As a collector, I see many rich Californian accounts with 40,000 credit limits. A lot of these people will use the card to get flying mails, using the card to buy every mail, every little thing they want, usually around 10 to 20 grand a month... then they pail the entire bill in full to get the miles. Now, my largest credit card has a $1,000 limit and no bonuses, but I was curious about something. Is it better to pay off my credit cards and keep the balance at 0, or should I do something similar: Use my fixed 5.75% card to buy EVERYTHING... gas, food, bills, etc... and then pay it off from my checking account. Which helps my credit score more?
My understanding is that it's not so much the use of the card that matters it's the regularity of payment, in other words paying it on time every month. Credit companies when looking at your credit like to see you carrying only around 30% to 40% of your total debt ratio. This means that if you have only one credit card and no loans or anything else and that card has a limit of $1000 you should only be carrying a balance of $400. Maxing your card and paying it every month doesnâ??t make you look all that attractive to creditors because you are on average carrying a high balance. It doesnâ??t necessarily make you look bad but it doesnâ??t make you look good either. Getting frequent flyer miles is a different story. They most likely don't have credit problems and are going for the free travel or upgrades.
It all depends on what you want to do with your credit. It has been my experience that exercising your card close to the limit and making large payments and making them on time will get you frequent line increases and lower rates. The balance carried will only affect you when you apply for new credit. www.creditsense.com
The way to build and establish credit is to REVOLVE your balances on your revolving credit cards. Basically, use your card and charge a balance. Then pay off your card every month. Never go over limit. Always pay on time. This will show the issuing bank that you can definitely handle the credit line that was issued to you. After one year (or even 6 months), you should be able to apply for a line increase, or even have one given to you automatically. Different lenders look at different things when granting credit. About 3 months ago, I was car searching for my fiance. She has a couple of credit cards: 1 Sears at $4900 and a First USA visa at 1,000. The credit limit with Sears was NOT reporting, so it only showed that she had a $1,000 credit limit with First USA which she was recently late with the past 2 months. Her credit report shows that she could barely handle a $1,000 credit card, let alone a $15,000 car loan. She was offered a new car for $15,000 at 14.9% interest. We declined this offer. On my own credit reports, I show a $5,000 credit card with a high balance. I also show a paid off unsecured loan for $3,000 and an existing car loan for $19,500. The dealer said that I could get the same car with a lower APR because I was ALWAYS on time with my payments and I have shown experience with high amounts of credit. Even though I was already strapped in debt, this lender wanted to sell me yet ANOTHER car. I declined that offer as well. My credit goal is to always have enough available for emergency and to bring my scores well above 700 to apply for a mortgage with little difficulty. I also don't want to carry any credit card debt anymore. I want to invest my money and not give it away on interest payments. I have a rewards program with my credit card. I plan to use the credit card and pay it off in full every month. Carrying interest on a rewards program just show that you're willing to pay for the reward out of your interest payments and not have the credit company truly pay for these rewards.
