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sleze69
October 30, 2008 1:31 PM
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How does it work with Unlimited credit cards like Amex?

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6 replies
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Anks329
October 30, 2008 2:20 PM
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@sleze69: On a credit report, the Amex's \"credit limit\" shows up as the highest balance you had at the close of any one month.

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GothamGal
October 30, 2008 3:31 PM
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@sleze69:

Technically, AmEx is a charge card, but they now have \"Pay Over Time\" where qualifying purchases can be paid like a regular CC, but at some crazy rate. I think it's 19%.

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Traveshamockery
October 30, 2008 4:26 PM
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@GothamGal: It's not that simple. Some AMEX cards (Green, Black, etc.) are Charge cards and must be paid in full. Others (Blue, Clear, etc.) are regular credit cards and you can carry a balance at will.

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XianZhuXuande
October 30, 2008 3:28 PM
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@Anks329: And as long as the AmEx card is reporting properly, and without an actual 'credit limit' entry, it won't count toward your utilization anyway (though it matters during a manual review by an underwriter).

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zigziggityzoo
October 30, 2008 1:43 PM
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@sleze69: That's a Charge card, not a Credit Card. If it's Charge+Credit then they tell you how much you're allowed to carry over month-to-month.

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Anonymous
October 30, 2008 2:27 PM
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@zigziggityzoo: That's not necessarily true. The AmEx One card, for instance, carries no pre-set spending limit in many cases but acts every bit as much like a credit card with the ability to carry a balance (although you pay no interest for 30 days after a purchase).

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sleze69
October 30, 2008 2:14 PM
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@zigziggityzoo: So how is a charge card different than a credit card wrt my credit rating?

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illtron
October 30, 2008 1:34 PM
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I just bought a new MacBook Pro, and even though I had the money for it saved up, I put it on my American Express card, just to get some of the protections it offers. I paid it off the next day, as soon as the purchase appeared online.

Sure enough, I got a bill from American Express this month, showing my balance as the full amount. Just to be safe, I logged in and saw that it was, in fact, paid off.

Whether it's intentional, there's just some lag, or I happened to buy that computer on exactly the right day for my bill to be added up, you still have to be careful.

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2 replies
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Eyebrows McGee (now with more baby!)
October 30, 2008 5:20 PM
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@illtron: It's typically lag. Amex has a pretty big window between the statement closing date and the payment due date. My statement closes 10 days or so before it arrives in the mail.

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wezelboy
October 30, 2008 1:51 PM
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@illtron:

It's really helpful to time your big credit purchases for right after the statement date. That way, you are getting an interest free loan for over a month (If you pay it off in full each month).

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dbklyn
October 30, 2008 1:50 PM
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The statement balance appears on your credit report most of the time, some lenders pick a day (ie: 30th of each month) to send an update to the credit bureaus. American Express is just slow about reporting, it takes them about 30-45 days after the statement date to get the statement balance on the credit report.

Capital One confirmed to me on two separate occasions that if you pay your balance to $0, it will take as much as 90 days to show that $0 balance on your credit report - paying it down to $6 (less than $5 doesn't work!), then paying it down to $0 gets around this if you're concerned about utilization as shown on the credit report. Ridiculous I know...

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SOhp101
October 30, 2008 1:50 PM
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Why would this be a bad thing, especially if you pay it off every month? At least it shows that you've been using your cards.

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4 replies
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zigziggityzoo
October 30, 2008 1:53 PM
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@SOhp101: It could be considered bad because you may have a higher Credit Utilization Ratio.

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SOhp101
October 31, 2008 4:48 AM
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@zigziggityzoo: I suppose, but when I have over $45k in available credit, I don't think that $1k in monthly expenses are going to send any flags ;)

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Anonymous
October 30, 2008 2:47 PM
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@zigziggityzoo: Except even those often have no correlation to your score if you get reclassified much. My score varies wildly from month to month, over 100 points in at least two instances (one up, one down) over the last year, with 5 of those over 70 points month-to-month.

I've just learned to ignore them because they're bogus. If you're bright enough to not pay interest, you are hopefully bright enough to not need/want a loan.

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humphrmi
October 30, 2008 2:24 PM
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@zigziggityzoo: Agreed. Like everything else, \"it depends\". If you have $30,000 in available credit across all your cards, and charge $3K / Month, you're using 10% of your available credit, which isn't too bad. On the other hand, if you charge that same $3K / Month and only have $6K total available credit, you're using half your available credit - which could negatively impact your FICO score.


How to deal with it? (1) get more available credit (but again, double edged sword here: new credit apps and new lines of credit give you a temporary \"ding\"), or (2) pay off your balance before your statement cuts. Downside here is, you don't get to take advantage the ~45 days of \"float\" that you get from your credit card's no-interest grace period.

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Anonymous
October 30, 2008 1:56 PM
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The \"buy everything on CCs and pay it all off\" is my modus operandi, but neither of my cards allows me to pay anything off until the statement is closed and a balance registered.

Is this unusual, or just another of the 8 million variables of CCs?

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BeeBoo
October 30, 2008 2:21 PM
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My free credit reports just show when an account was opened, whether it is open or closed and that they were never late. For instance:

AMEX
Account Number: 01111111111112.../ Date Opened: 04/1986
Status: Paid,Closed/Never late.

For the open accounts it looks like this:

CHASE
Account Number: 43000000000001......./ Date Opened: 05/1998
Status: Open/Never late.

I pay my accounts in full monthly so there is never a balance. One of my Visa cards recently changed to no fixed credit line, I don't know how that will affect the report.

This concern with a credit score to the degree that people are paying bills twice a month or they are worried that if they do or don't pay their balance in full it will affect their ratio, etc., is overly-obsessive.

If you have good credit and pay your bills on time your credit report and score will reflect that and if you don't pay them on time, your credit report and score will reflect that, too. If you have large outstanding balances, it will reflect that, as well. This is exactly what they are supposed to do.

I am not trying to be dismissive of people who are getting their interest rates jacked because their credit limits have been reduced but people are focussing on the effects rather than the underlying cause of buying things they can't and spending more money than they make. Use credit wisely and you won't have to worry about your score.

If you are in a situation where you are using your credit cards to keep your kids from going hungry then your credit report and score aren't your primary concern.

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5 replies
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nojok3
October 30, 2008 5:33 PM
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@BeeBoo:
My credit report showed the highest amount I had ever had a bill from my credit card. While slightly less than 10%, you should be wary of how much you are spending, regardless of if you pay it off or not.

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blackmage439
October 30, 2008 4:04 PM
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@BeeBoo: \"If you are in a situation where you are using your credit cards to keep your kids from going hungry then your credit report and score aren't your primary concern.\"

On the contrary, the people living paycheck to paycheck are the ones who benefit the most from stellar credit. They are the ones most impacted by the interest rate on their car loans, mortgages, and bank loans. To them, 50pts on a credit score could mean percentage points on a loan, which can turn into to thousands of lost income on higher rates.

Would a person making $500,000 a year really, truly care about the interest rate on his mortgage? His credit credit cards? I think not.

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bwcbwc
October 30, 2008 10:46 PM
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@blackmage439: Actually, yes they would. Studies of people who become wealthy show that they typically gain wealth by reducing their expenses more than average than by earning that much more than their peers.

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Brazell
October 30, 2008 3:57 PM
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@BeeBoo: BeeBo is hitting the nail on the head here. It's most important, credit wise, to pay your credit card bills on time, not necessarily paying them in full every month. Paying your cards on time is much more important than paying off the whole balance, credit score wise. Like you say, if you look at your report, the credit bureaus primarily report if you were late on payments... if you carried a balance and paid it off, that will usually help your credit score, not hurt it.

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BeeBoo
October 30, 2008 2:24 PM
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@BeeBoo: To clarify and emphasize:

The underlying problem is people buying things that they can't afford and spending more money than they make.

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econobiker
October 30, 2008 2:23 PM
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I think folks worried about a higher credit utilization ratio are probably more so credit geeks than anything. Like people who worry about the tread depth on their car tires, or the cold weather draft insulation on each and every electrical socket in their home, etc, etc, etc...

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weakdome
October 30, 2008 3:41 PM
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@econobiker: Ok, really, I get the reference to the insulation around wall sockets, that's stupid. But tire tread depth? Bald tires can be really bad, especially here in New England, so I wouldn't exactly call myself crazy for worrying when they start to get low in September.
But yes, if your credit is good enough that you're worrying about this, you are probably just a geek. There are more important things in life.

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econobiker
October 30, 2008 7:29 PM
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@weakdome: I was refering to the folks who replace the tires well before bald and continually check the tread depth even before the wear indicators show. Probably more of them around the Jalopnik site than over in Consumerist land. Like the guy who cut apart any oil filter he could find for his precious ( but not ultra expensive or rare) brand/model of car to do in depth analysis of the filter's constuction and published same via web.


Nothing wrong in having credit card analysis as a hobby as long as it is in perspective... As you said, there are more important things in life.

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XianZhuXuande
October 30, 2008 3:27 PM
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@econobiker: Depends on how much your FICO score impacts your life. If you make a lot of use of credit cards you need to pay attention to this stuff or you'll get some credit limits decreased or get a default APR (and other companies can follow suit in the first case). It really matters if you're getting a car loan or a mortgage.

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Samets
October 30, 2008 2:33 PM
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Here's what I do:

Let's say my Chase Freedom reward card's statement cut day is every 8th of the month. I pay down the balance on the 5th or 6th and leave $1. When the statement cuts Chase reports $1 to the credit bureaus. I go online and happily pay the $1.
This way you always show activity and keep your DTC really low!

FICO score does not care what the balance was at the end of the month. As long as you used your card and show activity while staying below 30% utilization. Most in-the-know people will tell you that to get the maximum score, you need to stay below 8%-10% utilization across the board so keep asking for CLI's and GCLI's. $10,000 balance on $100,000 card is still 10% unless you're being manually reviewed...

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1 replies
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oneandone
October 30, 2008 5:57 PM
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@Samets: Interesting system. Score increase at a less-than-8% utilization sounds like my experience - once I got things down from about 15-17% to 6-8% I noticed a huge jump in my credit score, and nothing else in my credit life had changed. So that was nice. It was a combination of credit line increase requests & cutting spending.

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forgottenpassword
October 30, 2008 2:35 PM
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oh, ok good. SO I have a credit limit of about say 5-7 thousand dollars & only put about $600 tops on it a month. I'm golden?

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2 replies
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tujsin
October 30, 2008 3:06 PM
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you just need to have 600 at the time the statement cuts. you can charge whatever you want monthly but the point is to make sure your balance is low when the cc statement is generated (and subsequently reported to the credit reporting agencies)

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RobinB
October 30, 2008 2:38 PM
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Just keep in mind if you apply for a mortgage, your underwriter will use the minimum monthly payment that shows on your report. So if you charged $2000, even if it is now paid off, for 2-3 months that account will show you have a monthly payment of $200 (or whatever.) That monthly payment will be used in your qualification ratios.

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XianZhuXuande
October 30, 2008 3:25 PM
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@RobinB: Simple solution! The month before you apply for your mortgage, if those balances would be significant, pay well before the statement cuts or use some cash. Afterward, you can return to normal activity.

Also avoid applying for all new credit at least six months before applying for a mortgage.

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Samets
October 30, 2008 2:54 PM
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@RobinB:

Correct! The min payments are added to you're other debts to determine the DTI (Debt to Income ratio) which is enough to disqualify you from getting a mortgage.

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johnfrombrooklyn
October 30, 2008 2:40 PM
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I have a credit card that gave me 1.99% interest about 2 years ago. It's for the life of the balance so I bought a bunch of stuff I needed and have been paying it off. A couple months I paid just the minimum and my credit report showed the card as \"minimum payment\". My question is whether paying $1 or $2 over the minimum will trigger a better credit score since I've not paid just the minimum. My FICO is about 770 so it seems okay.

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XianZhuXuande
October 30, 2008 3:24 PM
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@johnfrombrooklyn: Be careful. Depending on the company they may increase your APR for making minimum payments on a balance in the current credit climate. If it is a company like AmEx you should start paying quite a bit more or look for a place to transfer those balances to. With most others, I'd be paying twice the minimum.

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crazydavythe1st
October 30, 2008 7:45 PM
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@XianZhuXuande: If he could afford it, I would do that. Although I think he could reject the increase in APR and just close the card if this were to happen (and pay it off under the old terms), so I wouldn't panic if you aren't able to increase what you're paying substantially.

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Samets
October 30, 2008 2:52 PM
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@johnfrombrooklyn:

On the credit reports you don't have a line for last payment. Usually most will show: Balance, Date Updated, High Balance and Terms (aka min payment) If someone like a creditor does a soft pull on your report every month, they will see your balance decreasing by X dollars every month and comparing that to the min payment can deduct that you're only making the minimum payment but I don't see how or why they would need that.

On the other hand the lender(credit card company) see's this in their records and may see you as high risk borrower since in their eyes you're barely scraping by.

My view: If you are not planning a major purchase anytime soon, Who Cares? Keep doing what you're doing.

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Jester6641
October 30, 2008 3:03 PM
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My technique works pretty well. The statement gets rolled out on the 17th, so I go online and pay off my credit cards every month on the 15th and the last day of the month when I get paid. This means that I typically see statements telling me I have a zero balance on the card even though I use it for just about everything (gotten over $200 in rewards this year alone and I'm about 2 weeks away from another $100).
And my FICO? The person handling my mortgage said she'd never seen a score so high on a 28 year old, so apparently it's not hurting.

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Samets
October 30, 2008 3:54 PM
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@Jester6641:

Read my suggestion above. Leave a $1 for reporting.

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XianZhuXuande
October 30, 2008 3:23 PM
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@Jester6641: Be careful. If you go too long with a reported $0 balance the card stops counting toward your utilization. You want those balances reporting as long as they are low compared to your credit limits.

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Jester6641
October 30, 2008 3:26 PM
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@XianZhuXuande: I typically see $0 on my cards, but it's not uncommon to have one or two show a little bit (under $100) on a given month. I should have said that I never have more than 2 days worth of stuff on there when the billing cycle hits, and it's typical that I didn't buy anything those 2 days.

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BeeBoo
October 30, 2008 3:13 PM
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Is having a $1,000 balance on a credit card going to affect someone's life like keeping them from getting a mortgage or something?

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lincolnparadox
October 30, 2008 4:28 PM
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@BeeBoo: Probably not unless you have had late payments or you if are unable to pay more than the minimum.

Debt has a lot of different labels. Home equity is good debt, assuming that you make your payments on time. Car loans are also \"good debt.\" Student loans are neutral debt. Credit card balances can be good debt, if they show that you know how to use credit wisely. Amazingly enough, lines of credit from your bank are almost always \"bad debt,\" if you use them or maintain a balance. The bank is willing to give you a great rate, because they know where you keep your money. But a reliance on \"bank credit\" is never favorable on a credit report. So, when you're trying to improve your credit score, always make your payments on time and pay off the debt in this order: bank credit, consumer credit, car loans, home loans, student loans. I'd also consider closing/limiting bank credit lines to around $1000, or whatever the maximum amount you want for check protection.

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Samets
October 30, 2008 3:57 PM
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@BeeBoo:

The answer depends on your particular situation. If you make $100,000 and don't have any payments then your DTI is very low, then you can have $20,000 debt and it won't make a difference but if you make $40,000 then you're DTI will be much different.

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XianZhuXuande
October 30, 2008 3:22 PM
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@BeeBoo: Aside from any impact to your score (see my reply below) it depends on your income.

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Anonymous
October 30, 2008 3:15 PM
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I pay off my credit card a few times throughout the month and always overpay slightly to keep my balance a little negative (and my statements show that). Is this worse or better for my credit score than having my statements show a slightly positive balance? Would this not be seen as \"activity?\"

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XianZhuXuande
October 30, 2008 3:21 PM
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Yeah, it shows on your credit report as a balance. But that's a good thing as long as you observe the note about utilization. If you put a $2800 item on a $3000 card and pay in full you'll be taking a heavy score hit for one month due to using most of a card (and more if you don't have other credit on other cards).

Most card companies will give credit limit increases if you are paying in full each month and want to use that much money, provided your financial health/reports are good, and you are not dealing with cards from First Premier or Orchard, or many cards from Capital One.

It is good to have these balances showing, though. No visible use hurts you as the cards eventually stop counting toward your utilization and on manual review the underwriter will be suspicious because you aren't actually using your credit.

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strife1012
October 30, 2008 3:29 PM
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Bring up Annualcreditreport.com

I pay off all my credit cards every month, However all 3 big companies make it look as if I always have my credit always in use.

-Now I see why Capital One wants me, they think that I never pay a balance off.

***Wouldn't it be better to do a \"Round Robin\" between card such as Use your Credit Cards every other month, so that each card would in theory show a 0 balance 6 months out of the year?

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pjorg
October 30, 2008 3:47 PM
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@strife1012: I don't think the \"round robin\" approach would necessarily work. Assuming you aren't changing your spending habits, then you're still utilizing the same percentage of your available credit, just all on a single card instead of across many.

If anything, it seems to me that you'd want to keep the utilization rate as low as possible across as many as possible.

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bwcbwc
October 30, 2008 10:51 PM
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@pjorg: The advantage of round-robin between three cards say, is that for 2 of every 3 months, each card would show a zero balance. The disadvantages are 1) If you're reward-chasing, you typically lose by not concentrating it all on one card and 2) your score can be dinged if the one card you use that month shows a balance over 50% (maybe even 33%) of the credit limit.

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summerbee
October 30, 2008 3:33 PM
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What happens to your credit score if you call your CC company and request for your credit limit to be raised? I know my credit union has done this for me before when I was planning a large purchase. I'd imagine, given the info in the last post, that requesting a larger credit limit (and then not utilizing it) would raise your credit score...does anyone know if this is true?


And, does the process of requesting a higher limit adversely affect your score, effectively cancelling out any benefit anyway?

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Samets
October 30, 2008 3:53 PM
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@summerbee:

Having a larger available credit does nothing to the score. It's you're balance vs. available credit that matters (utilization). Here's what I'm talking about:

You have a $1,000 credit limit with $500 balance which makes it 50% utilization. Now of you're credit limit was $5,000 you're $500 balance is 10%

Due to the current credit climate if you have an AmEx or Citibank cards then yes, there's a chance for a limit decrease, they see their exposure decline and are happy even though this is only a perception.

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Trencher93
October 30, 2008 4:10 PM
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Is this credit score algorithm non-deterministically insane, or what?

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Elcheecho
October 30, 2008 4:38 PM
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why are people suggesting that the balance be kept below 30% per card when it seems like utilization ratio is based on totals?

which is it? 30% of total credit, or 30% on any given card?

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docrice
October 30, 2008 5:04 PM
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@Elcheecho:
Both. From the way I understand it, your best bet is to spread out your balances so no one card looks overutilized, and keep your balance low enough you're not using too much of your credit.


I.E. if you have a $1000 limit card and a $2000 limit card, and $1000 worth of debt, you're at 30% total (which is good). However, if $900 is on your $1k limit card, you suddenly have a card with a 90% utilization rate (not good). If you spread that money around ($333 on the $1k card and $667 on the 2k card, in our example) no one card has a high utilization, which looks good.


That said, below 10% is great, below 30% is good, and always try to stay below about 65% if at all possible - from my friend who did mortgages.

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bilge
October 30, 2008 7:20 PM
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This obsession with credit scores is tiresome. Get a credit card, pay it off every month. Pay all your bills on time and your credit score will take care of itself.

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bwcbwc
October 30, 2008 10:53 PM
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@bilge: I keep trying, but my wife doesn't share this philosophy and just says \"I'm not afraid of being in debt.\"

It doesn't help a marriage when your wife hears you mutter \"how can you be so stupid\" under your breath.

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crazydavythe1st
October 30, 2008 7:51 PM
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@bilge: Well sure, it will get you a good score. But most of us want stellar scores, which really require active attention to achieve. That little bit of difference between a good score and a stellar score can make a difference of thousands of dollars on very large purchases.

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jennyfur
October 31, 2008 4:52 PM
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@crazydavythe1st: On all major purchases I've made (car, mortgage, etc.) it seems that as long as your score is over 740 it doesn't matter. They don't really care beyond that how high it is and you're not getting any more of a discount on anything.

Achieving 740 doesn't require any effort at all, you can just do like bilge said and get a card, pay it off every month, and pay your bills on time. It takes care of itself. No effort needed, no funky payment schemes. That's all I've ever done and my score is in the 780's.

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Truthie
October 30, 2008 7:52 PM
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This is why it's good to have a lot of credit and never use much of it - even if you have a few hundred dollars balance from all your miscellaneous proletarian purchases it shouldn't affect your credit. Just remember, even if you have $10K in credit, you shouldn't actually charge anywhere near that much!

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MsAnthropy
October 30, 2008 10:18 PM
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I said this on the other thread.


The vast majority of credit cards report the statement closing balance to the CRAs - on eexception is some HSBC cards, which report the balance on the last business day of the month.


Utilization-wise, your FICO scores will be affected by:


* the overall utilization reported (ie the total percentage of ALL your available credit that's reported as being used each month).


*the utilization per card. As with overall utilization, the lower the better. One card reporting as being almost maxed out will still cause a dip in your scores even if your utilization overall is very low.


*the NUMBER of accounts reporting a balance vs. those not reporting a balance - ideally you want less than half of all open accounts to be reporting a balance at any given time, for maximum score benefits (and ideally you want those reported balances to be as low as possible - under 4.9% is best, under 9.9% is good, etc etc). FICO counts mortgages, car loans, etc when figuring this, so if you have a car loan, a mortgage, and five credit cards, that's seven open accounts. That means you should have no more than three accounts showing balances to maximise your scores. Obviously the car loan and the mortgage will always be showing a balance, so that means if you have more than one credit card reporting a balance at any given time, your score will suffer for it - most likely not much, but it will be better with <50% of accounts showing balances. This is one reason why having several cards can help your scores - with zero balances, they can offset score 'damage' done by balances showing on mortgages, car loans, other credit cards, etc.

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FLConsumer
October 31, 2008 12:48 PM
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@MsAnthropy: By-far the best and most accurate post on this thread.

I can confirm your first two points first-hand. When I first got my Amex credit card they gave me what I'd consider a \"toy\" limit (< 5 figures). The rewards were good enough (~3.5-4.0% back) that I was using it for everything, stopping right around 75% util on that card for each month. Overall util was still <15%. Despite paying in full every month on all of my cards, my credit scores dropped from their usual 810's down to 801-803. Called up Amex and they nearly tripled my limit to a level I found much more acceptable and the scores have gone back up.

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310Drew
October 30, 2008 10:39 PM
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Just pay before your statement closing date. That is typically when your balance information is sent to the reporting agency's.

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MsAnthropy
October 30, 2008 11:19 PM
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@MsAnthropy:

Oh! I forgot to say - while (if you want to maximise the score benefits, that is) you ideally want less than 50% of open accounts (including mortgages, loans etc) to report a balance, you don't want ALL your accounts reporting a zero balance. FICO will actually ding you for that.

Such extreme fine-tuning is only really worth worrying about if you're about to apply for a mortgage or something, and want to qualify for the best possible rate. But even if you're not in a situation where you really need to get your scores as high as you can, it's worth knowing that there are some things (such as letting high balances report, even if you pay them in full without fail) that can really, really tank your scores. With lenders so jittery right now, you really don't want to give them any excuse to freak out and reduce your credit lines/ratejack you, all because they're under the mistaken impression that you're horribly in debt.

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kwsventures
October 30, 2008 11:10 PM
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The most important thing is to NOT pay credit card interest. Paying off the balance each month does this. The rest is means nothing.

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BeeBoo
October 31, 2008 12:13 AM
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Some of this stuff doesn't even make sense to me, I guess it is a result of the complicated way scores are calculated.

One solution I see no one discussing is getting your credit limits raised so you are using less as a percentage. Sounds like that would help some of the posters.

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MsAnthropy
October 31, 2008 12:26 AM
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@BeeBoo:

Yup, that will work in terms of reducing % utilization (especially if you're carrying a balance you can't pay off right now and have no option but to let it report each month) - it's just harder to get your credit lines increased if you look like you might actually need them, ie if your card(s) are already close to maxed out.

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Anonymous
October 31, 2008 2:35 PM
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Very Nice Post.

Best way to pay off your credit card debt is to take action.

I see it all the time. People procrastinate getting their finances in shape until it is too late.
The same goes for building wealth. Never before in the history of mankind has it been easier to build wealth, yet many people seem petrified to make it happen. This is truly sad. There are many really great wealth building vehicles.

I am constantly amazed at how many people continue to work for 10% of their true worth. You can change that today!

The key is find a Global Mentor that will show you how to tap into the Global Economy. It is a lot easier than you think.

It starts with a decision and action. Take action today and change the rest of your life.

Wishing you all the best,

Patrick Spielmann
www.stopmakingothersrich.com

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Amethyst02
November 1, 2008 1:29 PM
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What should you do if your like me, someone who currently has no credit at all? I know I will only qualify for a very low limit high APR card; so how much of a balance should you carry if, for example, you only have 1 $300 limit card?

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