managing credit balance

[desparate]

I just got a new credit card with a low limit. $300

If I max this card out and pay the balance at the end of the month, and max it out again, paying the balance at the end of each month, will that lower my credit score or help my score ?

[Suffering from a Tax Lien]

That is not a good plan! Do not max it out ever!

You want to show a credit utilization MAXIMUM of 10%. On a $300 card, that means you want to spend a maximum of $30!!!

This makes a BIG difference in your credit score. It seems like a very small amount of money but it makes a big difference.

You also do not want the balance to be zero.

You should think of this card's only purpose as rebuilding your credit. It is NOT how you buy things. It exists only to help your credit.

What you should do is:

1. Set up on-line bill-pay so you can transfer the payment immediately when you get the bill.
2. Charge a total of $15 per month on the card. This is not a flexible number! Make it somewhere in the range of $10 to $20. This is a narrow range, but it must be precise!
3. Pay that in full every month, and then charge again to keep your credit utilization at $15.
4. Never let the balance go over $30 on the card.

[Hal Jordan]

FICO doesn't make a distinction between a $10,000 card that is at 90% utilization or a $300 card with a 90% utilization. Optimal fico scoring is for debt to available credit ratio of under 30%.

As long as you pay the balance in full each month it should always show up as $0 balance on your credit reports. With that said there is no need to max the card each month and pay it off. Simply buying a pack of gum each month and paying it off will work just fine for you. I would recommend acting like you don't even have a credit card other than to do one small transaction a month.

The problem with a $300 card is one purchase can put your utilization % in a bad spot and slam your score.

Just be patient.. It will help your credit score. 30% of your fico score is based on debt utilization..

[desparate]

On one of my other low limit cards, I manage to max it out, and still maintain a low balance on my monthly credit report.

For instance, Capital One gave me a secured credit card and my balance is 200 dollars. I max it out every month. However, the way I do this is after the bill is paid in FULL, I don't use the card until about a week afterward, because Capital One seems to report to the 3 major credit bureaus at that same time every month, so that it appears I'm only using a small amount, or close to none. So after Capital One's Report, I'm pretty much free to spend as much as I want, as long as I bring the balance back down low at the end of the month.

I know that seems like a good idea, but is it ? To prospective creditors, it would look like I am maintaining a low balance, but to the Creditors who are actually extending me the credit, well they know what I'm up to.

I have tried paying the balance off in full each month, and spending at little bit on the card. Spending that little bit shows up on my next monthly credit report, so at least in my case, paying the balance off in full each month doesn't cause to zero balance to show up.

[Suffering from a Tax Lien]

From what I have read, there is a difference between 10% credit utilization and 30%, and you want the 10%. As Hal Jordan says, you want to make exactly one purchase per month on this CC, and I stick by my suggestion to make it a $15 purchase.

It's a bit tricky to know which day exactly they report on, and when they do report you want to show a non-zero balance. That's why I suggest:

• Pay the card using on-line bill pay immediately when you get the bill. Pay in full.
• Immediately after the bill-pay has gone through, make your monthly $15 purchase.

This is the simplest and safest way, from what I can tell.

desparate, you really don't want to use that plan you're describing. You do not want to max it out, ever, because you're running a risk of going over your limit, or mis-timing when it reports. You also do not want to leave yourself at zero balance when it is reporting. My simple plan above is the safest and best.

[greendude]

Alright heres the skinny on this:

I know this from experience as I have carefully observed the affect of the balances on the score comparing reports before and after balance changes to making sure everything remains the same.

I had 2 cards with credit limit $300. When I had a bal of 90% utilized my score was 577. When it reported 18% utilized it went up to 606.

The results may not be the same for everyone as the weight of balances w.r.t the other negative factors may not be the same for other but bottom line with other things remaining the same, you can give your score a little boost by keeping the bal below 15% utilization.

And this is important - I used and paid these 2 cards several times during the period. But the balance that was reported by the card companies was on the last day of the month i.e. if your bal on 31st may is 0 and you max out the card on 2nd June, it will still show 0 on your credit report and get reflected in your score for the whole month of June.

You should call your card company and ask them what balance they report to CRAs - the bal as of the end of the month or the bal as of the last statement as each card company may report differently and then make sure your bal is 0 at the time of reporting.

[Suffering from a Tax Lien]

Originally Posted by greendude

make sure your bal is 0 at the time of reporting.

You do NOT want them to report a zero balance. That is a negative on your credit. From my experience and all that I have read, the ideal balance is under 10%, but more than 0%. 5% is a reasonable target number. Hence my $15 in the original situation.

[Hal Jordan]

Why is a zero balance bad? Can you give me a link to something that substantiates that statement of yours?

[Hal Jordan]

I dug through some of the old archived suggestions for raising credit scores at myfico.com and I found three that said it is better to pay off your balances IN FULL each month. Fair Issac does not appear to care about a zero balance or a 10% balance in the way it factors your score. Under 30% balance is good and 0-10% is optimal.

I think that keeping a running balance on a card and paying unnecessary interest is a waste of money.

[Suffering from a Tax Lien]

You do not want to pay interest, but do leave the balance on the card as non-zero, so that there will be something on the card when the CC company does its monthly report.

There are tons of posts showing that you want to have some non-zero credit utilization.