So, it seems that most people and places say to use around 10% of your credit to build up your credit. My question is how? It seems straight forward, but it's not. (At least to me.)

Mainly, if your 5 credit cards are paid off, what do you do then?

1) Pick one credit card a month, use it, and pay it off before getting charged the interest?

2) Pick one credit card a month, use it, let them charge you interest, then pay it off.

3) Pick one credit card a month, use it, pay 95% of it back off before interest, let them charge you tiny bit of interest, then pay it off.


Here's MY situation, so why I ask. 2 years ago bankrupt, mainly because of hospital bills. We didn't go bankrupt on vehicles or house, not that that matters.

Now, my score (Credit Karma) is 698 and 705. I have 5 credit cards with 1500 to 2500 limits, and one card that acts and reports as a loan with 3500 limit. All 5 cards had up to $1200 on them, but are now paid off except for 2 charges pending on 2 cards. ($73 and $40?) Those will prob be paid off when they post, or depending on this advice, may let them go till next month. The loan card has $1500 on it, at 6% interest, (Other cards are 22% through 28%) I paid off or down all the credit cards, then took out a $1800 loan on the loan credit card to pay off the rest.

Rest of the credit? No car loans. I'm on the mortgage with about $36,000 owed on a $60,000 house and lot.

I don't need whopping credit because I couldn't afford the payments! But, would like another 50 to 100 points anyway.

P.S. This info would also be nice to know as my 18 YO daughter is just starting out with credit, but she will be going to M.I.T next fall for 4 years, so she will have 4 years to get her credit up! Yes, THE MIT! lol. Full ride, plus $35,000 or so per year if she needs it!

Tell her to live within her means and pay it off each month(don't finance debt with a credit card).
By the time she's out of school and gets a job, she'll be fine.
Don't overthink this.

Use your credit card as "plasticash", then pay it off before interest is charged.

Next is pay off the loan sharkcard.

And be putting what you can into retirement.


Have your daughter get one or two cards and treat them as "cash in hand", then pay them off before they charge interest.
If she is diligent, then she can build her credit to a decent number in four years. No loans, no debt. Cash or save and wait.

Since she does not have student loans, have her put as much into her retirement funds now, (going to have to do your research on what/where to invest) the more, early on, the better down the road. And having her sock money away toward a home.

Vehicles should be as reliable a beater she can get, and then sell outright and buy another. If she is far from home, flying is cheaper than driving in most cases, and she can drive a cheaper car.

(there are a lot of variables, and the above is broad brush.)

She can save a considerable amount over vehicle financing, and have more available for home purchase much sooner.

2/3 of your FICO are weighed by two things, what you owe, and your repayment history. If you pay off credit cards and revolving credit on time, (that means if it is due tomorrow, make sure you paid it today, not tomorrow, and defiantly not the day after tomorrow.)

quote:

Originally posted by sigmonkey:
Use your credit card as "plasticash", then pay it off before interest is charged.

Next is pay off the loan sharkcard.

And be putting what you can into retirement.


Have your daughter get one or two cards and treat them as "cash in hand", then pay them off before they charge interest.
If she is diligent, then she can build her credit to a decent number in four years. No loans, no debt. Cash or save and wait.

Since she does not have student loans, have her put as much into her retirement funds now, (going to have to do your research on what/where to invest) the more, early on, the better down the road. And having her sock money away toward a home.

Vehicles should be as reliable a beater she can get, and then sell outright and buy another. If she is far from home, flying is cheaper than driving in most cases, and she can drive a cheaper car.

(there are a lot of variables, and the above is broad brush.)

She can save a considerable amount over vehicle financing, and have more available for home purchase much sooner.

2/3 of your FICO are weighed by two things, what you owe, and your repayment history. If you pay off credit cards and revolving credit on time, (that means if it is due tomorrow, make sure you paid it today, not tomorrow, and defiantly not the day after tomorrow.)

All my payments are and have been on time. I have never even paid on the due date. I try to be a month ahead, as in pay when it pops up for the next payment.

So, my question is, with all the cards paid off, if I use them, then pay them off before they charge interest, do they just only report $0 balance, or do they report that you used them and paid them off to $0 balance?

If they report only $0 balance, why use them at all? (Credit number wise.)

If you use them, there is reporting, paying off before sue date, can prevent both interest, and reporting a high ratio of the use of that card to the limit of the card.

Say it's a $1000 limit card, you buy gas and groceries and pay your utilites to the tune of $500. That is 50% load, and that is high, by paying it off, it as soon as you can keeps that number from being reported, but the fact that you used and payed is reported. The first is not "negative" driving the score, and the second is "positive" driving the score.

The whole FICO thing is complex mix of varibles, bit not complicated.

Do some studying on it and get a better idea of how it all works.

While I prefer the old days of straigh interest loans, and the old "R1 was primo credit rating", the fact that benefits to insurance rates, and other things based on high FICO, is good to understand how it all works.

My score stayed up around 850 and higher, even through some financial storms, as I knew what to do, what not to do and the timing of things.

The whole "FICO and Credit game" is very much like Vegas. The house wants people who will play and leave a ton of money on the table, while the people think they are all High Rollers.

The "house" hates people that use the system, make out and do not pay the vig.

So, figure out how to use the "tool" in your favor, not theirs and let the other schmucks pay for the house overhead.

I don't know where you heard that you need to use 10% of your available revolving credit...

You should double check that.

Using MORE than 10% of your available revolving credit will certainly hamstring your score.

You need to figure out the reporting date on your card, and carry *on that particular date* between 1% and 3% of your available credit, provided further, that you always pay the card off in full and never pay interest.

Good advice so far, I’ll add to make sure you use every card in some cycle. Maybe put a bill linked to each card or something. After long enough of inactivity they will cancel that line of credit, which will hurt you a good bit depending on the age of the card.

Obviously never carry a balance. And like mentioned above, be careful not to use too much of a credit line.

quote:

Originally posted by sigmonkey:


So, figure out how to use the "tool" in your favor, not theirs and let the other schmucks pay for the house overhead.

So, for my case, you are saying use 10% of one card, and pay it off before it charges me interest? Repeat with different card next month?

Credit card companies report 4 things on a particular date that varies from account to account.

1) Repayment Status Paid As Agreed/Not Paid As Agreed
2) Total Available Credit
3) Current Balance on the particular day of reporting.
4) Date the Account was opened

#3 should be between 1% and 3% of #2, but certainly not 10%.

#1 just rolls a ticker, with cards reporting back up to 7 years. Miss a payment, it'll show up here and your credit report will tell you the month and year you missed the payment. Miss more than one or two, and your score will suck.

#4 allows the credit bureau to calculate how old your account is, so although your credit card company may only report missed payments for the past 7 years (or whatever, it varies), the overall age of the account can be much longer.

quote:

Originally posted by rkight3:

quote:

Originally posted by sigmonkey:


So, figure out how to use the "tool" in your favor, not theirs and let the other schmucks pay for the house overhead.

So, for my case, you are saying use 10% of one card, and pay it off before it charges me interest? Repeat with different card next month?

10% of any one card is way too much.

Pretend your reporting date is the 15th, your bill closes on the 25th, and you have until the 24th of the following month to pay interest free
Pretend you have a $1000 credit limit. Pretend that you buy $300 in groceries on the 1st of each month.

In the above scenario, you want to pay $275 on or before the 14th of each month, so that on the 15th your credit card company will report that you have a $25 balance (2.5% of available credit). Then, set your card to autopay the entire balance on or before the 26th. When the 25th comes and your billing month closes, the remaining $25 is fully paid the day after and you start over with everything paid and no interest.

At some point, you will have acquired so much available credit that all regular spending will fall below the 3% threshold, regardless of the reporting date. In that instance, you can just pay the entire card off any day you like.

I think the confusion here, if any, is the notion that the credit card bill must issue before a balance is reported. This is not accurate. The credit card company reports current balance on a particular day, regardless of whether that balance appears on this statement or the next statement.

You should just sign up for CreditKarma, and look at your credit score modeling. You'll understand and get the hang of it over time...

^^^

understand your daughter is just starting out and may need loans in the future, but for you, I missed the reason why you want to build credit.

Is there a specific goal, such as a loan for a bigger house, or is it just to get lower interest on credit cards etc?

You mentioned you want to raise it by 50 to 100 points, but I missed the "why" part.

I paid off my last car loan around 2006, paid my house off in 2012 when I retired. I have not paid any credit card interest since about 2000.
I carry about 830-844 in credit score. I wouldn't care if it was zero except for the concept car/home insurance rates are better with good credit.

First off, using 10% of your credit will lower your credit score. The sweet spot is using 3% of your credit limit. I know this because at least for a year, I had the highest FICO score available 850 and the key trigger was keeping it 3% or less.

How you do it is just keep a running balance of 3% of your total credit across your credit card and pay it off each month to avoid interest charges.

I don’t know what exactly matters and I think it can be different for anyone. I carry zero credit card balance. In the rare occasion where my statement had a balance on it, my credit score dropped by 25 points. This happened about three times in the past two years. I paid off the entire balance before any interest was charged. But the mere fact that the statement had a balance made my score drop. I have no credit card balance. My credit utilization shows 0%. My credit score is currently 815. I also just paid off my car two days ago and expect that may increase my score. The only balance I have in my credit report is my mortgage.

ETA: I use my credit card for everything I can to get reward points. But generally I pay it immediately. As in I make a charge and then go to my account and pay it. Usually this means I have a negative balance until the charge posts and then my balance is zero.

I started with a Best Buy and a Discover card in 1996. Never a late payment, probably less than 5 times I carried a balance. I’ve always paid off car loans early. My credit stays in the 795-825 range. Don’t over think it, just be responsible.

A lot of good information by our members here.

A couple of additional points for your consideration. You do not need to use each card every month, but you do need to use all of them occasionally in order to keep from being dropped by your card’s bank.

Secondly, do you actually need five cards? I know that this may get me in hot water but I’m of the belief that most people can get by just fine with 3 or less. HOWEVER dropping a card CAN have a negative effect on your score so you’ll want to think about that carefully. You particularly want to keep the cards that you’ve had the longest as length of credit utilization is also a factor in your score.

The fact that you’ve gone through bankruptcy is a “derogatory mark” on your credit report that can stay with you for up to 7 years and is probably the biggest contributor to your current score but it will lessen over time.

In short, keep your cc utilization around 3%, pay off the cards each month before they are due and live your life. Things will improve! BTW, congratulations on your daughter getting a full ride to MIT. That’s no small feat!

Here is specific advice for your daughter:

When she turns 18, get 3 cards with cash back and zero annual fee. Chase Freedom or similar.

Set one or more subscription items on autopay on each card. Netflix, Cell Phone, Google Drive, whatever. Ensure that the subscription does not exceed 3% of available limit.

Next, set each card to a) auto pay the minimum payment the day the billing statement is issued, AND b) auto pay the remaining balance at the middle of the month.

Set her checking account to TURN OFF OVERDRAFT protection.

Set all her cards and her checking account to immediately text and email her for any charges exceeding $0.00.

Next, set a reminder to request a credit limit increase each year.

The goal is to have 3 (or more) accounts that each have a boring history of low balances and on time payments, with as high a limit as possible, without ever paying any interest or accidentally overdrafting her checking account.

When she turns 28 (3 years into her first job out of grad school), she'll likely have a spotless credit record with over $100k in available credit and, barring no stupid overspending or missed payments, a score in the 780+. That will qualify her for the best rates on home and auto loans, and help her get the thumbs up for employment background checks, including government clearance. With $100k in available credit, she can put her regular spending and monthly bills on her credit cards for convenience or points and never exceed 3% of her available credit.

She'll have 3 (or more) strong accounts with 10 year ages which will soften the impact of any new accounts that get opened.

The only possible downside to having good credit is the amount of junk mail you receive from companies offering you more credit.