To Charge or Not to Charge, to Build Credit?

[mrgonzo]

I am building my credit back up right now and have several new credit cards. Will using the cards build my credit? Or will just holding them and not using them be the same?

 

[TinkerBelleLuvr]

IMO, if you make a small charge AND pay it off, it goes to showing that you can be responsible.

 

[boswd]

Yeah just use them once a month to buy something you would normally buy, gas, groceries etc. give it a couple of days to post to your account and then pay it off in full.

 

[mrgonzo]

So there is no benefit to charging lets say half of your cards limit each month? A small fraction of the limit charge like fuel would build the same amount of credit?

 

[Debt Guy]

Your goal is to build a history of responsible use of and repayment of your credit cards.

In my analysis, the sweet spot for the FICO score machine is 20% of the available credit line.

Obviously, the algorithm places high value on prompt consistent payments.

Other key factors are the age of the credit line and the type of credit used.

In my opinion, it would be unwise to run the balances up to 50% if you are tying to build your score.

To learn more about scores and the components, go to www.fico.com. As I recall, there is a score simulator at www.bankrate.com where you can play with components and see what effect they have.

 

[boswd]

So there is no benefit to charging lets say half of your cards limit each month? A small fraction of the limit charge like fuel would build the same amount of credit?

Your utiliztion counts alot for your credit rating/score. Utilzation is the percentage of your balance due to your credit limit..

For example you have a $1,000 credit limit and you owe $100 on your card, you have 10% utilization. As Debt Guy pointed out 20% seems to be the magic number as the cut off as to where you utilization will begin to hurt you.

By using your card once a month on something you would normally buy, such as gas and groceries etc. you can keep your utlization down. The FICO scoring methods doesn't look at how much you charged up as a way of socing points, but how much of a balance you are carrying over into the next billing cycle and that balance's ratio to your credit limit.

To maximize the total of postive points you should carry a small balance over to the next billing cycle. This shows activity. But keep these balances under 10% of your credit limit and let it be a balance you can afford to pay off in full in case something comes up. But paying it off in full each month is a nice route too, you just won't benefit AS much as carrying over a very small balance.

Oh and of course ALWAYS pay on time : )