What percent of credit limit to use?

[villemiami]

My mother is 83 years old, permanent resident who came from France a few years ago. She was an authorized user on my Citi Costco card. She just received a Secured Discover credit card with $200 credit line. What happens if when she wants to pay using her card, it's more than the credit limit? Does the card refuse the transaction? 

What is the ideal percent of credit limit to use per month so her FICO score goes up?

She never had a FICO score, but now, with her new Discover online account, I see a Transunion FICO score of 732, and the mention "The additional information that makes up your score is not available because your only qualifying credit accounts are reported as authorized user accounts.".

Is it a FICO 8 score? How long will she need to wait before applying for a non-secured travel credit card?

[Anonymous]

Correct that an attempt to use > than your credit limit will under 99% of circumstances be met with a denial.

Portion of a credit limit used per month has no bearing at all on FICO scores.  What does matter is the reported balance every month, figured as a percentage of that credit limit. 

On a $200 CL, for ideal FICO scoring you want a balance of 8.9% or less to report to the bureaus.  This does not mean you need to only use 8.9% of your limit; you can use many times your limit so long as you're making multiple payments per month, thus allowing you to do so.  When the statement period is coming to a close, you want to pay down your balance to the range of $5-$17 to land in the ideal range for reporting purposes.  By doing so, you are optimizing that account for FICO scoring.  If you need more clarification on how to achieve this, definitely ask and I or others can help you.

[NRB525]

Congrats to Mom.

With a secured card, the card will decline if the charge, or accumulated charges, try to go over $200.

With a $200 limit, it is likely the card will see high utilization during usage, but the FICO score is not affected by the utilization prior to or after the Statement prints. To optimize FICO score, just become aware of the timing of the statement date, set up the Discover account to have access to Mom's checking account, so that payments can be quickly made before the statement date.

About 5 days before statement date ( and easiest to use the Payment Due Date) on the last statement) look at the balance on the account, and schedule a payment to pay that down to about $20.

Example: Feb 1 is the Statement Date. That Feb 1 Statement has a Payment Due Date of February 25.

Mom charges $150 during February. Be sure to pay $130 a few days before February 25, to get the open balance down to $20 on February 25. Stop using the card until the statement prints about March 1, in our theoretical date sequence. The Statement in this example should be $20, whatever was left on the account.

The March 1 statement may give a Payment Due Date of March 25.

On March 2, after the statement is visible, start using the card again. First thing is to pay the $20 open amount, since that is now due. Don't want to miss that payment. Charge up something below $200, and a day or few before March 25, pay that down to $20 and leave the card to report the $20.

Rinse and repeat.

With a small limit, doing rinse and repeat multiple times per month ( paying to zero if there are multiple cycles) can be done.

Just be sure some small amount like $20 is on the statement, because a statement where the only card is $0 has a temporary score penalty.

[HeavenOhio]

Outside of paying on time and in full, the most important thing for Mom is that she not go over her limit. That'll make Discover cranky.

But with the cashback match, she'll definitely want to use this card. That's going to involve watching her balance closely and realizing that there may be occasions where a payment needs to clear before she can use the card again.

The posts above address the "ideal" FICO scenario. "Sufficient" would be to have utilization at 28.9% or below. Still, utilization won't matter a whole lot as long as Discover is the only bank monitoring her report.

When it's time to apply for another card, she'd want her score to be "ideal." That's easy with Discover. She can bring her balance down to a desirable amount, then call in and ask Discover to report it. Few banks will do that. (Chase is another that does.)

Does Mom have the funds to increase her limit? $1,000 would make the management aspect easier. And when it comes time to apply for another card, she'd be showing "experience" with a higher limit.

[villemiami]

I thought that I sould have been at $0 balance on the due date, and if I don't do that, I'm paying a penalty. But you're saying that my mum should leave around $20 balance on the due date (february 25 in yor example), then wait 1 day after the statement is ready, so around 5 days after the due date, to pay the remaining $20. So paying 5 days after the due date a small balance won't provoke a penalty? So when would one get a penalty?
Also, you wrote " because a statement where the only card is $0 has a temporary score penalty".
This is what I'm doing for my credit cards. I changed the due date to the statement date (I don't know if I did the right thing), and I'm paying the whole balance 6 days before due date. I also enabled automatic payment with the minimum payment on due date (in case something happens and I didn't have time to pay the whole balance 6 days before due date). What do you think of my strategy?

[Anonymous]

NRB likely used the Due Date as method of making sure that you were getting the balance to a low positive number well before the statement date.

But in terms of what gets reported to the bureaus, what matters is the statement date.  So let's continue with NRB's example, which was a card in which the statement printed roughly around the 1st and the "Due Date" was the 25th.

Suppose $100 is at the top of the statement.  If you want to avoid paying interest, you need to pay that $100 by the Due Date.  If you are ok with paying interest, then all you need to pay is the minimum payment by the Due Date, which will probably be something like $25.

That last paragraph explains how to avoid late payment fees and interest, which involves the Due Date.  It has nothing to do with controlling the amount that reports to the bureaus.

To do that, you need to pay the balance down to a small dollar amount before the statement prints.  In practice, it's a good idea to do that at least a couple days before, since some CC issuers will not lower the balance until the electronic payment arrives, which can take a few business days.

Practical advice:

Your mom is new to credit and 83 years old.  Trying to explain all this to your mom (and getting her to remember to time her payments and so forth) may be a losing battle -- it would be for my mom who is 84. 

A simpler strategy is either (1) to raise her credit limit to $1000 by increasing the secured dollar amount on it or (2) to tell her to use it for only a small purchase each month.  In #2, she'd use a debit card for all other purchases.

You could also help her set up an automated push payment of X dollars per week from her checking account into the card, using her checking account's billpay feature.  If it looks like she is spending $700-900 per month, you could set up the weekly payment at $200.  Sometimes her card will have a negative balance, which is fine. 

[Anonymous]

If the reported balance on her card lands in the 5-17 dollar range, there cannot be any penalty and FICO scores would be maximized.

Say she has a $15 statement balance from the previous month.  Her minimum payment due would likely be the full $15 by the due date.  Of course, between now and the due date additional charges are incurred.  Let's say those charges total $160, meaning the total balance on the account is $175 come the due date.  The payment made should be $158-$170, as that would leave a balance in the $5-$17 range left to report.  That balance then becomes your next statement balance.  Since the statement balance is always being compeletely paid, there is never going to be any interest to worry about.

[villemiami]

I think the simplest thing to do is to  raise her credit limit to $1000 by increasing the secured dollar amount on it . But this can be done only after the first statement. When will she get back her $1000 deposit? When she cancels her card, let say in 2 years?

[Anonymous]

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@villemiami wrote:

I think the simplest thing to do is to  raise her credit limit to $1000 by increasing the secured dollar amount on it . But this can be done only after the first statement. When will she get back her $1000 deposit? When she cancels her card, let say in 2 years?

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