OT: Someone please help me understand a detail about credit scoring.

[DanDombrowski]

Ok, I'm looking for a few specifics on raising my credit rating.

I can't seem to get a straight answer on this one, I've searched everywhere. I keep reading the same damn articles that say that same thing, and I can't figure out what it means.

I have a capital one card with a $400 limit, its a student card. Its the only card I have. I pay the balance off in full every month. I've never paid interest.

Most credit help guides tell you to pay off your balance in full every month (der...) and don't have a high credit utilization rate. That makes sense. What I don't understand is what balance they use to determine credit utilization.

Basically, if I put $399.99 on my credit card, get a bill, and pay it off before its due, so I pay no interest, is that helping my credit or hurting it? Obviously, I don't live anywhere near the credit limit, but a $250 purchase on something like a new PC monitor or a set of tires is nothing to my budget. Even if I pay off the amount when the bill is due, does the credit agency see that I'm over 50% utilization for that month?

The easy answer of course is to pay off the amount before the bill is due, but if I do that, I thought the credit agencies don't see anything, and therefore doesn't get factored in.

Any help!?

[DallasBill]

You have it right and buy paying it off in full each month, you are doing the right thing. The other thing they look at is the percentage of credit available vs. the percentage of credit that you have used in a given month.

There's where they can ding you. By only having one card, and having 250-350 on it each month, you demo that you are using most of your available credit. Which is not good, even though you pay it off each month.

Two things can help you raise it more:
1) Call the card you have and explain to them that you have had the card x-months and have a great payment record and would like the limit raised. Don't ask for a limit number... see what they will give you. If they don't give you 1000, then ask for it. You may be surprised.
2) Once you have accomplished #1, give it a few months and then apply for a second card. Even a retail card like Sears or similar is a good idea. If you get it, use it for a few small purchases over the next 60-90 days, pay it off each time, then stuff it away permanently except for emergencies. That way, you have more available credit, with good payment history, and you are using less of your available limits each month.

Sounds like you have a good handle of living within your means so far, so you should be able to do the above steps.

And, it doesn't need to be said that "emergencies" never entail 4 rounds of beer and pizza for 20 of your "closest" friends while one is still a student... ;-)

Good luck!

[KenB]

I went thru the same thing, I hate owing money to anyone. However, the way it was explained to me is that by paying off your balance each month you are not really establishing a credit history. (ie: consistently "paying as agreed")

The whole game is based on you not paying it off every month but carrying a balance. Optimum is about 30% of your limit. I recently established a FICO score of 790. (It's not easy if you don't own a house...or have a steady job) By charging a $6k purchase, paying off 5k the next month, then the rest within 6 months, also carrying a small balance on another card. I didn't need to use the card, could've paid cash.

OR...ignore the minimum payment and try to pay 10% of the balance so you can pay it off within a year if the balance gets higher than a few hundred.

Charge something for $60 and pay the minimum for a couple months or slightly more than minimum, as long as they're squeezing you for something, they're happy...scumbags that they are. At least it's only a couple of bucks interest on a small balance, but interest just the same. Don't forget and miss a payment or pay late, it gives them the right to jack your interest rate thru the roof so you will never pay it off. Don't take their offer to skip payments either, they will do this around Christmas time usually. Not a good idea.

Worked for me, of course everyone will have a different take on this. And it's like hitting a moving target since they change the rules of the game at will.

More than anything it takes time. there is no shortcut no matter what the "fix your deadbeat credit" scamsters say.

You are entitled to a free credit report from each of the 3 agencies once a year. annualcreditreport.com is run by those agencies. There are a million sites that offer "free" reports but you have to sign up for their "Credit Guard" service or some such BS. Stay away from them.

Just my 2cent

[SchnellE34]

I am two years out of college, not sure if any of my info is 100% correct but still some good guidelines to go from...

I don't know exactly what percentage creditors call over utilization of credit, but I would assume it's somewhere around 50%.

Rebuilding credit just takes time. If you screw up and pay 30, (bad) 60 (worse) or 90 (your ****ed) days late it takes +-five years to be erased from your credit score. You will have to continue to pay on time for years to build your score back up.

Checking your credit more than yearly will affect your score. Everytime you or a creditor checks your score, I was told, it takes some points off. In PA if you are denied credit because of your score you are entitled to a free credit report. I saw my report and noticed Capitol One checking my report everytime they sent me an offer in the mail (which was often.) So I put my name and address in to stop all mailed credit offers.

If you have just recently starting borrowing it will take some time to build an initial score. I would say one year of having a credit card or loan would be ample time for a initial score. Before that one would need a co-borrower if the amount is too high.

Bill and Ken's suggestions are also wise and usefull.

[DanDombrowski]

Thanks for all the help guys. I think the end result is that I need to carry a very small balance for it to mean anything. What sucks about it is that I can't use my card for anything normal size (>$100) without having high credit utilization.

For Bill, I tried calling them and asking them to raise the limit. I got some greenhorn from india who tried to confuse me by saying that the selection process for credit increases was very complicated and in the computer. Yeah, right.

To the creditors, it really doesn't matter what you want to call it, but if it makes any difference, I'm not rebuilding credit, just starting it. I don't have any bad things on my record.

I've tried applying for a gas card and got denied, but that was before I had my student visa. I suppose I should try that again.

I checked my credit report last year, 2 of the 3 reporting agencies had hardly any information about me. The last one, transunion, had my capital one data.

Thanks for the help guys, I have a plan now :)

[Bill R.]

over 820. The only thing i do is always pay off every credit card balance in full each month. Every car loan or other loan i've had i make sure that i pay it off early , no late payments or missed payments. I typically pay off a 5 year loan in 2 years or less. I don't let insurance companies or car dealers or any other company run credit checks on me until i'm ready to buy. Every time you go to a car dealer and test drive , if they take your license and write it down they run a credit check on you. Every time you or them run a credit check to see what your score is , it lowers your score. I think its either 15 or 20 points every time. So you don't ever check your score or let them check your credit any more than is absolutely necessary. Since every time you do it will lower your score. I don't ever request a raised limit on cards, they automatically send you the increased limit hoping that you'll incur enough debt to not pay it off each month. Whenever anybody wants my social security or drivers license when i'm shopping for something i always ask if they are running a credit check and i usually refuse to do it.




Thanks for all the help guys. I think the end result is that I need to carry a very small balance for it to mean anything. What sucks about it is that I can't use my card for anything normal size (>$100) without having high credit utilization.

For Bill, I tried calling them and asking them to raise the limit. I got some greenhorn from india who tried to confuse me by saying that the selection process for credit increases was very complicated and in the computer. Yeah, right.

To the creditors, it really doesn't matter what you want to call it, but if it makes any difference, I'm not rebuilding credit, just starting it. I don't have any bad things on my record.

I've tried applying for a gas card and got denied, but that was before I had my student visa. I suppose I should try that again.

I checked my credit report last year, 2 of the 3 reporting agencies had hardly any information about me. The last one, transunion, had my capital one data.

Thanks for the help guys, I have a plan now :)

[DanDombrowski]

Bill,

Thanks for the advice. What you're saying is that if I pay off the bill in full, it does help credit scoring? Now I don't know what to do....

As for the car loans, I have never borrowed money to pay for a car, or actually anything for that matter. My upcoming 3 series purchase will be the first time. I would love to do a 2 year loan with 50% down, but were also thinking about purchasing a home soon, so the downpayment may be better appropriated to that.

All that aside....I didn't think a car dealer could run your credit with just your driver's license? I mean, it may just be because I'm young, but I've always had to give my license when test driving a car. I thought they needed your social security number and your consent. Now, I'm sure there are plenty of typical car dealers that wouldn't mind stretching the definition of consent, but I thought you needed a SSN to run a credit check on someone. When I test drive cars, I thought I was very aware for the warning signs that they were trying to do things like that (asking you to fill out a small questionaire thats actually an application for credit, getting your SSN for 'security purposes', you get the idea). Mabye I was wrong, but I did know about credit checking hurting your score.

I guess my plan is going to be to call capital one again and see if they wont both raise my limit and make sure they report my payment schedule to the other reporting agencies. Then, after I purchase my new car (with a co-sign, probably), do my free credit report when I'm due for one in November and see how things are checking out.

[calmloki]

Sally and I compete for high score - early last year I was doing a lot of card shopping to get the best deal and it did drop my score somewhat - our income and debt are otherwise very similiar. A year later my score is back up and a bit higher. I am told that you want two major cards with a fair amount of history on them. Mortgage broker claimed the best technique is to have two cards and alternate your use on them so that every month you pay off card A or B while using B or A. Supposed to raise your score the fastest that way, as you always have a small balance but get points for paying off a card each month.

[KenB]

IF you use it every month and pay it off every month it does definitely help your credit score. If you use it once, pay it off and don't use it again for a few months it does not help as much. That is what I meant by carrying a small balance on it, especially if you have only one card. Building credit takes time but is easier than RE-building it. Your credit score is also affected by your income to debt ratio, how long you have been at the same job or in the same line of work if you change jobs and how long you live at the same address...many things.

All of the advice that has been given here is good information, do what suits your situation the best. I wish I could have learned this way when I started. Back then, (as today,) it was:

"Hi, I'd like to borrow some money to buy a car to go to school and work."
"Sorry, we can't give you any credt."
"Why?"
"Because you don't have any credit history."
"How can I have a credit history if nobody will give me credit?"
"Well, first you have to borrow some money."
...pause, while brain processes this exchange.
"Gun, please."
..and so on...:D

Best of luck to you, as long as you're not a deadbeat, you'll do fine.

[Robin-535im]

Another thing that can raise it, so the mortgage guy told me, are secured loans vs. unsecured. A home mortgage, car loan, home equity loan, 401(k) loan, etc., all have something of value as collateral. Credit doesn't... Since you own your car, one thing you can do is go to the bank and get a loan on the car! Viola, a secured loan. Put the money in a CD or some interest-earning vehicle, pay off the loan on time or early, and you'll have a credit history that only cost you a hundred bucks or so in fees / interest / etc.

[Elekta]

car loan, house, sears, amex, credit union, gas card, shopping card. Get them and use them.

Set them all to auto pay out of your checking account and to pay the minimum required each time. Then every other month zero out the balances save for amex which you zero out every month.

I saw my credit score and it shows number of pmts on each card and if they were on time or not. I came out in the high 700's and each card had over 100-300 on-time pmts on them.

You statistically can't crack the 800's until you've paid off a house or a couple of cars....paying off a car loan is the easiest way to bump your score. So is Sears. Buy a fridge, lcd tv, or a bunch of tools, make two or three auto pmts and then pay it off. Or if you get a deal where you don't have to pay for a year, then wait the year and pay it off (if there is no interest of course)

No matter what though is to never miss a pmt. That's how auto pay can help you help yourself. That consistency is what lenders look for and the scoring companies do too.

Also, don't make any insurance claims if you can help it.

goodl luck

[Ross]

Dan,
I viewed this after reading your post about the dealer salesmen and hope it's not too late.
First, stick to your guns with the salesman. His job is to extract every penny he can from you as he will likely never have another chance.
Second, don't worry about your credit score so much. If you pay your debts your score will improve. Your age and limited time in the consumer world are against you,not much you can do. You are rated the same if you pay no interest or only the min. payment, you are expected to PAY is all.
A higher credit line will be offered in the future if you pay on time. The card co. gets a piece of the action on your purchases too. The more they allow you to spend the more they get. They need a certain amount of people who pay their balance. You are doing the right thing.
Get your auto financing from a bank or credit union. Don't overextend and all will be well. Good luck!