I know, two posts in under 24 hours. What is getting into me, right? But I had to this time. (: Yay
I used my credit card for the first time. At 0400 on June 1, 2012. I paid my $100 cell phone bill with it. Because my limit is $250, it is underneath the 50% balance limit.
My dad gave me the advice to carry a balance for three months. While carrying a balance won't sky rocket my credit score, it will not negativity impact it either. As long as I pay the minimum every month. Carrying a balance though will help me in the way that credit card companies are going to offer higher limits and such when I apply for a card. So this was my plan.
But I read tonight that is only the case if you are using a credit card from a big bank. Like Chase or American Express. Because I got a secured line from a credit union, carrying a balance will not give me those benefits. So I decided I am just going to work on building an awesome credit score and pay it all off in full every month at least 48 hours before it is due.
I must say I am slightly bummed. Because my ultimate goal is to get student loans in the fall of 2013 without a cosigner. And an increased credit limit is the same idea as approving me for more money in a student loan.
I read online that before you get a mortgage, they look for 3 lines of open credit (or currently active credit lines) for a period of at least 2 years. I only have one credit line.
My plan was to have this card for one year and then apply for a regular credit card through my bank. Which, if I understood the loan dude correctly, would cancel the one I have now. But it might be wise of me to apply for a separate card in a years time and keep this one. Because aging an account is a great way to build credit.
And then my student loan would be my third open credit line. Which I will be able to pay off, because I plan on saving enough money by the time I start in the fall of 2013 to pay for my college in cash. Seeing how Salt Lake Community College will be under $3,500 a year. It is for this fall $3,170 for tuition and student fees. And seeing how it is super cheap, I do not see it going up more that $400 a year for 2013. I would just get the loan as a way to build credit. And then pay it off after I use the money they give me.
Anyways. I am really excited about this. Also now that I have used the card to make a purchase I have taken it out of my wallet so that I won't use it again. And I can use it to pay my cell phone bill again next month. So this is actually a big thing. And a huge step in my life. And I am so excited for building amazing credit!
So I actually worked with credit reports for over a year and this is how they work:
ReplyDelete30% of how the score is calculated is based on what is known as CAPACITY, this is where credit cards & line of credit come in to play. The absolute best thing to do with both is to pay them off completely each month. When they calculate your credit report they look to see how much of your available credit you have available. So it you're balance is $250 and you have $250 available you have 100% of your capacity available and since that is 30% of your total score that is really important. Not everyone can pay off the total balance each month but definitely keeping at least 50% of your capacity available will help.
25% of your score is if you have had any late payments, even one day late can be negative on your credit score. AND sometimes even when you pay it they company will still show that you WERE delinquent for up to SEVEN years!!! It's super important to pay your bills on time, even if it's only the minimum due.
20% this is how much credit card type loans you have compared to how much auto loans or mortgage type loans you have. You want the balance on the second to be larger then the balance on the first.
15% this is super important, they want to see how long you have had credit established. SO DO NOT CLOSE THAT CREDIT CARD YOU HAVE NOW if you get another one in the future!!!!!! Because every time your credit report is pull for pretty much the rest of your life it will show that you have had credit established since 2012 (2011?) and that will help future creditors know that you have been able to handle credit for a long time. EVEN if you don't use the card anymore KEEP IT OPEN!!!!
10% is how many times in the last 18 or so months you have had your credit pulled, too many times will actually make your score go down. I usually would suggest no more than 3-4 times a year, and remember, cell phone companies pull your credit, renters usually pull your credit and each time you apply for any type of loan they pull your credit. So just be aware.
I hope this helped (the percentages might be slightly different but I know they're close!) Good luck! You're doing great!