Credit utilization question

[Anonymous]

I recently signed up for the secured credit card from Redwood Union... it is like a credit builder card.

I wanted to know if I have $300 on the card, how much should I spending each month?

Also, if the due date is on the 16th... when should I make my payment?

I am trying to raise my credit score so that's why I am asking these questions. I heard that you need 30% credit utilization and also should pay early?

[Anonymous]

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@Anonymous wrote:

I recently signed up for the secured credit card from Redwood Union... it is like a credit builder card.

I wanted to know if I have $300 on the card, how much should I spending each month?

Also, if the due date is on the 16th... when should I make my payment?

I am trying to raise my credit score so that's why I am asking these questions. I heard that you need 30% credit utilization and also should pay early?

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Welcome to MyFICO

As for how much you should be spending, that is entirely up to and your ability to repay.  There is only so much spending you can do on a 

$300 limit card without having to make multiple payments per month.  If your due date is the 16th, if you pay on or before the 16th you are perfectly fine.  I'm not sure if that card allows for automatic payments but if it does you should set it up to do so.  That way you won't ever be in danger of missing a payment.  A 30% utilization is not what you want for optimal scores.  If this is your only card, pay it down to $0 each month.  Your scores will go up in time as you establish a payment history.  In time you can other cards and if you have 3 or more, you'll want to have all but one reports a 

$0 balance with the last one reporting a very small ($10 for example) to achieve the best scores.  Put all that and what you have heard aside for now and focus on using the card only for that much that you can completely pay off each month.  Building your scores up will take time and there isn't any magic formula to doing it in a hurry.  Hope this helps and if you have more questions, just let us know and good luck in your credit building future.

[Thomas_Thumb]

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@Anonymous wrote:

I recently signed up for the secured credit card from Redwood Union... it is like a credit builder card.

I wanted to know if I have $300 on the card, how much should I spending each month?

Also, if the due date is on the 16th... when should I make my payment?

I am trying to raise my credit score so that's why I am asking these questions. I heard that you need 30% credit utilization and also should pay early?

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Truth be told - If you have one credit card, you will always receive a higher score by having it report a "small balance" (less than 9% utilization) than having it report "a zero" balance. Of this I have no doubt.

Maximum score is achieved when aggregate utilization (all cards combined) is greater than 0% but less than 9%. Since you only have one card, your individual utilization is the same as aggregate. So, report a balance on the card for best results.

What I advise as a general guideline for optimal score is:

1) Maintain aggregate utilization under 9%

2) Maintain individual card utilization under 29% (with the condition that # 1 is maintained)

3) Report balances on 50% or less cards but above 0%.

[Anonymous]

Agreed that allowing a small balance ($5 or so) to report on his one card will yield him a better FICO score than if he reports $0.

[Anonymous]

The advice around letting it report $5 or so is good *if* you want your score to be as high as possible at that *moment* in time. Like you are about to apply for a mortgage or something. Otherwise ignore that advice -- it's optimization you do WHEN you need your score to be high. You don't always.

The rest of the time you should spend what you need to on the card. If you would spend $1500/month ordinarily, do that. You'll have to keep repaying the card. Earn the points. Make sure you always pay in full. By using a limit far beyond what they gave you, and demonstrating an ability to pay it down, you are more likely to earn increases to your credit limit over time by proving your ability to pay. In the longer run that will help your score too--easy to maintain 5% utilization on a $10,000 card than on a $300 one.

[HeavenOhio]

I agree with the advice that a fully optimized score isn't always necessary. But you still want your statement balance to reflect responsible usage. Under 30% (28.9% or below) is generally considered responsible.

So as stated above, use the card, and pay as often as necessary. When it's time for the statement to cut, a $5 to $25 balance would optimize your score. Or $75 would lower your score a bit but still put you in the "responsible" category.

[Anonymous]

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@Anonymous wrote:

The advice around letting it report $5 or so is good *if* you want your score to be as high as possible at that *moment* in time. Like you are about to apply for a mortgage or something. Otherwise ignore that advice -- it's optimization you do WHEN you need your score to be high. You don't always.

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Some people like their score to be as high as possible at all moments in time.  I'm guilty of this as I'm sure many are on this forum.  This is a credit forum where everyone essentially has the same goal of improving their profiles and raising their scores.  For many people, myself included, it's a good feeling to see a higher score.  If letting a $5 balance report can allow someone to see a 5, 10, 20 point higher score without really doing much of anything why not do it?  

I agree with your point that it's not necessary to employ this practice at all times and that doing it prior to apping is really the only time it is truly necessary, but disagree that people should "ignore that advice" as many simply like their score to be as high as possible at all times.

I look at it kind of like an athlete that always stays in top shape, even during the off-season.  They don't have to, as they know that prior to the next season they'll have time to get in top shape again, but it may simply make them feel better to stay in top shape at all times.

[sarge12]

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@Anonymous wrote:

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@Anonymous wrote:

The advice around letting it report $5 or so is good *if* you want your score to be as high as possible at that *moment* in time. Like you are about to apply for a mortgage or something. Otherwise ignore that advice -- it's optimization you do WHEN you need your score to be high. You don't always.

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Some people like their score to be as high as possible at all moments in time.  I'm guilty of this as I'm sure many are on this forum.  This is a credit forum where everyone essentially has the same goal of improving their profiles and raising their scores.  For many people, myself included, it's a good feeling to see a higher score.  If letting a $5 balance report can allow someone to see a 5, 10, 20 point higher score without really doing much of anything why not do it?  

I agree with your point that it's not necessary to employ this practice at all times and that doing it prior to apping is really the only time it is truly necessary, but disagree that people should "ignore that advice" as many simply like their score to be as high as possible at all times.

I look at it kind of like an athlete that always stays in top shape, even during the off-season.  They don't have to, as they know that prior to the next season they'll have time to get in top shape again, but it may simply make them feel better to stay in top shape at all times.

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BBS...I do the same and agree the only time it is really important is before apping. One big reason to maintain it all the time, maybe the only good reason, is that it will eventually become a habit. Concentrating on it only before applications can, and often does lead to people having a balance they can't pay at some point in time. If you just habitually PIF everything, it can keep you from losing your way, and makes low utilization automatic. I personally pay everything at least twice a month, making utilization always low.

[HeavenOhio]

I'm finding AZEO (all zero except one) to be pretty easy too.

There'll be some exceptions, though. I have two cards that'll likely post small annual fees during the same month, for instance. I could make them report zero during those months, but I could decide that the extra effort to do that isn't worth it.

And if I want to shift my balance to a different card, I'll need to allow two cards to report a balance for a short time, causing a small ding in my score. Or less optimally, all cards would briefly report zero, which would cause a larger temporary ding.

For someone who's starting out with one card and a low limit, I think the main thing to do is to show responsible usage and not spook lenders. Make an immediate payment if the balance becomes a bit high. And before the statement cuts, make a payment so the balance is as low as one finds to be practical, as long as that balance is at least $5.

[Anonymous]

HeavenOhio, have you on your own profile tested the scoring difference in letting more than 1 card report a small balance?  I'm not sure how many cards you have, but say it's 4 have you tried all possibilities like letting 1, 2, 3 and all 4 report small balances?

I ask because you mentioned how you may have 2 report small balances at some point and you anticipate a ding from that, so I'm wondering if it's just because you assume that on your profile you'll get a ding or if you've tested it and received said ding.

Last year I was big into the only letting 1 card report a small balance, but one month I "messed up" and misjudged the days or something and 2 reported small balances.  This brought me up to 50% of cards reporting balances (4 at the time).  I received no scoring ding.  I then said screw it and let the 3rd card report a balance, no ding and finally allowed all of my cards to have a balance reported at the same time and still received no ding.  I did all of that just for testing purposes, but discovered that on my profile my FICO 08's remain unchanged regardless of how many of my cards report small balances.