What are the best practices to develop a good credit with a credit card?

Question

Please read first:
I'm well aware that it is ill advised to carry any balance over that would accumulate interest on a credit card.

I'm also aware my balance should always be paid in full. I'm also aware most people believe this, and I do appreciate anyone who cares to be sure.

But that is not my question, and I would also appreciate not getting this confused.

What I'd like to know, is if anyone here disagrees with the above and why? Are there any cases that my balance should NOT be paid off? Is there some reason I should let it go past 30 days? Does it matter how much balance I accumulate?

Would it actually be bad for my credit if I paid my balance before a purchase (and give my credit card company an interest free loan). I am aware that it is 'stupid,' but this way I am 100% sure I would never carry a balance. But would doing so cause me not to develop a good credit history?

Thanks for your time and actually reading this before answering.
Ken

Just noticed a poorly written sentence when I was trying to keep it brief.

"I do appreciate anyone who cares to be sure."

That should have read, "I appreciate people who care enough to be sure I'm aware."

But please, don't repeat it again in this question! :)

Answer 1

Here's a method I'm told, anecdotally, is effective with the scoring systems.

Take two credit cards. Use one for some purchases in any given month. Never exceed 50% of the limit on that card (and ideally under 35%). Let it get billed, then pay it off in full. If it's a good card, you shouldn't pay any interest. Swap cards, and do the same thing with that one. Only using one card in any 30 day period.

The scoring system will see that you borrow money, and that you pay it back in full quickly. Over and over again. Supposedly this amps up the scores quickly.

And every couple months, don't use any card at all. Let them all go to zero for 30-60 days, so they all have time to get reported as zero balance to the bureaus.

Never pre-pay your purchases agianst your card. If you do that, you'll just get a zero balance reported to the bureau every month, which isn't going to help much. The banks may limit your ability to prepay it anyway.

It's ok to pay a little interest every few months on a card, if that's what ends up happening. As long as it's known, and controlled, it's fine. Part of the price we have to pay to have a good credit rating, since if you never borrow money, you get no credit. If you only owe $200 at 12% APR, that's less than $2.00 per month in interest. Big deal. It can save you tens of thousands on a future home mortgage by having a sweet credit rating. Heck, it can be worth it to take cheap auto financing, even if you could pay cash for the car, just to get 6-12 months of an installment loan on your credit report.

One final suggestion: If your parents have really good credit, and have a really old credit card with a big limit and almost never a balance, see if they can add you as an authorized user. Having a 20 year old account with a $10K limit and no balance can bump people's scores by 40 points overnight. I've seen it happen.

Answer 2

Everyone has to start somewhere since you're not born with credit. You do have to start out with a crappy credit card in the beginning. My first credit card was a Capitol One card with a $400 limit and over 20% interest rate. I got the offer in the mail and signed up just so that I could start building credit. You might be able to get a student credit card or one from your bank if you already have a checking account. Once you get your first crappy credit card, the best thing to do is put stuff on it that you'd be buying anyway, like gas or groceries, and pay it off each month. That way you can build a little bit of credit and avoid interest charges. Pretty soon you'll be getting more and more offers in the mail, and you can upgrade to higher limits and lower interest rates. Once you get a lower interest rate it can actually be beneficial to use a credit card to more slowly pay off a larger purchase because creditors will see that you can be trusted with larger purchases.

Answer 3

If you pay atleast your minimum monthly balance and carry over the remaning than in the long run it shows that you have the disipline to make monthy payments. Same way a car loan does... you pay little by little each month. Unfortunatly when doing this you tend to pay % fees and are more likely to get into debt. I'd suggest if you plan on making a big purchace on your credit card than don't use it for anything else and take a month or two to pay it off... maybe longer. The thing that'll help your credit the most is just using your card responsibily and the longer you have the card the better it'll show on your credit.

Answer 4

Hi Ken,

Personally, when I get a new credit card, I pay off the entire balance over the course of 2 months. After a year, I pay the balance in full every month.

If I have a 0% interest type card, I pay the minimum plus $50.

My reasoning behind this is the following:

When I paid off my Capitol One card every month, my credit score went up by 10 points after 6 months. I used the card for business travel and I paid them when I got reimbursed, which was monthly.

My Chase card, I pay off every 2 months. After 6 months, my credit score went up by 40 points!

I am able to check my credit score because I have a Washington Mutual credit card. They offered 0% interest on balance transfers for a year and I took advantage of that. Anyhoo, they allow you to check your credit score for free on their website.

Answer 5

you always want to pay on time. first and for most. (makes up 35% of score) then you want to never have a high credit owed to credit available amount (does not look good if you care maxing out cards, or are about to run out of credit) then never have to much available credit compared to income. 20% is good. if you make 100,000 have no more than 20 grand in credit cards. if you want to carry a balance , that is up to you. credit card company's like to see that they can make some money off of you, just be sure that you don't come even close to making out your cards, however.

Answer 6

To have a good credit score, you shouldn't have anymore then 30% used on your credit card at one time. So it is okay not to pay off you balance every month as long as it isn't too high. You should always pay double the minimum payment. Pay on time.
Good Luck

Answer 7

People think that carrying 0 balances or paying in full helps your credit. It doesn't. It helps your debt management.

As long as you keep below 35% of your limit so that your utilization ratio isn't high, and as long as you keep current on your card, thats all that matters.

Answer 8

Inside the "credit card biz" people who use credit cards and pay off their balances are referred to as "dead beats." CC companies make their money on interest charges, cash advances and late fees.
the best thing to do is use your card often, especially if yours gives discounts on purchases. Then pay off most of the balance every month.

Answer 9

Just open it up and make the payments on time will help you establish better credit

Answer 10

I DO NOT DISAGREE WITH THE ABOVE, SO I HAVE NO ANSWER ON WHY.