Some general basic questions...

[ILFarmer]

Hey all I am 23 years old and I have some basic credit card questions. I currently have a Discover (I don't know if it is a Discover IT or a Discover Now, but I believe I get 5% on the revelvoing catergories and 1% on everything else). I HAD a $2800 CL (just yesterday I had it upped to $4300 over the automated phone deal) and I typically would use between $1000 and $1500 a month on average and I just pay the bill IN FULL monthly. I have never carried a balance and I don't plan on ever doing so. Last month I bought a new truck and spent some money online buying parts/accesories for it and I got up to $2600 which is very close to my CL. Anyway....

My FICO credit score according to discover.com is a 745, and I checked my TU score last night and it was a 733. 

I applied for a Capital One Quicksilver Visa as the 1.5% appeals to me and I would plan on using this card pretty much for online purchases only. I was denied. I e-mailed the CEO and hopefully they will call this week and I will get it approved as I couldnt believe I was denied. 

My questions are what would happen if I did not pay my bill in full? I HAVE ABSOLUTLY NO INTENTIONS OF DOING THIS but my father has it drilled into my head how my bill must be paid in full or it will hurt my credit score. Then I have also heard by others that "carrying a balance can help my score" ??? Let's say I owed $2000 on a card, and I paid $1500 once I got my monthly statement, then made up for the remaining $500 next month. Would this hurt my score? Would I have to pay interest if it was after the first year of opening the card or whatever the card's terms are?

Also, any basic general credit card advice would be great. I am no stranger to borrowing money, due to being a farmer I have a fair share of debt. My RLOC does not seem to be reporting to my credit report, nor do my equiptment loans. I don't know if this is good or bad. 

[striehl8212]

There is nothing wrong at all with PIF each month and have a great credit score, but to supposedly maximize a Fico score you want one balance on a single card to report. Keeping utilization from 1-9%. However, there is no magic formula. Just don't abuse your cards and you will be fine. Wanting to gain credit knowledge 23 puts you in a good position. 

[user5387]

Letting a small balance report on one card, and then paying it before the due date, can help your scores, assuming that other cards are reporting $0 balances.

Actually carrying a balance (paying interest) has no benefit to your scores, but may endear you to certain lenders who like the interest.

[user5387]

A further comment about balances on your cards.

As we discussed earlier, it's the reported balances that are used for utilization calculations.  This is true even if you pay off those balances before the due date, and thus avoid paying interest.

As far as utilization goes, there are at least four factors, and here is a rough ranking of their importance:

   - overall utilization

   - maxed out cards (maxed out is around 70-90% or more)

   - individual utilization of each card

   - proportion of cards with balances.

Utilization is a really big deal, and it and payment history account for around 2/3 of your score.

So if you carry a balance month to month, it will hurt you in terms of paying interest, and the utilization may hurt your scores if it's very high.

[ILFarmer]

So it is best if I up my CL even more (hopefully I will have a second card soon... the Cap One QS) to where I am only at most spending 10% of my CL? I just don't see why my score can be hurt if I pay my bill in full even if I come close to my limit. I realize that is how it works so I guess I need to raise my CL even more if I plan on spending 1000 to 2000 a month on cards. 

[user5387]

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@ILFarmer wrote:

So it is best if I up my CL even more (hopefully I will have a second card soon... the Cap One QS) to where I am only at most spending 10% of my CL? I just don't see why my score can be hurt if I pay my bill in full even if I come close to my limit. I realize that is how it works so I guess I need to raise my CL even more if I plan on spending 1000 to 2000 a month on cards. 

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Your score can be hurt because other lenders who view your report don't know your spending patterns, and if they see that you are maxed out, then this is a bad sign.

There are other ways of solving this problem beyond bumping CLs (which is a good thing to be doing).

One approach would be to go to the bank that has issued you your non-reporting loans, and see if they'll give you a CC that doesn't report.

Another idea would be to look at Amex charge cards, that operate differently in terms of utilization calculations.

[ILFarmer]

By other lenders do you mean banks or credit card companies?

If my local bank (small town bank 3 locations probably less than 10,000 customsers) even offers a credit card I doubt rewards are offered. I did get a debit card thought them when I was 15 or so but never really use it anymore. If I can't get rewards I will just use cash or write a check. I just recently borrowed over 40k for a new truck and I didn't even have to go to the bank. Loan was finalized after the fact. They don't even want the title... It will be paid off after my broken down (high pressure fuel pump went out and runied all 8 injectors... looking at a 8k bill ) truck is fixed. I don't plan on using another bank in the future but when I borrow for a house I may shop rates if they will not match or come within a point or two. So other than credit cards or financing a home, or possibly financing a vehicle I don't see myself going anywhere else for money. 

[user5387]

By "other lenders" I mean anyone who views your report for purposes of making a decision about credit.

These people don't know you or your spending patterns, and thus they go by the balances shown on the report.  Being maxed out is considered a major predictor of future delinquency.

[jamie123]

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@ILFarmer wrote:

So it is best if I up my CL even more (hopefully I will have a second card soon... the Cap One QS) to where I am only at most spending 10% of my CL? I just don't see why my score can be hurt if I pay my bill in full even if I come close to my limit. I realize that is how it works so I guess I need to raise my CL even more if I plan on spending 1000 to 2000 a month on cards. 

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You can use your credit cards as much as you want, just don't let the REPORTING balance get to high. You do this by paying twice a month. Three or four days before your due date you need to make a payment that knocks the current balance down to just about $30. About 4 to 5 days after your due date the credit card company will report your balance to the credit bureaus and create your new statement. Once you receive the statement, go back and pay the balance to zero. Rinse and repaet every month.

I know...It sounds like a game but it really is a game that must be played. Having high balances report can knock your score down tremendously! You will eventually work yourself out of this situation by getting more credit cards and credit cards with higher credit limits.