Credit don'ts?

I have a couple questions for anybody that knows more than me about credit......and that can't be hard! I have listened to my friends for years, and just never really, paid that much attention. I pretty much pay my car and credit cards on time, and i don't have anything in collections. My credit seems to be ok, anything i have applied for i have gotten, interest rate my have been a little high but i got it. I plan on buying a house someday, so i figured why not post my questions here!

1. When is the right time to cancel a credit card if you are not using it? I heard if you cancel it will hurt you!

2. Whats the best way to pay a card? For example, if i buy gas with my visa card and i spend 30$, when the bill comes should i pay it all off, or just half, or what?

3. I really just use cards for emergencies now. how many cards should one really have?

4. Is there anyway to build credit without using credit cards, or will you always need to use them?

5. Any other tips?

Thanks in advance guys! :gj:


Tyree

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Originally Posted by reediculous

1. When is the right time to cancel a credit card if you are not using it? I heard if you cancel it will hurt you!

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Your credit score is based on many things. The Fed changed the way banks and lenders look at your debit to income ratio. They no longer look at the amount of money you owe but rather the amount of revolving debit you have access to. So if you have 5 credit cards with 3000.00 limits each, lenders will see that as you having 15000.00 in revolving debit. They then take that and figure you score on a 10-15% basis so even if all 5 cards have no balance they will still figure you owe between 2250.00 and 5000.00

If your not using it close it

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2. Whats the best way to pay a card? For example, if i buy gas with my visa card and i spend 30$, when the bill comes should i pay it all off, or just half, or what?

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If your trying to build credit or rebuild your credit pay off the owed balance every billing cycle. The credit reporting agencies like Equefax look at your use of the credit as much as the misuse. Responsible use of credit is as helpfull and misuse is hurtful

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3. I really just use cards for emergencies now. how many cards should one really have?

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Idealy 0. In a perfect world you should have a cash emergency fund. But not everyone can swing that so I'd say one card that if maxed out could be paid off in 3-6 months would work just fine

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4. Is there anyway to build credit without using credit cards, or will you always need to use them?

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Yes despite what the people that call during dinner will tell you, you can build credit with out a credit card that you pay an ass load of interest on! Cell phones, car loans, small personal loans with a cosigner, apartments, utility's all these can build credit. Credit can build quickly and crash just as quickly

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5. Any other tips?
Thanks in advance guys! :gj:
Tyree

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Before you go down the credit road know the difference between a need and a want.

I am still young so I am no expert, but Ill share a few things I have learned.

Paying everything on time is a must. Always have manageable debt. What I mean is don't spend what you don't have(obviously if its an emergency you can)

On canceling cards. If you have a lot of open credit it will become hard for you to get a bank loan. If you can borrow $200,000 in open credit a bank is going to be hesitant to give you a $200,000 dollar loan, since you can already get one without asking the bank. I wouldn't think canceling is bad. I could be wrong, but this is what a professor has told me.

It is always good to be consistently building credit. So always having debt is ok.

I'm not sure about building credit any other way.

Also when paying cards I heard that you never pay the minimum.

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Originally Posted by reediculous

1. When is the right time to cancel a credit card if you are not using it? I heard if you cancel it will hurt you!

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I don't know if it hurts you directly, but I do know that the total amount of available, unutilized credit can affect your ability to get additional lines of credit. Freakie Ed explained it better above.

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Originally Posted by reediculous

2. Whats the best way to pay a card? For example, if i buy gas with my visa card and i spend 30$, when the bill comes should i pay it all off, or just half, or what?

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In full, every month. Paying interest on a credit card is literally flushing money down the toilet.

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Originally Posted by reediculous

3. I really just use cards for emergencies now. how many cards should one really have?

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Your credit score takes a small hit every time you apply for new credit. Having multiple cards is probably not the best idea for most people...choose one or two...I have one with a low limit/low interest rate for everyday type stuff and another with rewards/cash back set up for bigger purchases.

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Originally Posted by reediculous

4. Is there anyway to build credit without using credit cards, or will you always need to use them?

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Auto loans, students loans, etc, are all things that will build your credit if you pay consistantly and on-time. Credit cards help too but aren't necessary. I still think its a good idea to use them if you can manage it - getting a card that pays cash back for things you would have bought anyway is free money.

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Originally Posted by reediculous

5. Any other tips?

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Don't charge anything that you eat, drink, or burn. Things like groceries, restaurant meals, alcohol, cigarettes, gas....nothing sucks more than having a huge bill for a bunch of stuff that you have nothing to show for.

Brad did bring up one good point that I didn't mention. Every time you apply for credit (card regardless of type ie GAP or plain ole visa, Bank loan, apartment, cell phone ect) it reports on your credit even if you don't get the card or loan, and stays for 6-12 months depending on what type of credit you are applying for. To many of these "false positives" and your score will take a nose dive.

Also not every reporting company( anyone that reports to a federal credit group) updates their credit reports like they should so if you do have a credit problem and get it worked out and the company doesn't update their Equefax reports like they should, that issue could follow you for months or even years. You can get a free copy of your credit score and any thing one it from your bank.

I recommend reading "The young, fabulous and broke." By Suze Orman. It's geared towards college kids and up, but it lays everything out so damn well. She really knows what she's talking about, and she gives easy to understand lowdowns on the whole credit card scene, buying a car, buying the first house. Just oodles of information that I would have never known. I highly recommend it, its such an easy read, and again, very informative and just a wealth of knowledge.

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Originally Posted by Freakie_frog

Your credit score is based on many things. The Fed changed the way banks and lenders look at your debit to income ratio. They no longer look at the amount of money you owe but rather the amount of revolving debit you have access to. So if you have 5 credit cards with 3000.00 limits each, lenders will see that as you having 15000.00 in revolving debit. They then take that and figure you score on a 10-15% basis so even if all 5 cards have no balance they will still figure you owe between 2250.00 and 5000.00

If your not using it close it



If your trying to build credit or rebuild your credit pay off the owed balance every billing cycle. The credit reporting agencies like Equefax look at your use of the credit as much as the misuse. Responsible use of credit is as helpfull and misuse is hurtful



Idealy 0. In a perfect world you should have a cash emergency fund. But not everyone can swing that so I'd say one card that if maxed out could be paid off in 3-6 months would work just fine


Yes despite what the people that call during dinner will tell you, you can build credit with out a credit card that you pay an ass load of interest on! Cell phones, car loans, small personal loans with a cosigner, apartments, utility's all these can build credit. Credit can build quickly and crash just as quickly



Before you go down the credit road know the difference between a need and a want.

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Thanks man for this break down! the last part is crucial! know the difference between a need and want! boy is that true!

Thanks again man!

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Originally Posted by littleindiangirl

I recommend reading "The young, fabulous and broke." By Suze Orman. It's geared towards college kids and up, but it lays everything out so damn well. She really knows what she's talking about, and she gives easy to understand lowdowns on the whole credit card scene, buying a car, buying the first house. Just oodles of information that I would have never known. I highly recommend it, its such an easy read, and again, very informative and just a wealth of knowledge.

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I'll check that out! thank you

Thanks Brad!

I love listening to advice from Suze Orman..she freakin rocks!

And, sorry Ed, she totally contradicts you...

She says that you do not close credit cards, even if you don't use them because of your credit to debt ratio.

It's a good thing to have a LOT of credit, but very low debt. So, if you have 5 credit cards open, then you have more credit...if you have a zero balance on all of them, then you have a big credit to debt ratio, which is a good thing.

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Originally Posted by nathanledet

I've love listening to advice from Suze Orman..she freakin rocks!

And, sorry Ed, she totally contradicts you...

She says that you do not close credit cards, even if you don't use them because of your credit to debt ratio.

It's a good thing to have a LOT of credit, but very low debt. So, if you have 5 credit cards open, then you have more credit...if you have a zero balance on all of them, then you have a big credit to debt ratio, which is a good thing.

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I was going to say this too, Nate. I talk to my financial advisor at my bank on occasion and I asked him once if I should close all the CC that I am not using (and honestly I have quite a few). And he told me that it is better to leave them open so that your debt to available credit ratio is much better.

I think the two biggest things about increasing your credit score is this, pay your bills on time (whether or not your pay off balances... at least pay it on time) and don't apply for too much stuff (loans, CCs, etc) all at the same time. Anything that you apply for that needs a credit check can put a mark on your credit. Definitely plan ahead, and know what is on your Credit Report!!:)

I think that the distinction between the points being discussed here is that while it is OK for you to leave existing accounts open to maintain your credit ratio, it wouldn't be a good thing to go apply for 10 credit cards over the span of few months in order to improve that ratio.

An investment tip my professor also said was, when you get a new offer for a CC and they give you 6 months or some period without interest. What he does since he has good credit, he can get big credit lines. He will max his credit on the card and buy a CD with it. At the end of the interest period he cashes his CD and pays the card and closes the account. He makes a few hundred here and there.

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Originally Posted by Brimstone111888

An investment tip my professor also said was, when you get a new offer for a CC and they give you 6 months or some period without interest. What he does since he has good credit, he can get big credit lines. He will max his credit on the card and buy a CD with it. At the end of the interest period he cashes his CD and pays the card and closes the account. He makes a few hundred here and there.

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Hmmm. interesting!

Renting an apartment will not build your credit score. Not paying will screw you royaly but paying your rent does nothing to improve your credit.

writing bad checks to pay rent doesnt help either. lol

Writing bad checks to pay anything is just plain bad.

Time is also an important thing in credit. Creditors like to see at least 18 months of positive credit history before they consider the info useful. If you are looking for a car or a house don't have your credit run until you are actually ready to make the purchase. Everytime they run a credit check it lowers your score.

When I was younger someone told me to get a personal loan from a bank, even if I don't need the $, then pay it back after 18 months and this will improve your score. In my case first I started with a secured credit card with my bank(that means I gave them $500 and they gave me $500 credit, then after a year they gave me back my deposit, then they offered me a personal loan($1,800) which I took and paid in full by 18-20 months two years after that I had good enough credit to buy a house. Since then I have purchased 5 apartment buildings and ALWAYS pay on time. Now my credit is rocking.

I work in collections. All I can say is, if something goes into default, pay it off as soon as you can, by any means necessary. Interest and other fees are a killer, and it will only snowball. Even if you have to pay off a delinquent debt with a credit card that is in good standing, it is better than having the bad debt sitting in collections!
And anytime you sign up for new credit, please read and understand the fine print in your promissory note! Ignorance is no excuse later and griping about fees and interest is not fair when it was disclosed to you by the guarantor in the very beginning. Think before taking out credit: is it really something I need or am I just trying to keep up with the Joneses?

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Originally Posted by Entropy

Writing bad checks to pay anything is just plain bad.

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i call those NBA checks!

"cause they bounce"! yep corny! :rolleyes:

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Originally Posted by reediculous

4. Is there anyway to build credit without using credit cards, or will you always need to use them?

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It's a myth, perpetuated by the credit industry, that credit is even necessary.

I have no credit cards, and have nearly paid off all my other debt. Once finished, that will be it for me. The only "livable" credit for me, is a mortgage, and in reality, having a great credit history for a mortgage loan is less important than most think. Length of time at a job, current income etc, outweigh a good credit score any day of the week.

As for using credit cards for an emergency, that's a dangerous situation. Ideally, you should save 3-6 months of income and THAT is your emergency fund.

There have been a serious of interviews with the millionaires across the country, and the overwhelming majority say the primary reason they have remained millionaires is by staying out of debt.

Im gonna hit this from a different angle... Ive had CC's since I was 18(5yrs) and have pretty much had CC debt since. I've never been late and never missed a payment... thats a #1 with CC... the second you miss a payment or dont pay the min. balance your screwed... Always pay your balance in full if you can... Thats not always possible so try to get a card with a low apr in case you cant make the payment... my lowest is 8% and on like 1000$ its like 10$ or something small so its not that big of a deal... My father pays everything with his CC and leaves his money in the bank... once a month he makes a payment from his bank to his CC paying it off in full... This way your $$ is in the bank gaining interest and the less transactions you have with your bank the better... Try to only have a card or two and carry a 0$ balance... Also if your looking into getting a new card look for one with 0% interest... I just bought a clown with a CC that has 0% for 1 yr... gives me a yr to pay this off without having to worry bout getting interest up the arse as long as you pay atleast the min. every month on time... You miss a payment or are late... buh-bye 0% interest and hello default 24%... I went to buy a car a yr ago and had no problems getting a good interest rate bc i had good credit from having cards and paying them every month. In the end theres always a way around interest... when 0% is up... you can close the account... balance transfer to another card that has 0% for another yr... youll get hit with a transfer fee but its nothing more than 75$ usually... I just closed like 6 CC's i had open but never used... stupid ones like best buy, kay jewlers... other small credit cards... Everytime I apply for a card I get accepted on the spot usually with a base credit limit of 5k... Credit cards are good as long as you know what your doing and use them wisely.