[Scotttheking]

I just got a new credit card, which I now have in addition to my first one. This card is a points card; the old one is a student card. Thus, I will be making all purchases on the points card, for obvious reasons. Both cards have no annual fees, so there's nothing to worry about in that department.

I've heard conflicting info on how credit cards and credit works.
I've heard that the longer you've had a card the better a score you have even if you don't use it and I've heard that if you have a card but don't use it it hurts your score.

What's true, what's not? Can I just throw the old card in a drawer and keep it around, should I cancel it, should I keep it but have something ($15/month or so) charge on it each month?

Also, it's got "0% introductory annual percentage rate (APR) for six months on all purchases and balance transfers". I take it this means I only have to pay the minimum balance for 6 months (I'll go 5 to be safe) without incurring any interest charges, as long as I pay it off in full before the 6 months is up?

Is there anything else I should know, as well?

Thanks,

Scott

[SVass]

Pay entire amount due every month. Your score (credit worthiness) is hurt by late payments. Your pocketbook/bank balance is hurt by the usurious charges called interest/late payment fees/charges to use a credit card. One credit card is all that is required to obtain a high score. (I have several only because stores press them on me by offering 10% off on a purchase if I get and use a new card. My new microwave cost less because of that. That card is now locked up in a safe place.) The interest rate on most low rate cards balloons immediately if you make a late payment on ANY other debt or card. Read the fine print on your multi page contract that can be revised at will by the issuer. Remember that they make money only if you pay late. sam

[macroy]

I believe that you're credit is also dependant on your liability. So its not the fact that you have two cards and is not using them. Its the fact that having two cards increases your potential debt. If you don't need it, why have it?

You may not be charged a rate for that introductory period... But I would think having a balance may affect your rating.

Another thing I do is have them lower the max on the card. Goes to my opening statement. Figure out what you can afford.. and have them lower it to that (maybe with a slight padding). I used to think that I could buy a car with a high max - actually tried to put my last car on it (mileage card). Guess what? They won't do it. Guess the fee to the credit company is too high.

[Millennium]

Another thing you may want to consider is floating a very small balance for a month or two from time to time. This can help boost your score with minimal impact on your wallet, if you keep the balance small and the time short. However, make sure to keep the balance very small (definitely less than $100, and preferably under $50) so that you can pay it off entirely the following month. Credit scores aren't detailed enough to see that you've kept the balance that low, so this can help your score without causing much monetary damage.

Be very careful if you decide to do this, however. I wouldn't recommend doing it until you've gotten into the habit of paying it off completely every month, just to reinforce that paying it off every month is what you should be doing.

[turtle777]

Ok, since I had to build my credit from scratch over the last 2.5 years (after coming from Germany), here is what I found:

1) ONE credit card is NOT enough to build credit.
You want to use more than one at a time, but always pay the entire amount due each month. Don't carry a balance. It is enough to have one little charge on the card. What counts is that you build a history of being a reliable customer who pays on time.
A CARD NOT USED DOES NOT BUILD YOUR CREDIT ! (almost true)
DIt does a little, but only as a time function (see 2).

2) Your credit score is a function of time. The longer you have cards, the better. Since the time function is calculated as an average, it means that if you have one card for 10 years, and two only for 1 year, your average card holding time is 4 years (12/3). That's what is showing also on your credit report.

3) Your creditworthiness is also dependent on the total amount that credit card companies are willing to extend to you. The basic function here is a sum of all credit lines. The higher, the better, because it means that you are trusted with more money.

4) What really hurts your credit score is if you max out your credit line. More than 50% usage is bad. Try to stay under 25%, or even less.

5) A great way of building credit history is getting loans and paying them off quickly. I even got loans, just to keep the monay in Savings for two months and then pay off the loan in one big chuck.

6) Don't apply for two many cards in a short period of time. That hurts your credit, because you appear desperate for money. 2-3 applications per quarter, not more.

7) On a regular basis (every 6-9 months), ask if they would increase your line of credit. If they deny, you have lost nothing.

8) Try to NEVER EVER miss a payment. Missing once is not too bad, but twice in a row can burt real bad if you just started building your credit.

-t

[turtle777]

Originally posted by Millennium:
Another thing you may want to consider is floating a very small balance for a month or two from time to time. This can help boost your score with minimal impact on your wallet...

Actually, that is not necessary.
Even if you pay of the complete amount due each month, your credit will show the avg. monthly balance. The credit reports (unfortunately) DO NOT distinguish if you pay the balance of completely or not.

I'm using a Amex Delta card to collect Skymiles. I do this A LOT, so my average usage is around $ 2000 / month by paying almost everything on card. I ALWAYS pay of the complete balance each month. It still shows on my credit report that I have a balance on that card, although I paid it of every time.
ONLY SOLUTION: over time, get an increase in your line of credit. Till then, stay by all means under 30% usage.

-t

[Big Mac]

Originally posted by macroy:
I believe that you're credit is also dependant on your liability. So its not the fact that you have two cards and is not using them. Its the fact that having two cards increases your potential debt. If you don't need it, why have it?

[SNIP]

Another thing I do is have them lower the max on the card. Goes to my opening statement. Figure out what you can afford.. and have them lower it to that (maybe with a slight padding). I used to think that I could buy a car with a high max - actually tried to put my last car on it (mileage card). Guess what? They won't do it. Guess the fee to the credit company is too high.

Your first point is definitely wrong. Your credit score isn't reduced by greater combined liability. Your credit score is a function of factors including responsible use, lines of credit and job history. The fact is you build up credit history with your cards, and that improves your credit score as long as you have been responsible. If you close an account you have had, especially if that was your long time account, all of your credit history goes with it. Now if you apply for a bunch of credit cards within a short period of time, that can lower your score, but simply having multiple cards is beneficial. You should go read Suzie Orman's site or watch a couple of episodes on CNBC. So, if you don't want to use a card anymore, put it away in a secure place instead of canceling it. Your card won't be canceled for not keeping it active, but there's really not to continue using it. At the age of 23, I now have five cards and use them all (at different times and not all in the same month). I heard a statistic awhile back that claimed the average person has four.

There is no need to lower your <extra edit>limit, either - a higher limit</edit> is a good thing, as long as you trust yourself to stay within your means. If you don't have confidence that you'll be responsible, you should pay off and cut up all of your credit cards. And you certainly don't buy a car with a credit card; if you try to do that I'm sure you'll get a bunch of strange looks. Finally, yes, as long as you pay the entire amount off by the date specified, you don't get hit by extra finance charges.

[macroy]

Yea - after reading turtle's points... I am WAY off.

The car thing was so I can get the mileage - I was going to pay cash anyways. But figured if I can get some miles off of it... but they max'd it at 2500 I believe.

[Scotttheking]

Originally posted by turtle777:
Ok, since I had to build my credit from scratch over the last 2.5 years (after coming from Germany), here is what I found:

4) What really hurts your credit score is if you max out your credit line. More than 50% usage is bad. Try to stay under 25%, or even less.

How much does this hurt you? I've brought my student card to the max multiple times, include last month. The limit is low enough that I can't put normal living expenses plus books on it. New card has 2.5X the limit of the old one.

So my strategy should be something like this then?

1) Toss old card in a drawer, and setup my tivo to charge off that card. That gives it a small balance. Is that enough ($12.95/month)? The card will auto pay out of checking every month.

2) Charge everything to new card except Tivo.

3) Only pay off minimum on new card for 5 months (6 months 0% APR means I'll pay no finance charges, correct?). At the end of 5 months, pay off the entire card balance. After the 5 months is up, setup the auto pay to pay off the full card balance each month.

4) Avoid regularly letting the card balance go over half it's limit.

Sound good?

[turtle777]

Originally posted by Scotttheking:
How much does this hurt you? I've brought my student card to the max multiple times, include last month. The limit is low enough that I can't put normal living expenses plus books on it. New card has 2.5X the limit of the old one.

So my strategy should be something like this then?

1) Toss old card in a drawer, and setup my tivo to charge off that card. That gives it a small balance. Is that enough ($12.95/month)? The card will auto pay out of checking every month.

2) Charge everything to new card except Tivo.

3) Only pay off minimum on new card for 5 months (6 months 0% APR means I'll pay no finance charges, correct?). At the end of 5 months, pay off the entire card balance. After the 5 months is up, setup the auto pay to pay off the full card balance each month.

4) Avoid regularly letting the card balance go over half it's limit.

Sound good?

Yes, except 3). Why do yo want to keep a balance? That's not necessary, but can hurt you if you max out the card . Pay it off each month, same as you do with the "TiVo" card.

The small amount on the TiVo card is fine. It doesn't matter how much you charge on, as long as there is activity.

-t

[Scotttheking]

Originally posted by turtle777:
Yes, except 3). Why do yo want to keep a balance? That's not necessary, but can hurt you if you max out the card . Pay it off each month, same as you do with the "TiVo" card.
-t

0% APR for the first 6 months. I'd rather have my money sitting in a bank account gaining interest if they are going to loan me money free for 6 months.

[turtle777]

Originally posted by Scotttheking:
0% APR for the first 6 months. I'd rather have my money sitting in a bank account gaining interest if they are going to loan me money free for 6 months.

Sorry, my bad, I overlooked that.
Just make sure you got the money to pay it off once the 0% is over...

-t