Pay off each month, or carry a balance? Please help decide "heated discussion"

[Runnin on empty]

Okay, first and foremost, I want it to be known that I never want to carry another interest bearing CC balance again. That being said, I do understand that there may be some advantages to carrying a balance over with regards to helping us rebuild our credit scores to the high 700s where they were pre-filing.

We have been (since discharge) using our current CCs (WAMU and Cap One) each month for things like gas, groceries, etcetera, and paying them in full once the bill comes in. My wife and I were talking yesterday, and I thought that it might be a good idea to get something on our credit with a little more weight to it, as in carrying a balance, making the payments every month, and paying it off as agreed.

I really don't want to pay someone else to borrow their money at this point, but I did happen to notice that both Best Buy and Circuit City are running a 0% interest for 36 months on all TVs $999 and up. We have the cash right now in our savings to purchase a TV no problem, but I'd really like to see us put credit to good use, rather than just let it stagnate.

Anyway, my wife believes that if we just keep using it in small increments and paying it off each month at the end of the month, we'll be fine. I agree that it will help, but I believe we should also have something a little more long term. Say, (for mathematical argument sake) a $2K TV bought on 0% APR for 36 months, pay it off it 20-24 months, the payment would be right around $100 a month.

Who is right? Are we both right? Any thoughts, criticisms, advice, predictions for the weather?

Thanks. This place has been great as always.

[Mi Bankruptcy]

Great question. I am sure it would work both ways. However, we have to make sure we don't max the card out or have it near maxed out. ie. 1000.00 credt line vs only 500.00 in charges or 1000.00 carrying a balance of 950.

[Runnin on empty]

Well, this of course all hinges on either Best Buy or Circuit City approving us for the CC and 0% interest. If that doesn't go through, it'd be a moot point. I'm more than willing to bring in, say $500, to pay the taxes and give us a little breathing room so to speak.

I figure it will be a situation where we either get approved for the card and 0% or we won't get approved (or approved at a $500 credit limit or something like that).

I guess only time will tell. We're still discussing it regardless, and we may not even come to an agreement over it, but I thought it would be a good question to ask, as I figured that many others have been in the same boat at one time or another.

[Cali]

Paying in full each month isn't a bad thing and it does help your score.

If it is 0% I would keep a balance but make sure to pay it off right before the 0% ends.

Do you have any installment loans?

[FloridaGuy]

I do recall a few threads here where it was mentioned NOT to pay off the balance each month, but to leave a small balance on the card. The reason being as it takes time for the cards to be reported to the credit agencies... shows responsible usage and payment. But if paying off every month would show a $0 balance even if you have used the card.

I would suspect if you were approved then took advantage of the new Best Buy cards, etc. it should help build credit as well.

[Cali]

I paid off each month up until 1.5 yrs ago and my scores were always high 700s.

I do recall a few threads here where it was mentioned NOT to pay off the balance each month, but to leave a small balance on the card. The reason being as it takes time for the cards to be reported to the credit agencies... shows responsible usage and payment. But if paying off every month would show a $0 balance even if you have used the card.

[Runnin on empty]

Paying in full each month isn't a bad thing and it does help your score.

If it is 0% I would keep a balance but make sure to pay it off right before the 0% ends.

Do you have any installment loans?

A few:

Mortgage
2nd Mortgage
Wife's lease (although I don't know if that would qualify as an installment loan)
My auto loan

All have always been up to date and paid monthly, if not early.

[Flamingo]

Here is what I have learned since our discharge, not only on here but from folks in the bank and lending areas which I am in contact with frequently due to my job. Do NOT be late with anything, that includes your utilities and any bill you owe on whatsoever. Carrying a small balance can help but do not go over 30% of the credit available in that account. So if you have a $1,000 limit, keep the balance at $333.33 or below. Pay off at amounts higher than the minimum payment. You can pay in full also andmost people do since they are usually freaked after filing and discharge and don't want any credit whatsoever. We keep our cards at zero balance except our Visa on which we carry a small balance but pay back in amounts way more than the limit each month. Our scores 2 years after Chapter 13 discharge are in the 790's. Our BK starts coming off our reports in April 2009.

Time is the only thing after discharge that can help improve credit - time along with no late or non-payments at any time.

[PoorGrammyinBK7]

We bought some living room furniture at Rooms to Go a few years ago on the no payments /no interest for 2 years deal and were able to save enough to pay it off when the time came. However, if we had missed that deadline, the interest would have been slammed back on at a very high rate. And I am sure they count on that, with a certain percentage of people forgetting it.

We also had a "0% for a year" card about a year ago, to which we transferred a large balance. We were VERY careful to make sure the minimum payment got there on time every month and after the year was up, we paid it off. So that worked out well for us. If you can be very diligent about it, it can work. But one late payment and the deal is off - the interest skyrockets!

In the future, we will try our best to pay off any credit cards we have every month or leave no more than a small balance and pay way more than minimum. I did hear of some cc companies lowering the availability of credit to people who always pay off every month - which made no sense to me - but I guess they don't make any money unless you are carrying a balance so they can charge you some interest.

[Runnin on empty]

Here is what I have learned since our discharge, not only on here but from folks in the bank and lending areas which I am in contact with frequently due to my job. Do NOT be late with anything, that includes your utilities and any bill you owe on whatsoever. Carrying a small balance can help but do not go over 30% of the credit available in that account. So if you have a $1,000 limit, keep the balance at $333.33 or below. Pay off at amounts higher than the minimum payment. You can pay in full also andmost people do since they are usually freaked after filing and discharge and don't want any credit whatsoever. We keep our cards at zero balance except our Visa on which we carry a small balance but pay back in amounts way more than the limit each month. Our scores 2 years after Chapter 13 discharge are in the 790's. Our BK starts coming off our reports in April 2009.

Time is the only thing after discharge that can help improve credit - time along with no late or non-payments at any time.

Thanks for the info. Yeah, we're never late with anything. As a matter of fact, last month we were over 2 months ahead on everything (they send out the next month's statement as soon as we make a payment). The only things we ever missed a payment on were the ones we IIB, and that was only at the advice of our attorney. Everything else has always been paid on time or early. Our two cards right now are currently at $0 balances, getting paid off each and every month, never incurring finance charges.

Well, we'll discuss it more. We really don't need the TV per se, and if purchasing it won't make that much of a difference, then maybe we should hold off or just budget for it and pay cash. We're not in any hurry for more credit, but we want to make sure we're in good shape 2-3 years from now when we move and go to purchase our second house after I finish graduate school.

[Runnin on empty]

We bought some living room furniture at Rooms to Go a few years ago on the no payments /no interest for 2 years deal and were able to save enough to pay it off when the time came. However, if we had missed that deadline, the interest would have been slammed back on at a very high rate. And I am sure they count on that, with a certain percentage of people forgetting it.

We also had a "0% for a year" card about a year ago, to which we transferred a large balance. We were VERY careful to make sure the minimum payment got there on time every month and after the year was up, we paid it off. So that worked out well for us. If you can be very diligent about it, it can work. But one late payment and the deal is off - the interest skyrockets!

In the future, we will try our best to pay off any credit cards we have every month or leave no more than a small balance and pay way more than minimum. I did hear of some cc companies lowering the availability of credit to people who always pay off every month - which made no sense to me - but I guess they don't make any money unless you are carrying a balance so they can charge you some interest.

We did the same thing with our furniture, purchased it at 0% for 36 months. Made the minimum for the first month and then did the math, realizing that if we did that, we wouldn't have it paid off in time (sneaky jerks). So we bumped up our payment, and will have it paid off quite a bit early come November.

Yeah, interesting how that works. You pay it off every month and they turn off the credit spigot. Get close to the limit and they just extend more.

[Stilltheone]

Here is what I have learned since our discharge, not only on here but from folks in the bank and lending areas which I am in contact with frequently due to my job. Do NOT be late with anything, that includes your utilities and any bill you owe on whatsoever. Carrying a small balance can help but do not go over 30% of the credit available in that account. So if you have a $1,000 limit, keep the balance at $333.33 or below. Pay off at amounts higher than the minimum payment. You can pay in full also andmost people do since they are usually freaked after filing and discharge and don't want any credit whatsoever. We keep our cards at zero balance except our Visa on which we carry a small balance but pay back in amounts way more than the limit each month. Our scores 2 years after Chapter 13 discharge are in the 790's. Our BK starts coming off our reports in April 2009.

Time is the only thing after discharge that can help improve credit - time along with no late or non-payments at any time.

I'm sorry to hijack, but am wondering....

What happens if you "max out" a credit card and then pay it off? We had an emergency and had to "max out" one of our new cards, but have it budgeted to pay off. Does this hurt? Or does it only hurt if we KEEP it maxed?

[Flamingo]

I'm sorry to hijack, but am wondering....

What happens if you "max out" a credit card and then pay it off? We had an emergency and had to "max out" one of our new cards, but have it budgeted to pay off. Does this hurt? Or does it only hurt if we KEEP it maxed?

What hurts is keeping your balance up to near your limit and keeping it there and not making any substantial moves to bring it down (i.e., just make minimum payments and keep charging now and then). A one time deal as you state should not make a difference but it will show that at one time your "high" limit (highest amount owed) was at or near the amount of the credit limit you have.

[justbroke]

The magic numbers for FICO reporting are around 40%, 50%, 75% and 90%. Anything over 90% of available credit hurts real bad... going over the credit limit hurts more. However, generally it's taken as the total balance versus available credit across all accounts.

It's best to keep your available credit line usage under 40%.

Paying your cards off in full monthly, is good credit too. American Express charge cards actually require that you do so (with some differences for "Sign and Travel"). Actually "Revolving" some debt is good for your credit score too, as it shows you can handle revolving credit.

The higher your credit limits, the higher your credit score. The more mix of the types of credit you have are good too. Having a home, charge and credit cards (revolving), and installment (cars) accounts are a very good mix. Throw in the some student loans... and you have shown you can exercise car in managing all types of credit.

On the downside, having more than 2 installment accounts (other than home loans) start to hurt your credit! Having 2 cars and 2 CitiFinancial loans, will lower your score!

[Cali]

I would keep it between 10-20%, I wouldn't go over that.

My scores were high because I had some very big credit limits, never missed a payment, paid in full 95% of the time, had long credit history, etc.