@Anonymous wrote:I have been trying to search around to see in regard to utilization to make sure my credit profile is as solid as possible before applying for some new credit lines especially larger ones. I know the three credit bureas usually recommend a 30% overall utilization. During my research, I found some other information stating that ideally each existing individual credit line should be below 50% of it's limit and there is no beneift in terms in the eyes of the credit card companies to pay the cards below this number. I can see how the individual utilization would make more sense as a lender doesn't want to see anyone maxed out on a certain card, but then again I also can see the argument for overall utilization being more important as some cards make more sense to use than others.
Does anyone have any insight on this? I am helping guide a couple friends with the information I have learned here and I'm sure they can get their existing balances under 50% utilization on each line, but I don't want them to pay the lines down unnecesarilly.
Any information would be GREATLY appreciated! This form has been awesome - I managed to sign up my family for Navy FCU and get some decent approvals after doing loads of reading here.
Thank you!
Pay down the credit cards. The interest rate you and your friends are paying is way too much if you are just charging and carrying balances. The main focus with using credit cards is to try to limit your cost of credit, the cost of the interest rate. Paying a 15% to 18% to 25% APR is not helping reduce your cost of credit. Your score will take care of itself if you focus on paying down those balances. Having any one card at over 50% utilization, even one card, can have a substantial negative effect on your FICO score.
You should only carry a balance if you have a really low (5% APR or less) or 0% interest rate on a card, or get a balance transfer with a similar low rate setup. Ideally you and your friends will soon get to PIF status where each new charge that apears on each CC statement is paid by the due date of that statement. I will say that I'm not there yet with all my cards, but the interest I am paying on cards where have balances is less than 5% APR in all cases.
@sarge12 wrote:
@Anonymous wrote:I will also state that the only wise way to use a credit card is to PIF every single month...and make it a habit to do so. Too many people are a slave to the credit card issuers. If the credit card issuer decides to change terms, interest rate, rewards, or request a copy of your tax return...can you close the card without it causing you problems? If you can not, then you need to make it your goal to be able to. It should never be a great concern, if a credit card issuer was to close your account, it wont be if you PIF, and you'll get rewards, extend warranties, purchase protection, and never pay a cent in interest. The ones who use cards to spend more than they make are on a slippery slope to financial problems. Be a transactor, not a revolver.
I will slightly disagree with just that part...otherwise, it appears we're of the same mindset.
However, I think a CC can be used WISELY to make short term low to no % purchase....as long as the user has a responsible BDP (buy down plan).
Unlike the Dave Ramseys of the world I believe grown men and women can
have a drink w/o becoming alcoholic
visit Vegas, play a few games w/o need for gamers anonymous meetings
visit the donut shop and not become a diabetic or weigh 400lbs (this one is stuff though
)
and yes a CC holder can use credit w/o losing themselves in debt ...needing to be TOLD they can't handle their own affairs.
My only point is ...with transaction timing and a clear pay back plan CCs can be great short term finance products, even if a few bucks in % bleeds out,
especially considering taking delivery of an item 30-55 earlier may add enough value that $20 in % may be a bargain.
I do not necessarily mean that you could not strategically carry a balance in some circumstances, but it is wise to be in the habit of paying in full. I have a huge sum of retirement savings that is tax deffered. I am disabled 58yo, and I can withdraw any amount I wish during the year, but if I draw too much out it can put me not only in a higher income tax bracket, but can make up to 85% of my SSDI payments taxable. So especially if I have drawn out a bit more than I originally planned, and if I have a 0% introductory rate, it could certainly make sense to carry a balance until I could withdraw the money to pay it in the next tax year. That is an example of why I might choose to carry a balance, but it would only be because it was fiscally advantageous. I still have the readily available means to pay it now...if I choose to. It is the establishment of a PIF habit that is important, but even with good habits, there can be exceptions! I do keep a very low interest card that I could use if it was something important enough to me to choose to carry a balance. That being said...in 10 years how much credit card interest have I actually paid? Not one penny. How many times have I found it necessary to carry a balance? None yet, but the preceding circumstances could happen to make it advantageous to do so, and I would then do so.
I will never allow myself to be at the mercy of a credit card issuer though. Life is too short for that.
We, agree fundamentality...I just don't go as far as thinking a few pennies = allowing one's self the be at the MERCY of anyone.
This, again is the zero to 90 thought pattern of the Dave Ramsey's of the world ....there are plenty of levels of resonsible use and reasonable cost of access to OPM, prior to becoming a slave to debt and 'not a one red nickel'....again just IMO.
$100 in % over the course of a year isn't 0 but it isn't a King's ransom either ...point being I agree in not paying through the nose but the goal doesn't have to be 0 or bust either