Credit card: Credit utilization vs pre-Statement payments

[HarlemBoy]

I am relatively new in the US, since three months now. While my bank was so kind to open two credit lines for me "to build credit history" like they told me I am happy that they actually did this.

I saw that there is some sort of vague limit that you should not use more than 30% of credit. Is that only important at statement time?

From Germany where I come from, it was completely fine to max out your credit line in case of purchases if you had your bank/card issuer deduct the whole statement amount every time when payment was due from your checkings account ("Girokonto"). It never put any negative dent in your trustworthiness.

My question is: If I use - say - 90% of the credit line to buy some furniture (to get a little bit Discover cashback) - and then after the transaction has posted to pay money to post on the Discover account to push the credit to be - say - under 10% again - will this be with 10% utilization in the credit report or with 90%?

So is the strategy in the US to not pay every month the statement but BEFORE it arrives to have low credit in the report?

Greetings from Harlem!

[DollyLama]

Yes, say you have a card with a line of credit of $3k you can max it out, so long as you pay before your statement cuts (Give it time to clear also, I don't charge anything on it around 5 days before I know the statement will cut). 

I've bought and paid 2 days later, charge again the next week, pay that until before the statement cuts I cease any purchases. Actually <29% is a threshold you want to keep ever reporting for the individual card. 

As your credit grows, 3 cards minimum, one installment (student loans count), you like to have only one card report a balance at statement cut, less than 9% of it credit line, and PIF the charges on the other two if any, so they report zero. 

[HarlemBoy]

Thanks for the reply!

As I do not have any students loans (in Germany there are no tuition fees for university) my only goal at the moment is to get enough history until next season to get a small loan to pay off a motorbike to have an additional line of credit in the mix. I could pay it in cash then but I have the slight impression that it could add to my credit mix.

[DollyLama]

If it is already a type of vehicle loan reporting to the bureaus, you have your credit mix. If for some other reason it's owed to an individual, or non reporting institution. You can check out the Secured Share Loan technique, that will give you the mix, a good number of points on your FICO 8 scores. You can search for the technique up at the top, use drop down from board to community and search. I don't have the direct link to the forum topic at hand.

Here is the link http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...   . You need only to read the first few posts of the step by step. 

[HarlemBoy]

I read about Secured Credit Cards but I did not know about secured loans (I got my Discover and my bank issued Mastercard without any security deposit - perhaps I just had luck and passed through). So it means I pay the price for my motorcycle to a bank and then take the same loan back to pay the motorcycle merchant and then to pay most of the sum off and then leave 9% open and pay interest on money I paid already to the bank (as security deposit) just to get good credit records in a long term?

[Anonymous]

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@HarlemBoy wrote:

I read about Secured Credit Cards but I did not know about secured loans (I got my Discover and my bank issued Mastercard without any security deposit - perhaps I just had luck and passed through). So it means I pay the price for my motorcycle to a bank and then take the same loan back to pay the motorcycle merchant and then to pay most of the sum off and then leave 9% open and pay interest on money I paid already to the bank (as security deposit) just to get good credit records in a long term?

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You don't have to have a mostly paid off open loan to have a great credit score.  (E.g. you could have an 800 FICO 8 score with just credit cards.)  But you'll be able to cross whatever scoring rubicon you have in mind sooner if you have one than if you do not.

I'd forget the whole thing about the motorcycle loan if I were you.  If you would like to have a mostly paid off loan that lasts for five years, then just implement the SS loan technique.  That guidance that DollyL gave you explains how to do it.  It's painless, involves no hard pulls, costs you $1-2 a year in interest.

If you don't want to do it, however, then don't.  Either way the motorcycle loan will involve unecessary complications and I would avoid it.

PS.  The simple majority of loans are actually secured loans.  Car loans and home loans are secured loans, for example.