Utilization? Completely Confused-1st CC after Bk-Need Help

[Anonymous]

I'm sorry if this is a repetative question, but I've been searching the forums for over a week and read the credit 101 and I still do not understand, so I was hoping someone can help me.

My chapter 7 bankruptcy was discharged earlier this year and I was looking for a way to rebuild my credit. I was going to go with a secured card, but the fees were outrageous. I received a pre-approval from Capital One and after reading information on the forums here I decided to go for it.

I was approved for $200 credit line with a $39 annual fee. I spoke with a live representative and was told that the annual fee would come off of my balance the first month.

So at activation, I know that my available credit is actually $161. So in reading the board it says for score improvement, keep your utilization around 9-10%. In my case, for this credit card, my utilization should be at the most 20$ right?

Now this is the part I'm really having trouble with understanding utilization. Does this mean I should be keeping a $20.00 balance every month and pay off the rest, or never charge more than $20.00 at all?

Ive read on the forums some people say pay the credit cards off in full every month by the reporting date and it will still show a positive on your report. But then others have said keep a balance and that's the only way to improve your scores. So is that what utilization means? I've also read don't use more than 50% of your card balance, but then someone said you can but pay it off by the reporting date.

I'm so confused, so if you could please explain in leihmans terms I would appreciate. I sat and stared an this card for a long time before activating it. I'm determined to do the right thing and be responsible and only use the card for emergency purposes, but at the same time, I want to make sure that I'm utilizing the card properly so that it reflects positively for my scores. Thank you again and have a nice day.

[haulingthescoreup]

Hi, welcome to the forums, and congrats on building your credit back up.

There are two different standards to stay aware of: Cap One doesn't want you to go over your credit limit (OK, maybe they do so that they can charge you, but let's pretend.) FICO doesn't want to see you using more than a certain percentage of your util (the reported usage on your card.)

Here's how you calculate util: balance displayed on your monthly statement divided by the credit limit on that account.

So if you did nothing with your card for the first month, other than wait for the AF to appear, your util would be $39/ $200, or 19.5% -->20% (util rounds up.)

If you managed to pay off the fee before the statement date (this can be hard to do on the first billing cycle), your util would be $0 / $200 --> 0%.

If you charged $100, and the AF appeared, and you didn't pay anything off before the first statement, your util would be $100 + $39 / $200 --> 69.5%, or 70%.

If you charged $100, and there was the AF, but you paid $120 before the statement date, so that the balance on your statement was $19, your util would be $19 / $200 --> 9.5% or 10%.

Generally speaking, the util that you should be concerned about is the reported util, as in the examples above. The balance on your statement will be reported to the credit bureaus along with your $200 CL, and that results in the reported util that affects your scores.

With a $200 CL, I wouldn't want to let much more than $40 or $50 report (20% - 25% util), so what you might want to do is pay off your balance every week or two weeks, thus keeping the util down. You want to show Cap One that you are responsible with the card, and that you'd like to have a better CL one day, so I would definitely use it a lot during the billing cycle. Just be sure to stop using it 5-6 days before the next statement is due (NOT the due date, but the statement date), wait 2-3 days to let all charges trickle in, and then pay online to get your reported statement to whatever figure you want. This is how you can control your reported util.

Most importantly: do NOT carry over a balance from month to month, paying interest! Even if you let a balance report on your statement, you should immediately pay that balance off. And don't wait till the due date --disaster lurks down that road.

It might be very wise to have $200-300 in a separate savings account dedicated solely to emergency card payment, if something happened to your income flow. You don't want to ever get this one messed up, of course.

We had a post recently from someone else with only one card, and he (I think it was a he) found that his scores were better if his card always reported a $0 balance. Cap One will also report the highest balance that you had during the billing cycle, so it will be obvious that you have been using the card.

Hope this helps. I know it can be confusing at first. Just don't forget to pay any balance on your statement, even if you paid a chunk the day before the statement posted, or you'll get hit with a late fee.

[Anonymous]

Thank you, Thank you, Thank you! This makes complete sense and I understand. I really appreciate you taking time to break it down for me. I feel much better knowing how I should use the card, and I definately will NOT carry a balance month to month (that was the hardest answer to find, so thank you again for letting me know).

As for the statement date, I will stop using the card 5-7 days prior to this as you suggested and make a payment at this time. I've been searching to find out how I can find out my statement date. Am I correct in saying I would have to call Capital One to find out what my statement date would be? I checked their website and that was no help. I have signed up for their online account so I can view and make payments online, so would that eventually post this date? Right now since I just opened the account today, there is of course no due date or history on the account.

Thank you again. You do not know how much this has helped I have printed this and I will be using this as my "guide-book"

Have a great day

[MarineVietVet]

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@Anonymous wrote:

Thank you, Thank you, Thank you! This makes complete sense and I understand. I really appreciate you taking time to break it down for me. I feel much better knowing how I should use the card, and I definately will NOT carry a balance month to month (that was the hardest answer to find, so thank you again for letting me know).

As for the statement date, I will stop using the card 5-7 days prior to this as you suggested and make a payment at this time. I've been searching to find out how I can find out my statement date. Am I correct in saying I would have to call Capital One to find out what my statement date would be? I checked their website and that was no help. I have signed up for their online account so I can view and make payments online, so would that eventually post this date? Right now since I just opened the account today, there is of course no due date or history on the account.

Thank you again. You do not know how much this has helped I have printed this and I will be using this as my "guide-book"

Have a great day

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I also welcome you to the forums.

You are correct that you'll need to call Cap 1 to find out what your statement dates will be since the first statement has not posted yet on the website.

Good luck in your rebuilding!!

[Anonymous]

Thank you as well. I will definatly call them and ask. I appreciate everyones sincere help and politeness on this forum. You don't know how much this means. Everyone have a great day & holiday season. I'm sure I'll have plenty more questions, but for right now I'm going to keep reading to absorb as much as possible

Thanks again,

Liz

[Jazzzy]

Hi Liz,

I have a total of 7 credit cards, and I have to call 4 of them each month if I want to know the exact statement dates. Some cards cut their statements on the same day each month, and that makes things a lot easier. Others vary within a couple of days...you can't know the date unless you call them. Some of them give you the date online...it varies.

We don't use all of our cards each month, so I don't literally have to make that many calls, but you'll have to ask them whether their statement day varies each month.

[Anonymous]

Now that's a good thing to know! I had no idea that they could vary month to month. I will definatly ask when I call. Thanks for the heads up! I appreciate it