Rebuilding Credit With CC

[nioka]

I got my bk discharge in July.
I was approved and received a CapOne CC.
It was recommended that keeping the card balance below 10% and paying off monthly was the best way to build credit.
The issue here is that it is very easy to spend 10% without coming close to actual monthly expenses. I am strictly referring to normal budget items.
I have an online account with CapOne and I pay EFT. I could pay off by balance anytime it reached 10% rather than wait for the normal billing cycle to rotate. Would this method also build my credit rating or is it self-defeating?
(Please, I have no intention of running up this CC with crap I don't need. The sole purpose of the CC is to rebuild my credit. However, it does pay 1.5% cash back and using it for my normal monthly expenses is attractive).
Comment appreciated, thanks.

[LadyInTheRed]

My understanding is that as long as your utilization is below 10% on the statement date, that is the utilization the CC will report.

Read the fine print of your credit card agreement and make sure you will get the cash back even for charges you pay off within the same billing period.

Be really careful about using a credit card for all of your living expenses. You need to be very careful about sticking to your budget and keeping an eye on your credit card balance and your checking account balance to make sure you never charge more than you have cash to pay for. Regardless of your best intentions, it is far too easy to over-spend when you don't see your checking account balance decrease with every expenditure.

[nioka]

LadyInTheRed,

Thanks for the info.

I agree with you about how easy it is to overspend. However, I think paying off the 10% value as it occurs serves as a well served reminder.

[TXskyblue]

Yes it will still build your credit just fine. When my credit limit was still pretty low, I would make multiple payments a months to keep the utilization from getting high. I'm just barely under a year discharged and my highest credit limit is now 15K.

[nioka]

TXskyblue,

Thanks for the post.

LadyInTheRed,

CC pays bonus on amount of purchases and making multiple payments within one month will not effect that amount.

[ksgirl38]

I've actually heard that keeping the balance under 30% has better results for increasing your credit score. As long as you are paying it off immediately without any fees it shouldn't matter.

[TXskyblue]

I've actually heard that keeping the balance under 30% has better results for increasing your credit score. As long as you are paying it off immediately without any fees it shouldn't matter.

There are two separate issues at play here.

1. Utilization as reported on your credit report being used to determine your credit score. 30% of your FICO score is your utilization. For optimum FICO scores, your utilization should be 1-9%. On a $500 card, that would mean having your credit card statement read a balance of $5 to $45, no more and no less. You can (and should) still pay off the balance so you don't pay any interest, but that amount is what is reported on your credit report and that is what is used by FICO to calculate your utilization.
2. Usage of card as seen by the credit card company. If you only charge $5 a month and then pay in full, the credit card isn't as amenable to a credit line increase as it would be if you used the dickens out of it.

As you can see, the two issues can lead to contrary actions. There is a solution. Multiple payments a month. Charge $450 (which is 90% utilization which is WAY too high and will drop your FICO if reported). Pay off $425 before the statement cuts. That way, only $25 is reported. Your utilization is 5% which is ideal and your credit card company sees a lot of activity which is good.

Is it worth it to 'game' your credit like this? To some it might be. It depends on your goals and how much time you have to dedicate to them. One good thing about utilization is that even if it's high one month, if you bring it back down the next then there is no lasting harm to your FICO score. Therefore, if you're not going to be applying for anything that month, why does it really matter what your utilization reports as?

[iswmle]

There are two separate issues at play here.

1. Utilization as reported on your credit report being used to determine your credit score. 30% of your FICO score is your utilization. For optimum FICO scores, your utilization should be 1-9%. On a $500 card, that would mean having your credit card statement read a balance of $5 to $45, no more and no less. You can (and should) still pay off the balance so you don't pay any interest, but that amount is what is reported on your credit report and that is what is used by FICO to calculate your utilization.
2. Usage of card as seen by the credit card company. If you only charge $5 a month and then pay in full, the credit card isn't as amenable to a credit line increase as it would be if you used the dickens out of it.

As you can see, the two issues can lead to contrary actions. There is a solution. Multiple payments a month. Charge $450 (which is 90% utilization which is WAY too high and will drop your FICO if reported). Pay off $425 before the statement cuts. That way, only $25 is reported. Your utilization is 5% which is ideal and your credit card company sees a lot of activity which is good.

Is it worth it to 'game' your credit like this? To some it might be. It depends on your goals and how much time you have to dedicate to them. One good thing about utilization is that even if it's high one month, if you bring it back down the next then there is no lasting harm to your FICO score. Therefore, if you're not going to be applying for anything that month, why does it really matter what your utilization reports as?

I have read about other people doing this, and that being the optimal way to maximize your FICO score. Too much work for me. When I started rebuilding I just charged and PIF every month, and still do it to this day. My score increased... maybe not as fast as a rate as it could have, but it increased nonetheless. Pay your card, keep your utilization low, and don't be late then your score has nowhere to go but up.

[sniper6590]

I would suggest capital one for anyone that just got out of bankruptcy. I just got discharged from a chapter 7 last week and capital one approved me for there platinum card with a $500 limit and the quick silver with $300 limit. I applied for the platinum first and got approved on friday and the quick silver got approved today. I know my tu score was a 574 on credit karma app.

[iswmle]

Capital One would not touch me with a ten foot pole when I was fresh out of BK. I could not understand why. I had not burned them at all in my bankruptcy. I ended up having to go the Credit One, Orchard route, then Barclays and finally Capital One.

[sniper6590]

I am wondering if it is because capital one bought orchard bank

[iswmle]

I dunno, but I still do have a cap 1 card, not being used with a 3k limit. I feel pretty strong that if I apply for another card of theirs I would be aapproved... But I am credit card out.