A few questions about credit cards

[Anonymous]

Hi all-
I have a few questions regarding credit cards.
I currently have two. A BestBuy one ($600 limit) (its through CapitalOne) which I just paid off, and a BOA one ($1000 limit) which I got in college, so it's a Student Platinum Plus Visa. I paid that one off yesterday. I am 28 and out of college with a steady job. Not the best income (~$32,000 take home).

Questions-

1) Is there any downside to having zero balance on your credit cards? Obviously, I feel great having them paid off, but I know credit is kind of tricky and I'm wondering if I keep them, but not use them, if that's good or bad. I have heard its good to just use then ocassionally but pay off right away.

2) How long does it take to show up on your credit report when you pay off CC's? I read that 30% of your credit score is your limit-to-balance ratio. FWIW, I have good credit now but am hoping it will get even better with no balance.

3) Both of my CC's are pretty low balances - Would anyone recommend applying for a high balance credit card ($5000+)? I don't necessarily want that temptation or burden, but is there any benefit?

4) Since my BOA CC is a "student" one, would it be worth it to "exchange" it somehow for a regular credit card? I've heard BOA isn't the greatest though. Maybe just cancel it altogether - which leads me to another question- does it hurt your credit to cancel CCs once they're paid off?

Okay, I think that's it! Any advice is appreciated. Thank you.

[Anonymous]

Anonymous wrote:Hi all-
I have a few questions regarding credit cards.
I currently have two. A BestBuy one ($600 limit) (its through CapitalOne) which I just paid off, and a BOA one ($1000 limit) which I got in college, so it's a Student Platinum Plus Visa. I paid that one off yesterday. I am 28 and out of college with a steady job. Not the best income (~$32,000 take home).

Questions-

1) Is there any downside to having zero balance on your credit cards? Obviously, I feel great having them paid off, but I know credit is kind of tricky and I'm wondering if I keep them, but not use them, if that's good or bad. I have heard its good to just use then ocassionally but pay off right away.

2) How long does it take to show up on your credit report when you pay off CC's? I read that 30% of your credit score is your limit-to-balance ratio. FWIW, I have good credit now but am hoping it will get even better with no balance.

3) Both of my CC's are pretty low balances - Would anyone recommend applying for a high balance credit card ($5000+)? I don't necessarily want that temptation or burden, but is there any benefit?

4) Since my BOA CC is a "student" one, would it be worth it to "exchange" it somehow for a regular credit card? I've heard BOA isn't the greatest though. Maybe just cancel it altogether - which leads me to another question- does it hurt your credit to cancel CCs once they're paid off?

Okay, I think that's it! Any advice is appreciated. Thank you.

No downside to having a zero balance. Takes a couple of months for current balances to be reflected. Your income is going to be more of a factor in obtaining better credit than having zero debt on it, but your overall debt-to-income ratio is also a big factor. And, sure, it's probably worth trying to find one with a slightly higher balance. But it isn't clear to me why you need more credit or "better" credit -- you don't need to have any debt, period. Are you looking to buy a car or something?

[Anonymous]

OP here. I guess there's no reason I need "better" credit other than knowing its there.
Will my credit never be "great" since my income isn't that great? I didn't really think of that- dumb I know.

[Anonymous]

The typical cycle for the balance to reflect is 30 days after the end of your last billing cycle that reflected the $0 balance. This is only a positive on your credit report.

Second, there is some benefit to having a higher credit limit. It impacts what is called your utilization rate. Meaning, having a $500 balance and a 1,000 credit limit indicates that you are near your maximum borrowing capacity. Having a higher limit makes it appear less so.

However, any benefit you gain from this will be negated by your (no offense) low income. Credit score aside, any loans made - home, auto, credit, etc - are going to look at your debt to income ratio. Companies differ but most will consider your current and maximum potential debt load. Thus, it's unlikely anyone will give you a large credit limit anyway.

My advice:
Keep the balances low, zero is better
Only apply for new credit if you absolutely need it.
Check your credit score once a year from all three bureaus (its free but don't fall for the many fake websites that sign you up for junk)

Congratulations on paying down the debt.

[Anonymous]

Don't cancel your BOA card. Even if you don't use it, it's your oldest card with the highest available limit, so it will majorly ding your credit score to close it out. You want to keep your oldest account open!

[Anonymous]

Oh, and to get a free credit report, do not go to freecreditreport.com. Go to annualcreditreport.com. You can get a free report from each of the three major agencies. You can also sign up for creditkarma.com which will alert you if there's any changes to your credit report.

[Anonymous]

There is actually a downside to having a credit card with a zero balance on it. Lenders look at your available credit limit, among other factors, so if you have credit cards that allow you to use $1000 of credit (for instance) even if you have used none of it (zero balance) lenders count that $1000 as money you COULD HAVE and count it against you. I was carrying zero balance cards, thinking it would show longevity and ability to keep them clean, and it came back to bite me. I was told by my lender that they were hurting my credit report and to cancel them immediately. I only had two. HTH.

[Anonymous]

Anonymous wrote:There is actually a downside to having a credit card with a zero balance on it. Lenders look at your available credit limit, among other factors, so if you have credit cards that allow you to use $1000 of credit (for instance) even if you have used none of it (zero balance) lenders count that $1000 as money you COULD HAVE and count it against you. I was carrying zero balance cards, thinking it would show longevity and ability to keep them clean, and it came back to bite me. I was told by my lender that they were hurting my credit report and to cancel them immediately. I only had two. HTH.

No. A thousand fucking times no. Your lender is confusing concepts in the worst way. The issue in your case was likely that you had too much available credit, not that you had a zero balance. The two are completely unrelated. Not having a zero balance doesnt change the fact that you still have $1,000 worth of credit available. Carrying a balance is not going to improve your credit score, nor will it improve your ability to take on new debt. In fact, the opposite is true. See Page 29 of http://files.consumerfinance.gov/f/201210_cfpb_CARD-Act-proposed-rule.pdf

"Reasonable policies and procedures to consider a consumer’s [independent] ability to make the required payments include the consideration of at least one of the following: The ratio of debt obligations to income; the ratio of debt obligations to assets; or the income the consumer will have after paying debt obligations. It would be unreasonable for a card issuer to not review any information about a consumer’s ?current obligations,? income, ?or ? assets [, or current obligations], or to issue a credit card to a consumer who does not have any [independent] income or assets."

The current obligation refers to debt load, which would include mortgages, auto loans, tax liens, credit cards, etc. In cases where the credit card has a non-zero balance, that debt is generally considered in the calculation.

[Anonymous]

Good job on paying the cards down. Cancel the best buy card. Shop around for a card with no annual fee and maybe airline points, if that's what you want. Use the card, but use it as way for paying for things with current cash. If you don't have the money on hand/in your bank account, do not spend the money. Use the card, pay it off every month, be a responsible adult and your credit score will be fine.

[Anonymous]

The downside to carrying a zero balance is if you have a zero balance and have never carried any balance at all. Credit worthiness is demonstrated, in part, by showing an ability to pay back a loan (your cards are a loan, essentially). If you pay them in full every time, you never show you can carry and balance + interest (the loan part) and pay it off over time; you are essentially using the card as cash. But if you carried a balance for a bit and brought it to $0, you demonstrated credit worthiness; it sounds like you did this. You paid interest off, right?

You want to show creditors that you are capable of paying interest down. Not tons of interest, but a bit from time to time.

I'd also recommend asking for a higher credit limit on both cards. There's nothing wrong with having a higher limit (if you don't use it all). A bigger gap between your balance and the limit means better credit. So if you had a $2,000 limit with a $500 balance, that's better than a $1,000 limit with a $500 balance.

Hope that helps.

[Anonymous]

Anonymous wrote:The downside to carrying a zero balance is if you have a zero balance and have never carried any balance at all. Credit worthiness is demonstrated, in part, by showing an ability to pay back a loan (your cards are a loan, essentially). If you pay them in full every time, you never show you can carry and balance + interest (the loan part) and pay it off over time; you are essentially using the card as cash. But if you carried a balance for a bit and brought it to $0, you demonstrated credit worthiness; it sounds like you did this. You paid interest off, right?

You want to show creditors that you are capable of paying interest down. Not tons of interest, but a bit from time to time.

I'd also recommend asking for a higher credit limit on both cards. There's nothing wrong with having a higher limit (if you don't use it all). A bigger gap between your balance and the limit means better credit. So if you had a $2,000 limit with a $500 balance, that's better than a $1,000 limit with a $500 balance.

Hope that helps.

PP here.

Your credit score will be FINE if you pay off each month. It will be fine if you never carry a balance + interest.

My comments were more pertaining to when you go get a loan for a house or car. They will absolutely be extending a loan to you with interest fees, so they will need to see you can pay back interest.

Sorry for the confusion on two different issues. This bit me in my early 20s when I applied for a loan and thought my credit was wonderful - it was, but I had not demonstrated that I could pay back a loan because I'd paid in full each time, so they did not offer me a loan. Now I know!

[Anonymous]

OP here. So, 9:13, what you're saying is that doing the smart thing - paying off you're balance every month - can come back and bite you?
How does that even make sense?
Is it because lenders want people that will have to pay interest?

[Anonymous]

Anonymous wrote:OP here. So, 9:13, what you're saying is that doing the smart thing - paying off you're balance every month - can come back and bite you?
How does that even make sense?
Is it because lenders want people that will have to pay interest?

Not 913, but yeah, sort of. In industry parlance, people who pay off their ccs every month are known, ironically, as "deadbeats." Because even though the cc gets a swipe fee for every transaction, they're not really earning anything off the consumer.

That doesn't affect your credit score, mind you. But, yeah, some creditors don't like it.

[Anonymous]

Anonymous wrote:OP here. So, 9:13, what you're saying is that doing the smart thing - paying off you're balance every month - can come back and bite you?
How does that even make sense?
Is it because lenders want people that will have to pay interest?

Please don't listen to 9:13. I work in the industry designing risk models.

Paying off your balance every month will not come back to bite you.

Her lender either didn't know what they were talking about, said something different, or she misunderstood, but either way, paying off your balance every month is not bad.

[Anonymous]

You're wrong, 1159. The industry refers to those who pay off their balances every month as "deadbeats."

http://www.pbs.org/wgbh/pages/frontline/shows/credit/eight/