Newbie basics - Best way to use a credit card to build credit?

[cr3dits33ker]

I currently have no credit history in the USA, so I have some basic questions about building credit.

So far I have one credit card. BofA approved me for an unsecured card with a $2K total credit line (as I've had a bank account with them for 7 years). For the first month I used it for $70.34 and paid it in full when I recieved the ebill. I just set up a monthly auto pay. Is there a difference between paying when the ebill comes through or a month later when it is actually due? Also as it's 0% interest for a certain period should I be paying in full or just a portion? Can someone explain the basics of utilization to me?

I have been told that I need 2-3 credit cards. Should I wait for 6 months or more (when my credit report is set up/I have a score) before applying for another? Or should I go for a new one now so I have 2 cards by the time the 6 months is up? I'm guessing a 2nd card would need to be a secured one, as I have no credit history. Any recommendations on which I should go for?

The most important thing to me at the moment is starting/building good credit.

[gh17]

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@cr3dits33ker wrote:

I currently have no credit history in the USA, so I have some basic questions about building credit.

So far I have one credit card. BofA approved me for an unsecured card with a $2K total credit line (as I've had a bank account with them for 7 years). For the first month I used it for $70.34 and paid it in full when I recieved the ebill. I just set up a monthly auto pay. Is there a difference between paying when the ebill comes through or a month later when it is actually due? Also as it's 0% interest for a certain period should I be paying in full or just a portion? Can someone explain the basics of utilization to me?

I have been told that I need 2-3 credit cards. Should I wait for 6 months or more (when my credit report is set up/I have a score) before applying for another? Or should I go for a new one now so I have 2 cards by the time the 6 months is up? I'm guessing a 2nd card would need to be a secured one, as I have no credit history. Any recommendations on which I should go for?

The most important thing to me at the moment is starting/building good credit.

---

To maximize your credit score at any given time, you should pay all credit cards a few days before the bill comes (so that the statement says $0) except for one.  On that one card, let a balance less than 9% report (but greater than $0).

However, your credit score doesn't have any "memory" when it comes to these sort of things (unlike if you had a late payment, which would affect you for a while).  Your monthly payment history does show up on your credit report, but only the current month's utilization (how much of your available credit you are using) affects your score.  Thus, if you used 90% of your credit limit last month, but only use 5% this month, you get an instantaneous boost - the 90% doesn't continue to hurt you.  Also, it's fine to charge more than 9% of your credit limit throughout the month; just pay it down before the statement comes to less than 9%.

Even though you only really need to worry about this when applying for credit (that's when your score matters), I'd recommend not using more than 50% of your available credit.  When you get too high, credit card companies sometimes get scared and see you as risky, and there's a chance they could lower your score.  It's probably not likely at all unless you go higher than 80-90%, but it's probably good to stay safe.  With low limits, this can be harder, but you really shouldn't be charging things you couldn't pay with cash anyway, so just pay (via online transfers, etc) more often throughout the month.

As far as when you pay after the bill comes (right after the bill vs. closer to the due date), it makes no difference.  Most credit card companies report the balance on your statement to the credit reporting agencies.  Interest won't accrue until after the due date, so you don't need to pay early.

With your 0% interest offer, it's fine to leave a balance month to month.  Just make sure you remember when the offer expires.  You always need to pay at least the minimum payment by the due date.  Otherwise, it's up to you.  If you want to maximize your credit score, then keep the balance under 9% of your limit.  If it is not a month where you need to maximize your credit score, then you can keep a higher balance, although again, I would remember steering clear of maxing out.

Also, just remember - for some reason people sometimes get the impression that you need to carry a balance and pay interest to get a good score - that's not true at all.  You want to leave a balance reporting on at least one card, but that just means that you have something appearing on your statement (as opposed to paying it before the statement even comes).  Then you always want to pay in full to avoid any interest.

I would agree that it's good to have a few more cards.  Ideally, it'd be good to get another one now, just because then in the future it will be older.  However, with a secured card, you might want to get rid of it in the future, so it might be better to wait a little bit just to get a card you keep longer term.  Once your unsecured card is reporting, I don't think it will be that hard for you to get a second unsecured card.  Before you have a score, a lot of companies will probably just automatically decline you.  (I remember I couldn't even get an retail cards when I had no credit.)

[newhis]

I was able to get a Discover IT card with $1,000 CL without credit history. Also have a $1,000 secured BofA cash rewards. I'm waiting for the Discover FICO score (I need a few more months) so I'll apply for other cards or auto loan.

[ptilda]

Step 1: Use them.

Step 2. Pay them on-time.

There's really no formula. If you have a "bad" month, pay as much as you can, but make sure you pay the minimum. As was already stated, they don't "remember" when you paid or how much, only that you paid and how much you owe at the time of running a report. Use it like a debit card where you put your every-day purchases on it and pay off at least twice a month (pay-days if that's how you get paid). Don't look at it as "extra money" or you'll get in trouble.

And when you've had them for a while, ask for more money.

Most of all, just hang in there. In 6 months, you'll be an old hat!

[cr3dits33ker]

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@gh17 wrote:

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@cr3dits33ker wrote:

I currently have no credit history in the USA, so I have some basic questions about building credit.

So far I have one credit card. BofA approved me for an unsecured card with a $2K total credit line (as I've had a bank account with them for 7 years). For the first month I used it for $70.34 and paid it in full when I recieved the ebill. I just set up a monthly auto pay. Is there a difference between paying when the ebill comes through or a month later when it is actually due? Also as it's 0% interest for a certain period should I be paying in full or just a portion? Can someone explain the basics of utilization to me?

I have been told that I need 2-3 credit cards. Should I wait for 6 months or more (when my credit report is set up/I have a score) before applying for another? Or should I go for a new one now so I have 2 cards by the time the 6 months is up? I'm guessing a 2nd card would need to be a secured one, as I have no credit history. Any recommendations on which I should go for?

The most important thing to me at the moment is starting/building good credit.

---

To maximize your credit score at any given time, you should pay all credit cards a few days before the bill comes (so that the statement says $0) except for one.  On that one card, let a balance less than 9% report (but greater than $0).

However, your credit score doesn't have any "memory" when it comes to these sort of things (unlike if you had a late payment, which would affect you for a while).  Your monthly payment history does show up on your credit report, but only the current month's utilization (how much of your available credit you are using) affects your score.  Thus, if you used 90% of your credit limit last month, but only use 5% this month, you get an instantaneous boost - the 90% doesn't continue to hurt you.  Also, it's fine to charge more than 9% of your credit limit throughout the month; just pay it down before the statement comes to less than 9%.

Even though you only really need to worry about this when applying for credit (that's when your score matters), I'd recommend not using more than 50% of your available credit.  When you get too high, credit card companies sometimes get scared and see you as risky, and there's a chance they could lower your score.  It's probably not likely at all unless you go higher than 80-90%, but it's probably good to stay safe.  With low limits, this can be harder, but you really shouldn't be charging things you couldn't pay with cash anyway, so just pay (via online transfers, etc) more often throughout the month.

As far as when you pay after the bill comes (right after the bill vs. closer to the due date), it makes no difference.  Most credit card companies report the balance on your statement to the credit reporting agencies.  Interest won't accrue until after the due date, so you don't need to pay early.

With your 0% interest offer, it's fine to leave a balance month to month.  Just make sure you remember when the offer expires.  You always need to pay at least the minimum payment by the due date.  Otherwise, it's up to you.  If you want to maximize your credit score, then keep the balance under 9% of your limit.  If it is not a month where you need to maximize your credit score, then you can keep a higher balance, although again, I would remember steering clear of maxing out.

Also, just remember - for some reason people sometimes get the impression that you need to carry a balance and pay interest to get a good score - that's not true at all.  You want to leave a balance reporting on at least one card, but that just means that you have something appearing on your statement (as opposed to paying it before the statement even comes).  Then you always want to pay in full to avoid any interest.

I would agree that it's good to have a few more cards.  Ideally, it'd be good to get another one now, just because then in the future it will be older.  However, with a secured card, you might want to get rid of it in the future, so it might be better to wait a little bit just to get a card you keep longer term.  Once your unsecured card is reporting, I don't think it will be that hard for you to get a second unsecured card.  Before you have a score, a lot of companies will probably just automatically decline you.  (I remember I couldn't even get an retail cards when I had no credit.)

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gh17, excellent that's exactly what I needed. Thanks for being so clear and concise.

[cr3dits33ker]

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@newhis wrote:

I was able to get a Discover IT card with $1,000 CL without credit history. Also have a $1,000 secured BofA cash rewards. I'm waiting for the Discover FICO score (I need a few more months) so I'll apply for other cards or auto loan.

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newhis, thanks for the recommendation. I applied for the Discover IT card and was approved for $1,500. Excellent! I now have 2 credit cards. Think I'll leave it for at least 6 months now and let everything build. By then my husband's credit score should look much better and we might get an auto loan together.

For anyone else considering the Discover IT card, apply through amazon. They are currently offering a $75 amazon gift card after your first purchase if you do.

[cr3dits33ker]

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@ptilda wrote:

Step 1: Use them.

Step 2. Pay them on-time.

There's really no formula. If you have a "bad" month, pay as much as you can, but make sure you pay the minimum. As was already stated, they don't "remember" when you paid or how much, only that you paid and how much you owe at the time of running a report. Use it like a debit card where you put your every-day purchases on it and pay off at least twice a month (pay-days if that's how you get paid). Don't look at it as "extra money" or you'll get in trouble.

And when you've had them for a while, ask for more money.

Most of all, just hang in there. In 6 months, you'll be an old hat!

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Hey ptila, thanks for your help. 

When you say pay off at least twice a month do you mean only if I use them a lot? My first month of my first credit card I paid for one tank of gas then paid it off when I received the bill. What are the advantages to paying it off more than once a month?

Also, is having a higher credit limit on a card better for my credit score? You say after a while to ask for more money...when would you suggest? After 6 months? A year? What's a good increse amount to ask for?

Thanks again for your reply