Building your Credit?

[Drifty86]

Hello, Everyone

I want to start building my credit. However, I've heard many terrible stories of people drowning in debt because they simply don't understand how interest, credit/credit cards work. I want to avoid that by knowing all the ins n outs.

Why do I ask this on this forum?
Well, I came across a thread were you guys mentioned the interest you paid to get your FR-S/BRZ. Some of the numbers were great so let me hear your secrets!! (I am assuming those numbers are true).

So far I've done a little research and spoke to a personal banker @ my Bank and this is what I've been told/ what I know.

1. The easiest way to start building your credit is by getting a credit card (My bank is already offering one right now for $300 @ 18% interest however this banker I spoke said to me that if I pay 2 weeks early/before the due date and spend about 1/2 of the available funds that I won't get charged any interest? (It's supposed to be a secret credit companies don't want me to know) True/False

2. Always pay the full amount that you owe NOT the minimal amount they want you to pay so you can dig your own grave.

3. Spend less than [<30%] of funds available to benefit your credit score. Because if you spend over 60% it will actually hurt your credit score? T/F

4. Pay 2 weeks before payment is do (to avoid paying the interest)? as I mentioned above.

5. Keep using this card for a year or so (pay for gas, food @ restaurants etc.. staying within the limit) then your bank will offer you an unsecured card meaning they trust you a little more.

6. NEVER go over the limit!!

If it matters my age: 19 years old

Any further advise or clarification that you guys/gals can give me. I would greatly appreciated. Thanks!

[nalc]

Not sure where the two weeks early thing comes from, let me explain to you how it works.

Let's say my billing cycle is on the 1st of every month.

Every purchase I make between June 1st and June 30th is recorded. On July 1st, I receive a statement and a bill, saying "You charged $800 in June, payment is due August 1st". I have until August 1st to make a payment. If I pay off the full amount by August 1st, I will not have to pay any interest on that $800. My purchases between July 1st and July 31st will be on my August 1st statement, and that bill will be due September 1st. You never have any less than 1 month between actually swiping your card at a store and having to repay the bank before interest, and it could be up to nearly 2 months depending on when in your cycle it happened (my June 1st purchase doesn't need to be paid off until August 1st). There's really no point to paying any sooner than the statement, and you have 30 days to pay that off. I have all my cards set up to automatically pay off the last month's statement balance a couple of days before the due date, and forget about them otherwise.

If, however, I don't pay it off by August 1st, I will be charged interest on whatever portion of it I still owe. This accumulates from month to month, and it's a very poor idea to let it do that.

I can charge up to my full monthly limit each month without a problem, but that's considered a high utilization (one of the metrics for your credit score is the percent of your credit that you use each month, and lower is better). There's no threshold of half your monthly limit at which interest suddenly is calculated differently.

There's no need to pay it off two weeks early, and if your banker says that it's a secret that credit card companies don't want you to know, I highly suggest that you start going to an actual bank. Seriously. That's not true at all and anyone who works at a real bank should know better.

To tell you a story, when I was 18, I got a Capital One credit card with a $500 monthly limit. After a year or so of using it and paying it off every month, they increased my credit limit. After another year or two, I got an offer from another credit card company for one with a much much higher limit. After using that for a little bit, they increased the limit as well. My latest card has something like a $20,000 limit, far more than I'd ever charge, but since I have a good payment history, the bank is willing to give me that high of a limit. So don't get discouraged if you have a hard time getting credit cards at your age - I got turned down by my own bank at 18, and had to go to another bank. Good performance with this low limit card will allow you to get better cards in the future, including rewards cards (my current primary card gives me 1% cash back, so I use it as much as possible, since that's just more money in my pocket versus paying in cash, and there are plenty of other cards with incentives)

[PineappleFriedRice]

If you end up getting the secured credit card, make sure you only spend what you actually have and not what your limit is. Every time you use it to buy anything, pay it off right away(e.g. if you use it for your $50 meal at texas roadhouse, make a payment via your smartphone for the amount you used, assuming you have an android/iphone).

To answer your question, yes if you pay off your balance right away you wont pay any interest.

To be honest, your credit will only reflect the length of time you've had credit and your credit to balance ratio. Though by using your card, you increase your credit limit which helps your credit to balance ratio.

[briang0901]

Originally Posted by Drifty86

Hello, Everyone

I want to start building my credit. However, I've heard many terrible stories of people drowning in debt because they simply don't understand how interest, credit/credit cards work. I want to avoid that by knowing all the ins n outs.

Why do I ask this on this forum?
Well, I came across a thread were you guys mentioned the interest you paid to get your FR-S/BRZ. Some of the numbers were great so let me hear your secrets!! (I am assuming those numbers are true).

So far I've done a little research and spoke to a personal banker @ my Bank and this is what I've been told/ what I know.

1. The easiest way to start building your credit is by getting a credit card (My bank is already offering one right now for $300 @ 18% interest however this banker I spoke said to me that if I pay 2 weeks early/before the due date and spend about 1/2 of the available funds that I won't get charged any interest? (It's supposed to be a secret credit companies don't want me to know) True/False

2. Always pay the full amount that you owe NOT the minimal amount they want you to pay so you can dig your own grave.

3. Spend less than [<30%] of funds available to benefit your credit score. Because if you spend over 60% it will actually hurt your credit score? T/F

4. Pay 2 weeks before payment is do (to avoid paying the interest)? as I mentioned above.

5. Keep using this card for a year or so (pay for gas, food @ restaurants etc.. staying within the limit) then your bank will offer you an unsecured card meaning they trust you a little more.

6. NEVER go over the limit!!

If it matters my age: 19 years old

Any further advise or clarification that you guys/gals can give me. I would greatly appreciated. Thanks!

What @nalc said is good information. The biggest key to building your score is not spending more than you can pay off. For example, don't run the card to its max without the funds to pay it down. When I first got a CC at 17 I had the same deal as you $300 at 18%. The advice I was given then was to buy little things each month such as gas once or twice and pay it off each month as a start, year by year the bank will increase your credit limit, as it gets higher so will your score and your interest rate will drop. Credit is great to have but it should also be used sparingly, just because you have the availability doesnt mean you should spend it. Take me for example, I'm 25 with a mortgage at 4% rate, a FRS with 2% rate, and 40k in credit availability. I'm currently at 2.8k on two cards due to emergent circumstances. My score is 771, not bad IMO. If im not mistaken, never spend more than 10% of your available credit if you can help it (if im wrong please correct me). Personally I only use credit for emergencies or when I'm making a big purchase that I can pay off immediately. Credit is all about telling the lender that your trustworthy and will make your bills on time. It is not a free pass to spend money you havent earned yet! Other factors that go into a score is your ability to pay off loans(ie car and mortgage) those are big loans that show your credit worthiness.

[Drifty86]

Originally Posted by nalc

Not sure where the two weeks early thing comes from, let me explain to you how it works.

Let's say my billing cycle is on the 1st of every month.

Every purchase I make between June 1st and June 30th is recorded. On July 1st, I receive a statement and a bill, saying "You charged $800 in June, payment is due August 1st". I have until August 1st to make a payment. If I pay off the full amount by August 1st, I will not have to pay any interest on that $800. My purchases between July 1st and July 31st will be on my August 1st statement, and that bill will be due September 1st. You never have any less than 1 month between actually swiping your card at a store and having to repay the bank before interest, and it could be up to nearly 2 months depending on when in your cycle it happened (my June 1st purchase doesn't need to be paid off until August 1st). There's really no point to paying any sooner than the statement, and you have 30 days to pay that off. I have all my cards set up to automatically pay off the last month's statement balance a couple of days before the due date, and forget about them otherwise.

If, however, I don't pay it off by August 1st, I will be charged interest on whatever portion of it I still owe. This accumulates from month to month, and it's a very poor idea to let it do that.

I can charge up to my full monthly limit each month without a problem, but that's considered a high utilization (one of the metrics for your credit score is the percent of your credit that you use each month, and lower is better). There's no threshold of half your monthly limit at which interest suddenly is calculated differently.

There's no need to pay it off two weeks early, and if your banker says that it's a secret that credit card companies don't want you to know, I highly suggest that you start going to an actual bank. Seriously. That's not true at all and anyone who works at a real bank should know better.

To tell you a story, when I was 18, I got a Capital One credit card with a $500 monthly limit. After a year or so of using it and paying it off every month, they increased my credit limit. After another year or two, I got an offer from another credit card company for one with a much much higher limit. After using that for a little bit, they increased the limit as well. My latest card has something like a $20,000 limit, far more than I'd ever charge, but since I have a good payment history, the bank is willing to give me that high of a limit. So don't get discouraged if you have a hard time getting credit cards at your age - I got turned down by my own bank at 18, and had to go to another bank. Good performance with this low limit card will allow you to get better cards in the future, including rewards cards (my current primary card gives me 1% cash back, so I use it as much as possible, since that's just more money in my pocket versus paying in cash, and there are plenty of other cards with incentives)

Her strategy of the 2 weeks early comes into play by spending lets say 40% of the limit and not spend any more for the rest of the month, pay it off by the middle of the month and you're good (Similar to what PineappleFriedRice mentioned of paying off as you spend (interesting). She's a personal banker at my local bank not my Banker (Sorry for the confusion)

I will definitely do the automated payment a few days before the due date as you mentioned. I am definitely looking forward to avoiding that interest.

My my goal is get some credit to buy a Condominium asap!, rent lets say 3 and live in 1 so I won't have to worry about rent, bills, etc... I want to invest the money that I am earning into something else. As of right now I feel that rent money is going to waste so yeah.

[Drifty86]

Originally Posted by PineappleFriedRice

If you end up getting the secured credit card, make sure you only spend what you actually have and not what your limit is. Every time you use it to buy anything, pay it off right away(e.g. if you use it for your $50 meal at texas roadhouse, make a payment via your smartphone for the amount you used, assuming you have an android/iphone).

To answer your question, yes if you pay off your balance right away you wont pay any interest.

To be honest, your credit will only reflect the length of time you've had credit and your credit to balance ratio. Though by using your card, you increase your credit limit which helps your credit to balance ratio.

Yes it will initially be a secured card but I will graduate to unsecure with higher limit. I didn't know you could pay as you go. If there's anything else I should know let me know. :happy0180:

[Drifty86]

Originally Posted by briang0901

What @nalc said is good information. The biggest key to building your score is not spending more than you can pay off. For example, don't run the card to its max without the funds to pay it down. When I first got a CC at 17 I had the same deal as you $300 at 18%. The advice I was given then was to buy little things each month such as gas once or twice and pay it off each month as a start, year by year the bank will increase your credit limit, as it gets higher so will your score and your interest rate will drop. Credit is great to have but it should also be used sparingly, just because you have the availability doesnt mean you should spend it. Take me for example, I'm 25 with a mortgage at 4% rate, a FRS with 2% rate, and 40k in credit availability. I'm currently at 2.8k on two cards due to emergent circumstances. My score is 771, not bad IMO. If im not mistaken, never spend more than 10% of your available credit if you can help it (if im wrong please correct me). Personally I only use credit for emergencies or when I'm making a big purchase that I can pay off immediately. Credit is all about telling the lender that your trustworthy and will make your bills on time. It is not a free pass to spend money you havent earned yet! Other factors that go into a score is your ability to pay off loans(ie car and mortgage) those are big loans that show your credit worthiness.

Hey Briang0901 thanks for replying to my post. I was told to spend around 30% of the available credit. I paid my FR-S in full last year and as of right now I am considering selling the car and buying a new one again on credit just to build my credit (I know I am going to loose money but that doesn't matter, I have to get my Condo asap!. I will set up automated payments with 30% more than the actual payment for a year or two and then pay of the rest. Making payments is not an issue for me.

771 not bad. I am not looking to over use credit I just want to own a Condo and a House so stop giving away my money a landlord. Later down the road I will use the credit for loans if needed to start my own company.

[nalc]

Originally Posted by Drifty86

Her strategy of the 2 weeks early comes into play by spending lets say 40% of the limit and not spend any more for the rest of the month, pay it off by the middle of the month and you're good (Similar to what PineappleFriedRice mentioned of paying off as you spend (interesting). She's a personal banker at my local bank not my Banker (Sorry for the confusion)

But that doesn't make any sense. You don't get anything for paying it off early. Is she suggesting that when you receive your statement for the month of June on July 1st, the statement that says right at the top "Payment due August 1st", there's somehow a hidden incentive to paying it off by July 15th?

Frankly, from the phrasing of pineapplefriedrice's response, he doesn't seem to know how credit cards actually work. There's no interest until you've failed to pay off your statement balance before the due date. If you charge something June 5th, why would you make a payment on June 6th? Wait for it to hit your statement on July 1st, then pay it off on July 31st. As long as it's paid before August 1st, you won't owe any interest. There's really no point to making small payments on a daily basis, just wait til you get the statement then pay it.

[Drifty86]

Originally Posted by nalc

But that doesn't make any sense. You don't get anything for paying it off early. Is she suggesting that when you receive your statement for the month of June on July 1st, the statement that says right at the top "Payment due August 1st", there's somehow a hidden incentive to paying it off by July 15th?

Frankly, from the phrasing of pineapplefriedrice's response, he doesn't seem to know how credit cards actually work. There's no interest until you've failed to pay off your statement balance before the due date. If you charge something June 5th, why would you make a payment on June 6th? Wait for it to hit your statement on July 1st, then pay it off on July 31st. As long as it's paid before August 1st, you won't owe any interest. There's really no point to making small payments on a daily basis, just wait til you get the statement then pay it.

Ok I see. I am just going to pay 2 days before the due date. So do this applies to all banks or only to some. I mean like maybe some banks require you to pay a day, others maybe two before in order to avoid interest?

[bcj]

Going with an 18% interest card is silly if you come up against hard times for any reason.

Go with a Credit UNION. They generally have lower rate cards available.

Back in the 70's I bought a TV on credit to start out. I had the cash, but wanted to get going.
Paid it off every month on time. Low risk progression. I suppose a tablet or laptop would be another good option now.
Don't go for a new car as your first debt debut.
Build up with some more expensive items that you could afford with cash immediately.

They like to see that you pay up on time reliably. It's the history that counts.
Your credit limit is not what you have available to spend.
It's what the banks want you to be in debt for and paying them 18% interest on.


Stupid TV didn't wear out until '96. Flat screens were starting to show up but were more than I wanted to spend.
Got another tube unit and that will probably go another 20 years. FML

[Drifty86]

Originally Posted by bcj

Going with an 18% interest card is silly if you come up against hard times for any reason.

Go with a Credit UNION. They generally have lower rate cards available.

Back in the 70's I bought a TV on credit to start out. I had the cash, but wanted to get going.
Paid it off every month on time. Low risk progression. I suppose a tablet or laptop would be another good option now.
Don't go for a new car as your first debt debut.
Build up with some more expensive items that you could afford with cash immediately.

They like to see that you pay up on time reliably. It's the history that counts.
Your credit limit is not what you have available to spend.
It's what the banks want you to be in debt for and paying them 18% interest on.


Stupid TV didn't wear out until '96. Flat screens were starting to show up but were more than I wanted to spend.
Got another tube unit and that will probably go another 20 years. FML

I love your line!! "Your credit limit is not what you have available to spend.
It's what the banks want you to be in debt for and paying them 18% interest on." I am going to pay on time so I won't have to pay that insane interest Till now I've been paying everything in cash. Now I am going to pay for needs with the credit card. Pretty much I am spending that money monthly anyways. Thank you very much for responding. If you have anything else you like to add feel free.

[bcj]

1 ! Primero ! Ichiban !

Find a lower rate credit card !

[RurumariGhost]

Thats how I started, with a $300 limit credit card, I was 18 though. Worth checking out would be a credit union as my initial interest rate was more like 12%. I used it for filling my car with gas once or twice a month, then paid it off in full. 2 months in they bumped my limit to $500, 4 months later it was at $1000 and 4 months after that they went to 3k, all without my asking for a bump in credit.

[Rayme]

The most important is to pay the bills on time and be generous (not just the minimum payments). You can be drowning in debts and still have a descent score if you are good at paying them back. ( That's what credit is, paying back money you own). As long as they know you'll pay back, you'll be golden.