New accounts and PIF

[Revelate]

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@NRB525 wrote:

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@Revelate wrote:

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@Anonymous wrote:

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@Anonymous wrote:

Hey Atlantic.  Can you clarify for us first what you mean by "not leave a balance"?  Even when someone pays his balance in full each month (PIF), that balance still reports to the CRAs, assuming he does the normal thing which is to pay after his statement prints. 

Or do you mean: pay off the balance before the billing cycle ends so that it reports $0 to the CRAs?

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I apoligze, I mean paying off the balance before the billing cycle ends. And yes, so there is a $0 reported to the CRA's. Is this a good idea if your CC account is less than two  years old? 

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Makes no difference.  While fewer accounts reporting $0 a balance is beneficial from a FICO scoring perspective, from a lender one it's irrelevant.  Remember the vast majority of consumers don't do this, we're the outliers pre-paying before statement cut.

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[slack jaw emoticon]...

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Erg, dumb mistype, thanks for pointing that out.  Fixed cept in folks quotes heh, no ability to do that anymore

[NRB525]

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@Revelate wrote:

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@NRB525 wrote:

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@Revelate wrote:

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@Anonymous wrote:

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@Anonymous wrote:

Hey Atlantic.  Can you clarify for us first what you mean by "not leave a balance"?  Even when someone pays his balance in full each month (PIF), that balance still reports to the CRAs, assuming he does the normal thing which is to pay after his statement prints. 

Or do you mean: pay off the balance before the billing cycle ends so that it reports $0 to the CRAs?

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I apoligze, I mean paying off the balance before the billing cycle ends. And yes, so there is a $0 reported to the CRA's. Is this a good idea if your CC account is less than two  years old? 

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Makes no difference.  While fewer accounts reporting $0 a balance is beneficial from a FICO scoring perspective, from a lender one it's irrelevant.  Remember the vast majority of consumers don't do this, we're the outliers pre-paying before statement cut.

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[slack jaw emoticon]...

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Erg, dumb mistype, thanks for pointing that out

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Just to set the record straight everyone, it's more accounts reporting zero is better for FICO

[Anonymous]

I have found on ALL my credit card accounts regardless of lender (and I have 16 cards with different various lenders) that all of them like to have you report at least a small balance. PIF does not net them any money as a credit card company.

Let $15 report and you'll be in good shape. They like that. You pay almost nil interest on a $15 balance

[Anonymous]

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@Anonymous wrote:

I have found on ALL my credit card accounts regardless of lender (and I have 16 cards with different various lenders) that all of them like to have you report at least a small balance. PIF does not net them any money as a credit card company.

Let $15 report and you'll be in good shape. They like that. You pay almost nil interest on a $15 balance

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Hello Ibericoham.  Sounds like you might be confusing three different concepts:

• Paying in full (PIF)
• Reporting a balance
• Carrying a balance

When a card reports a balance, that means that it hits the end of a billing cycle and generates a statement.  If there is a positive balance on that statement (the 'Amount owed") then that amount or balance is reported to the credit reporting agencies (CRAs) usually the day after the statement cuts (give or take a day).  The amount is due roughly 25 days after the statement is generated (again, rough estimate, depending on the credit card issuer).

The phrase paying in full or PIF is used typically used (here and elsewhere) to describe paying the amount owed after the statement is generated but before the due date.

Note that a person can be paying in full each month and also reporting a balance each month.  That's because typically the balance is reported (to the CRAs) before the CC owner pays it.  In fact, if a person is paying in full each month then he is almost certainly reporting a balance each month as well.

To carry a balance is different from reporting a balance.  When you carry a balance, you are paying a portion of the amount owed (at least the minimum amount) and the remainder is carried over to the next billing cycle.  This remainder you pay interest on.

I am pretty sure that when you said reporting a balance you were actually thinking of carrying a balance.  You were thinking that credit card companies (CCCs) like it when you carry a balance. 

One of the reasons you thought that is that you were under the impression that CCCs only make a profit off of you if you carry a balance and pay them interest on it.  This is a common belief but it is in fact untrue.  Every time you use your credit card, the CCC charges the merchant a fee for it.  That's why there are millions of people who always pay in full, never carry a balance, never pay interest -- but because they spend a lot with their cards, the CCC is making a lot of money off of them. 

[Anonymous]

PS.  It sounds like you carry a balance of about $15 each month on each card you use.  It also sounds like you try to use a lot of your cards at least a bit.  Let's suppose that's 10 cards a month carrying a balance of $15 (on which you pay interest).

That's 10 cards a month x 12 months a year x $15 = $1800 per year on which you pay interest.  It the interest rate is (say) 15%, you are paying $270 a year in interest.  That's a lot of Big Macs you could buy instead (or nights out at the movies, or gin and tonics, etc.). 

Furthermore, although there is no FICO penalty at all right now for carrying a balance, there could be a penalty down the road, in future FICO models.  The reason is that "carrying a balance" (as opposed to paying in full) is a behavior that is strongly associated (statistically) with being a credit risk.  So myself I'd be surprised if down the road FICO didn't begin to include it in its scoring models: rewarding people who always PIF and spanking people who don't.

Thus there's a number of good reasons to consider making PIF a normal part of your credit life.  Just one way to think about it.

[NRB525]

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@Anonymous wrote:

PS.  It sounds like you carry a balance of about $15 each month on each card you use.  It also sounds like you try to use a lot of your cards at least a bit.  Let's suppose that's 10 cards a month carrying a balance of $15 (on which you pay interest).

That's 10 cards a month x 12 months a year x $15 = $1800 per year on which you pay interest.  It the interest rate is (say) 15%, you are paying $270 a year in interest.  That's a lot of Big Macs you could buy instead (or nights out at the movies, or gin and tonics, etc.). 

Furthermore, although there is no FICO penalty at all right now for carrying a balance, there could be a penalty down the road, in future FICO models.  The reason is that "carrying a balance" (as opposed to paying in full) is a behavior that is strongly associated (statistically) with being a credit risk.  So myself I'd be surprised if down the road FICO didn't begin to include it in its scoring models: rewarding people who always PIF and spanking people who don't.

Thus there's a number of good reasons to consider making PIF a normal part of your credit life.  Just one way to think about it.

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Perhaps, however if FICO does add something like this to the model, it would need to scale to really measure the risk. So a $15 carried balance (I would hope) should not ding the score like a $15k carried balance.

I think this math cannot be calculated here.

10 cards at $15 balance per month is just $150 for 12 months at (assumed) 15% APR yields (rounding up) $25 in interest for the year.

But the interest cost is not on the reported balance. Presuming each card gets on that $15 Carried Balance pattern, then each charge that goes through the card incurs interest cost until it is paid. Because the statement balance is only $15, then the time of that interest charge is less than 25 days each time, but one would need to know the volume of spend to figure out the interest penalty, as well as how long OP waits after each major charge event before paying it down. Basically, it could be a very small interest expense amount.

What I can say is, 10 cards per month x $15 per card for 12 months is not $1,800 as a basis for an interest charge calculation

[GoldSorata]

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@Anonymous wrote:

I have found on ALL my credit card accounts regardless of lender (and I have 16 cards with different various lenders) that all of them like to have you report at least a small balance. PIF does not net them any money as a credit card company.

Let $15 report and you'll be in good shape. They like that. You pay almost nil interest on a $15 balance

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Just because one pays in full and never pays interest (I don't pay any interest) doesn't mean they aren't making any money. They make money off of swipe fees as well.My Barclays card for example has never posted a balance on a statement since I've had it but I run quite a bit through it and they've even given me an auto CLI on it.

[Anonymous]

You are so right, NRB525!  There was something that felt wrong to me about that number.  I basically was computing the 15% amount as if it were being charged monthly rather than annually.  My deepest apologies to our friend Ibericoham.

It's still the case that there's no FICO advantage to paying CC interest, nor is their risk associated with the CCC itself (i.e. that they might cancel your card because you aren't making them happy).  That was the key point I wanted to make.  But I should have been more careful with the calculation and for that I am very sorry.

You make an interesting point about people who carry small balances.  The fact is that there may be very few people who do carry such small balances.  In other words, if the amount you owe on a given month is $415 dollars, and we assume additionally that you carry a balance, the probability that you will pay $400 of it and carry $15 is almost nil.  Almost everyone who carries a balance carries a significant balance -- or that's my guess anyway.  If I am right, then it may be the case that there wouldn't be an advantage to FICO in trying to tease apart (statistically) this tiny group.  The model might just look at how often you carried a balance.  Period.

If you are curious to read an article about this by John Ulzheimer, here is one:

https://blog.mint.com/credit/guess-what-else-is-on-your-credit-report-now-0514/

He mentions the work that TransUnion has already done in assessing the risk involved with people who carry balances.  Very interesting stuff.