topic Re: First Ever Credit Card in Credit Cards

First Ever Credit Card

Anonymous — Tue, 15 Dec 2009 14:25:57 GMT

Hi,

So I have finally managed to get my first ever credit card. I moved here from the UK this year and now have a secured Bank of America VISA card. I have put $500 on the card as my credit limit.

I have nothing on my credit report so far, so my question is what is the best way to build my credit score as a total beginner. I've heard/read various conflicting suggestions. My plan is to pay back the total balance on my card as soon as each statement (e-Bill) arrives. but somewhere I read I should only use around 10% of the $500 limit? But then someone else said I should be using the whole $500 to show I'm not afraid of using the credit and paying it back. Please enlighten me on my best strategy going forward. As I said, currently no credit score, nothing on my credit report other than a few non-secured applications which were declined.

Many thanks,

Tom

Re: First Ever Credit Card

DI — Tue, 15 Dec 2009 14:55:07 GMT

@Anonymous wrote:
Hi,

So I have finally managed to get my first ever credit card. I moved here from the UK this year and now have a secured Bank of America VISA card. I have put $500 on the card as my credit limit.

I have nothing on my credit report so far, so my question is what is the best way to build my credit score as a total beginner. I've heard/read various conflicting suggestions. My plan is to pay back the total balance on my card as soon as each statement (e-Bill) arrives. but somewhere I read I should only use around 10% of the $500 limit? But then someone else said I should be using the whole $500 to show I'm not afraid of using the credit and paying it back. Please enlighten me on my best strategy going forward. As I said, currently no credit score, nothing on my credit report other than a few non-secured applications which were declined.

Many thanks,

Tom

Congrats. FYI- Applications are not reported to the CRA's. Only the inquiries associated with the applications are. Normally, I would say you shouldn't let no more than 1% of your total credit limit report, but that would only be $5.00. In your case you shouldn't let no more than $50 report. That would give you a 10% utilization. After you let a $50 report the first month, you want to continue to PIF each month. You want to let your first statement generate before paying in full whenever that occurs. You will need to let a $50 balance report. It will take 6 months for a FICO score to generate. With that said, you still will need a mixture of credit(installment and revolving) to acheive high FICO scores over time.

Message Edited by DI on 12-15-2009 08:55 AM

Re: First Ever Credit Card

Anonymous — Tue, 15 Dec 2009 15:09:33 GMT

Regarding the 10% usage, the general consensus is that if you choose to carry a balance you should carry a balance (let a balance report to the CRAs) of <10% of your total combined credit lines and <10% on any individual card. FICO seems to begin to penalize your score somewhere around the 10% range.

FICO only sees what the card issuer reports each month, so you can use the up to the full credit line each month. Ideally, though, you would pay your balance before the issuer reports to the CRA. Card usage, amounts charged, etc. are interpreted differently by each issuer - AMEX and some others have been reported to analyze where you shop and what you buy and may execute AA accordingly.

Just keep using and paying your new CL on time and applying the tips you find here on the forums and your history will grow.

Re: First Ever Credit Card

Jazzzy — Tue, 15 Dec 2009 15:37:40 GMT

@DI wrote:

Congrats. FYI- Applications are not reported to the CRA's. Only the inquiries associated with the applications are. Normally, I would say you shouldn't let no more than 1% of your total credit limit report, but that would only be $5.00. In your case you shouldn't let no more than $50 report. That would give you a 10% utilization. After you let a $50 report the first month, you want to continue to PIF each month. You want to let your first statement generate before paying in full whenever that occurs. You will need to let a $50 balance report. It will take 6 months for a FICO score to generate. With that said, you still will need a mixture of credit(installment and revolving) to acheive high FICO scores over time.

Hi DI...just trying to clarify...

Why do you want your first statement to generate before paying in full?

Re: First Ever Credit Card

DI — Tue, 15 Dec 2009 19:40:10 GMT

@LynetteM wrote:
@DI wrote:

Congrats. FYI- Applications are not reported to the CRA's. Only the inquiries associated with the applications are. Normally, I would say you shouldn't let no more than 1% of your total credit limit report, but that would only be $5.00. In your case you shouldn't let no more than $50 report. That would give you a 10% utilization. After you let a $50 report the first month, you want to continue to PIF each month. You want to let your first statement generate before paying in full whenever that occurs. You will need to let a $50 balance report. It will take 6 months for a FICO score to generate. With that said, you still will need a mixture of credit(installment and revolving) to acheive high FICO scores over time.
Hi DI...just trying to clarify...

Why do you want your first statement to generate before paying in full?

Because the OP may pay the balance in full before the statement generates. If the OP do that, a zero balance will repor rather than a small balance.

Message Edited by DI on 12-15-2009 01:40 PM

Re: First Ever Credit Card

Anonymous — Tue, 15 Dec 2009 16:32:04 GMT

Thanks for your advice! I have set up auto-pay online so I can be sure of avoiding any late payments etc. I selected the option something along the lines of "automatically pay balance in full at first available date after e-Bill is issued". Will this have the desired effect, or should I withold payment until the due date? I went for the first option as I didn't want to be dinged if for some reason the payment took a few days to go through and then missed the due date ...

With regard to utilization am I right in saying it's fine to use the whole credit limit (all $500) as long as I reduced the amount to $50 by the time the statement is created? Or does the fact I used up to $500 at some point during the month also get reported?

Thanks,

Tom

Re: First Ever Credit Card

DI — Tue, 15 Dec 2009 16:58:04 GMT

@Anonymous wrote:
Thanks for your advice! I have set up auto-pay online so I can be sure of avoiding any late payments etc. I selected the option something along the lines of "automatically pay balance in full at first available date after e-Bill is issued". Will this have the desired effect, or should I withold payment until the due date? I went for the first option as I didn't want to be dinged if for some reason the payment took a few days to go through and then missed the due date ...

With regard to utilization am I right in saying it's fine to use the whole credit limit (all $500) as long as I reduced the amount to $50 by the time the statement is created? Or does the fact I used up to $500 at some point during the month also get reported?

Thanks,

Tom

It's fine to use up to $500 of your credit limit during the month. But before the due date, you want to pay it down to $50. That way, only $50 will report to the CRA's. If this is the only card that you're managing, I wouldn't set-up auto pay for it. You can manage that one card yourself and not forget to pay the bill.

Re: First Ever Credit Card

moondog7324 — Tue, 15 Dec 2009 18:20:55 GMT

This 1% / 10% talk is silly- this is the guys first card, it's not like he needs to tweak the reporting balance to qualify for a mortgage. Use the card, pay it off, use the card pay it off- avoid finance charges and build history. Congrats on getting the card, and being aware enough to take credit seriously. You will be fine- Time and on time payments and few inquiries is what you need to concentrate on. He needs history, not OCD!

Message Edited by moondog7324 on 12-15-2009 10:20 AM

Re: First Ever Credit Card

Anonymous — Tue, 15 Dec 2009 18:23:27 GMT

@moondog7324 wrote:
This 1% / 10% talk is silly- this is the guys first card, it's not like he needs to tweak the reporting balance to qualify for a mortgage. Use the card, pay it off, use the card pay it off- avoid finance charges and build history. Congrats on getting the card, and being aware enough to take credit seriously. You will be fine- Time and on time payments and few inquiries is what you need to concentrate on.

With this guy trying ti establish credit I say use the card for everything you can and PIF. Run as much money as you can through the card BUT DONT GO OVER THE LIMIT AND PAY IN FULL BY DUE DATE. The issuer will like the usage as long as you are paying. This would show them you can manage that amount easily and responsibly setting you up for credit limit increases in the future. Dont worry about reporting UNTIL you get ready to apply for new credit. If you are going to try to apply for new credit that is when you want the card to report a 5% or so balance then once that reports your score will be better than if it was maxed out. Then apply for your new credit and rinse lather and repeat. I have been told by multiple people that the more you use the card the more likely you are to get CLI's because that shows them you can handle it. If you arent looking for new credit or in OP's case dont even have a score yet because you havent had credit for six months then who care about tweaking a few points?

Re: First Ever Credit Card

Anonymous — Tue, 15 Dec 2009 19:22:12 GMT

TomW:

You should never set up auto-pay, it best to be done by you so that you remember what you did, what you pay and when you pay it. You should never trust auto-pay, for instance if there is a computer glitch or system errors (YOU NEVER KNOW), your payment will be missed and you will be screwed with late payments fees, APR increase and of course your credit history..

Re: First Ever Credit Card

Watchmann — Wed, 16 Dec 2009 04:05:48 GMT

@Anonymous wrote:
TomW:
You should never set up auto-pay, it best to be done by you so that you remember what you did, what you pay and when you pay it. You should never trust auto-pay, for instance if there is a computer glitch or system errors (YOU NEVER KNOW), your payment will be missed and you will be screwed with late payments fees, APR increase and of course your credit history..

Theoretically you are correct to never trust auto billpay, but in over thirty years of having life insurance premiums automatically deducted, and over six years of mortgage payments, I've never had one that was missed. Sure, it COULD happen, but not likely. It depends on the individual's reliability; if he/she tends to forget making payments than it is better to set up autopay and have it done automatically.

It's the same with your paycheck, how many times has an autopay into your checking account gone astray? Once set up and functioning they are about as reliable as the sun rising in the East. The critical issue is getting it setup correctly to begin with and making sure it all goes correctly. After that, forget about it, it'll work.

Message Edited by Watchmann on 12-15-2009 10:05 PM

Re: First Ever Credit Card

MarineVietVet — Wed, 16 Dec 2009 05:20:49 GMT

@Watchmann wrote:

Theoretically you are correct to never trust auto billpay, but in over thirty years of having life insurance premiums automatically deducted, and over six years of mortgage payments, I've never had one that was missed. Sure, it COULD happen, but not likely. It depends on the individual's reliability; if he/she tends to forget making payments than it is better to set up autopay and have it done automatically.

It's the same with your paycheck, how many times has an autopay into your checking account gone astray? Once set up and functioning they are about as reliable as the sun rising in the East. The critical issue is getting it setup correctly to begin with and making sure it all goes correctly. After that, forget about it, it'll work.
Message Edited by Watchmann on 12-15-2009 10:05 PM

I agree with this. I have had most of my bills set up on autopay for many years without any problems. However you need to trust but verify. I check my accounts constantly to make sure the payments go through on time. I set them up to pay early enough so that if there is a problem (never has been) I can take care of it in plenty of time.

7/09 TU-742 EQ- 779
8/09 TU-765 EQ- 783
9/09 EX pulled by lender 802

CC interest free as of 8/09
"Hello my name is Sandy and I'm a recovering crediholic".

Re: First Ever Credit Card

trynnagetright — Sun, 03 Oct 2010 05:55:20 GMT

lol, that is too funny, yet so true moondog. I agree with you!

Re: First Ever Credit Card

trynnagetright — Sun, 03 Oct 2010 05:59:17 GMT

i agree, with BOA especially. My first card was with them and somehow they gave me the student visa with $1k limit. I used the heck out of it and PIF every month, sometimes 2x a month if i used that much. They liked that and after about 10 weeks of having the card they increased me to $1500, by month 3 I was at $3200. Now this was back in 2007 so i dont know if they are still that generous. But I agree, use the dang card and take care of it. Worry about util after 6 months of having credit history established.

Re: First Ever Credit Card

cashnocredit — Sun, 03 Oct 2010 07:08:05 GMT

I agree with moondog. Don't worry about utilization. Your FICO score is of zero importance unless you are applying for new credit. You can then PIF before the statement cuts the month or two before applying. Your FICO is not hurt at all by prior month's util. If you had a new, unsecured, CC then really high util could trigger adverse action but that is not a worry with secured cards.

There's actually a good reason to PIF but not prepay and let the balance report. These monthly ending balances are a big factor in the new software used to impute income and debt capacity. A large variance indicates you have the means to make larger charges and supports a higher CL. Internally, your CC bank will know what is flowing though your account but other potential CC people will not have that info. They can only go by the monthly ending balances on your credit report. So to enhance your credit long term, use your CC normally, PIF, but don't prepay until just before you apply for credit.

If I was an underwriter this would be my take on 4 patterns of CC ending balances on a $500 card from worst to best:

Early-------------->Most Recent

370 380 420 410 420 435 -debt trending up, suggests smallish new flowthrough and little ability to handle new credit.

400 390 420 430 410 435 -debt stable and is being managed but small debt changes suggest marginal capacity for new credit,

25 35 15 22 36 0 25 -conservative levels of debt, low risk. Very unlikely to lose money but may not use or service higher debt/credit.

400 90 310 470 145 25 -Likely a PIF customer. High ability to handle increased debt.

Scale to one's card limit.

Re: First Ever Credit Card

Anonymous — Sun, 03 Oct 2010 11:07:48 GMT

I would still shoot for a small balance reporting because utilization has such a large impact on FICO scores and AA from other creditors. I think it's a good habit. I don't think there's anything OCD about it - just be sure your statement balance is low. As HTSU mentioned on another post, you don't always have a month or two for FICO adjustments. Watching your statement balance is simply FICO savvy and easy to do. And I would start that habit from the first card - it wll always serve you well.

Re: First Ever Credit Card

haulingthescoreup — Sun, 03 Oct 2010 15:27:04 GMT

Interesting point about letting other creditors see that you use cards a lot.

For those of us who delight in making things even more complicated, lol, one good version is the old rotation bit, letting only one card report a balance before PIF'ing. If your total CL is high enough, the util on that one card probably won't increase overall util very much. Next month let another report.

If you don't have a gi-normous number of cards, you can rotate them through, although there will probably be an occasional several-day period when two (or none) are reporting, due to different statement dates.

So as a version of the example given above, this might be the report of one consumer over a six-month period on cards A-F:

A: 0 - 850 - 0 - 0 - 0 - 0

B: 0 - 0 - 700 - 0 - 0 - 0

C: 0 - 0 - 0 - 1200 - 0 - 0

D: 0 - 0 - 0 - 0 - 1050 - 0

E: 0 - 0 - 0 - 0 - 0 - 800

F: 1350 - 0 - 0 - 0 - 0 - 0

Note: credit gardening can be fun, but every now and again you do have to slap yourself around a bit before you go completely off the road.