make sure it is less than $1500, and if it's your Edward Jones (never heard of that one), it's under $700.

If both report $0, it doesn't look like you are using it; you cannot be successfully managing something you aren't using, so you lose points.

Re: Avoiding interest while reaping the benefits on my credit report

Anonymous — Tue, 03 Mar 2009 21:01:12 GMT

OK...thats refreshing news. The way my CC companies explained it...they don't report my balance to after my due date

thank you

Re: Avoiding interest while reaping the benefits on my credit report

Anonymous — Tue, 03 Mar 2009 21:06:04 GMT

If they report after your due date, then you'll want to use your card after the statement cuts, but before your due date. Only the statement balance is due on the due date, but if you've made additional purchases, then you'll have a balance to report. My suggestion would be to sign up with a credit monitoring service that will show you when the creditor reports. (TrueCredit used to, and may still, but I don't use it anymore since you can only get your EQ and EX reports once a month. Credit Check Total, which allows daily pulls, doesn't show the reporting date at all. I sometimes check back to my archived TC reports to see when a creditor reports.)

Re: Avoiding interest while reaping the benefits on my credit report

Anonymous — Tue, 03 Mar 2009 23:24:03 GMT

To keep the gyrations to a minimum, I rotate through four cards, charging groceries, gas,online, and incidental items. Substantial charges go to my two lowest rate cards, "just in case". I haven't carried a balance in over five years. Between my wife and I, we currently have a total balance of $1055.78, with one account at $0, another with a positive balance of $15.30, and six small balances between $40 and $400.

With the different due dates on each card, a balance is always recorded, monthly, regardless. Usually between $500 and $2500. It is certain that one or two accounts will have a $0 balance.

I like rewards, and I like using other people's money for at least fifteen days before paying the balances.

My FICO runs around 800.

Re: Avoiding interest while reaping the benefits on my credit report

haulingthescoreup — Tue, 03 Mar 2009 23:51:38 GMT

Creditcardskeptic wrote:

OK...thats refreshing news. The way my CC companies explained it...they don't report my balance to after my due date

thank you

lol, many of us have found that CCC CSR's are utterly clueless about this sort of thing. I've been told earnestly that they update every Friday. Uh-huh.

One day, I asked a CSR a question, and she replied, "I don't know." I nearly dropped the phone in shock.

Re: Avoiding interest while reaping the benefits on my credit report

Anonymous — Wed, 04 Mar 2009 09:27:05 GMT

Thank you all for the sage advice. I feel better about the whole thing having read your replys. To clarify, when I say that using other people's money to get ahead is a recipe for disaster, I mean for the average consumer. I realize there are ways to play the game correctly where you can come out ahead. Most people aren't like those of us who learn the game and play it correctly, having a back up strategy and saving to cover unforseen situations. You gotta plan for the unknown.

Respectfully, I would like to clarify a few things from one of the posts above:

1. You can Absolutely rent a car without having a Credit card. I've done it a dozens of times with no problem. True there are some rental companies that insist on the credit card, but for most, a debit card works just fine. Some of the ones that allow debit card usage will hold a certain portion of your bill immediately, but I always expect the expense anyway, so its no big deal. BTW, you don't want to do business with the CC only rental companies anyway...I've always found them to be more expensive.

2. You don't need a credit card to go on vacations or cruises. Done several of those throughout my life, and got through each one without a credit card. It was never a problem.

3. You don't need a credit card for Emergencys. What you need is a good emergency savings account and good insurance. That way, if a real emergency pops up, you have the money to weather the storm. Using a credit card for emergencys causes two problems. Not only the original emergency the money was needed for, but also a new financial emergency because you now have to figure out out how to pay your credit card bill.

These are all just myths the CC companies want us to believe, because the more people that believe them, the more money they make.

Lets be real...most people get CCs because it is an illusion of free money, where they can put off the reality of payment for some other time. For people like us, they are a great way to game the system, to use OPM to get financially ahead, or an excepted neccesity for getting the credit score we want. But lets be real and not pretend that CCs are these essential must haves that they're marketed to be.

Re: Avoiding interest while reaping the benefits on my credit report

GregB — Wed, 04 Mar 2009 14:16:17 GMT

I didn't think about a debit card. I assume that works just as well as a credit card for most things. The big problem that I see with a debit card is when someone fraudulently takes out money. A defrauded credit card will still allow you to continue to use it during the investigation. A defrauded debit card is out the money until they put it back. One of my employees was recently out several thousand dollars for a month or two when a gas station employee was grabbing customer numbers and selling the info to another to make bogus debit cards. When the same thing happened to me, Discover simply took care of the problem.

When I was talking about emergencies, I didn't necessarily mean that you were spending more money than you could easily pay. If your car breaks in the middle of "nowhere" and it needs a $1000 tow bill and $3000 repair, you would need to have $4000 in your checking account to get going. We all need some money in a savings account.

I think the important thing here is that our spending isn't changed by having a credit card or credit available. I wouldn't spend money on a big screen TV or a car just because I had the credit available. That is the big mistake, buying a more expensive car because "it is only another $100 per month" or some such nonsense. When someone says "I'll just put it on my card" and doesn't think about the value of what they are buying or what it takes to pay for that in the end, they are headed for disaster.

My main point is that you are probably better off with some credit card use, just don't let them make much/any money off you and don't get in debt without careful consideration of the big picture. The credit card companies are just waiting to take advantage of the naive person. So are casinos, state lotteries, car dealers, and just about everyone else.

Re: Avoiding interest while reaping the benefits on my credit report

cobaltnv — Wed, 04 Mar 2009 15:29:14 GMT

Creditcardskeptic wrote:

Respectfully, I would like to clarify a few things from one of the posts above:

1. You can Absolutely rent a car without having a Credit card. I've done it a dozens of times with no problem. True there are some rental companies that insist on the credit card, but for most, a debit card works just fine. Some of the ones that allow debit card usage will hold a certain portion of your bill immediately, but I always expect the expense anyway, so its no big deal. BTW, you don't want to do business with the CC only rental companies anyway...I've always found them to be more expensive.

2. You don't need a credit card to go on vacations or cruises. Done several of those throughout my life, and got through each one without a credit card. It was never a problem.

3. You don't need a credit card for Emergencys. What you need is a good emergency savings account and good insurance. That way, if a real emergency pops up, you have the money to weather the storm. Using a credit card for emergencys causes two problems. Not only the original emergency the money was needed for, but also a new financial emergency because you now have to figure out out how to pay your credit card bill.

These are all just myths the CC companies want us to believe, because the more people that believe them, the more money they make.

I agree with you that credit cards are not required to do the things you mentioned above they do make many of those things much easier. There is also a bit less risk with using a credit card versus a debit card. Credit cards offer very good protection against loss/fraud. Debit cards not as much. Which might not be a big deal--until you are a victim of identity theft.

Re: Avoiding interest while reaping the benefits on my credit report

MidnightVoice — Wed, 04 Mar 2009 16:20:44 GMT

Purchase with a CC also adds certain protections in some cases - car insurance, extended warranty etc