Question about Credit Cards and Debt Ratio

[sdcrym]

I have one credit card. I use it to pay for everything except for a few bills and other places that don't take credit cards. I pay off the entire balance every month. I thought I was doing everything I should be doing to use a credit card responsibly.

Recently, however, I've read a couple articles that mention debt ratio, meaning the balance on the card compared to the limit. They mention that the ratio should be under 50%. Most of the time I'm able to stay below this level, but around this time of year I have to pay for school fees etc., and I get close to maxing out my limit. I always have the money to pay the bill, but I prefer to pay with with the credit card because I get quite a bit of rewards points. After reading the articles, however, I don't want to jeopardize my credit for $10 in gift certificates.

Am I hurting myself by having my card maxed out for a month or two every year, or are the articles referring more to carrying balances with a high debt ratio long term?

[kvrdave]

No, but if you have had it awhile, and pay it off every month, ask for an increase in your limit. Should be easy enough.

[DodgingCars]

This shouldn't be a concern unless you are planning to make a big purchase (car, house) using credit soon. Otherwise, I wouldn't worry about it, because most of the time you are carrying a $0.00 balance.

However, if you want to know what your FICO score is (it's worth checking out), I believe Experian only charges $5 to check it.

[sdcrym]

Actually, I forgot to mention I am making car payments, so that helps out with my credit. My dad cosigned on it back in 2001 so I was able to get 0% financing. I'll have it paid off this December.

About the limit increase, I requested one about a year ago, but did not get it. My reported income is not very large even though my expenses are very low. To them it probably looks like I have less money to spend than I do.

[kvrdave]

well, if you don't have much income, and don't need the increase, I wouldn't worry about it. It will be good when you want to buy a house, but you are probably a ways off of that. So long as you aren't screwing up your credit, I wouldn't worry about it.

[pyro383]

you can open up another account and split your bill paying with them. You still carry the same debt load however increasing you available credit.

[dtcarson]

I would think with your pattern [small usage, pay off, then at school, large usage, then pay off] that's a good sign, showing money management, etc. I might ask for a limit increase just so you don't 'almost max out' the card, but otherwise, it sounds good and reasonable.

[The Bus]

The problem here is not you "maxing out" the card, the problem is a low limit. Increase the limit and if you keep your spending the same you'll be fine.

Higher limits on cards (to a certain degree) will help your credit. You don't need to have $50,000 available, but having $5,000 to $10,000 available will not hurt your credit.

Also, be careful when using the term "debt ratio" --- there's a debt usability ratio (balance vs. limit) and a debt-to-income ratio (which is the more common use of the term).

[Sloth911]

Originally Posted by kvrdave

No, but if you have had it awhile, and pay it off every month, ask for an increase in your limit. Should be easy enough.

Unfortunately, the answer to questions is a resounding Yes.

But, in your situation, everything should be fine.

========

You have a asked a question about your credit report/score and there is TONS of misinformation and myths (i see 2 here) as evidenced by the first few replies. I would highly suggest going to www.fatwallet.com and reading some of their FAQ's in the Finance forum.

It is BEST to have the Percent Utilization for your credit cards as LOW as possible. Anything over 50% utilization is considered "high". Credit Reporting Agencies (fico, transunion) will LOWER your credit score if you have a utilization over 50% and it is possible (if you have multiple accounts) that future creditors may not issue you a new line of credit. I read an article yesterday that said keeping under 30% was even better for your score.

Do you need to be concerend with your score? No, not really unless you are applying for a mortage/car loan and want to get the top tier rates.

I would think with your pattern [small usage, pay off, then at school, large usage, then pay off] that's a good sign, showing money management, etc.

Merely HAVING a card ( i have 20+) is good enough for your credit history. Showing a "pattern" is not necessary and undetectible in your credit report. Credit cards merely report a $ balance monthly to credit reporting agencies (not necessary your statement balance) and whether your payments were on time or late.

The BEST thing you can do is NOT make late payments.

One "strategy" to getting a higher limit is ALMOST maxing out your card (say 80-90%) and calling in and asking for increased credit limit to make a big purchase. They might give it to you!

Have a car loan is also good for your credit report as well, as long as you make on time payments.

[sdcrym]

Wow, I got some information overload looking at all fatwallet. Thanks for the advice, everyone. I'm definitely going to take some steps to reduce my percent utilization. Tomorrow I'll try for a rate increase with my current card using the "about to pay my fees" line.

Aside from the car loan and the current credit card, there are two closed credit cards (last I checked) on my credit report. The first was a credit card cosigned by my dad with a local bank in 2000. I let this account go dormant when I signed up for the Nextcard Amazon.com Visa a year or so later. After Nextcard went under, I signed up for the Bankone Amazon.com card (my current card). I'd like to reactivate my first credit card, if possible, in order to increase my credit age by a couple years. Tomorrow I plan to check my credit report to see if that account was actually closed or if it's just shown as inactive. If I can't reactivate that account, I'll probably just sign up for another card from the same bank to decrease my overall percent utilization. One reason I'm hesitant to get another card is the sheer number available. The prospect of trying to find the "best" card is a little intimidating.

[Sloth911]

Originally Posted by sdcrym

One reason I'm hesitant to get another card is the sheer number available. The prospect of trying to find the "best" card is a little intimidating.

There are indeed a bunch of rewards cards available. These cards are usually the hardest "regular" cards to get. Almost EVERY rewards card will give you 1% cash back in either cash or points. IMO it is best to get a card that gives you straight cash back (or redeemable cash). Other rewards cards allows you to accumulate points (amazon card, sony card, ebay card, etc).

Good Cards IMO:
1. Chase Perfect Card: 3% on gas 1% on everything else (credit to next statement)
2. PenFed CashBack Card 1.25% on everything (credited to next statement)
3. Citi Dividend Card 5% on Gas, 5% on Grocery, 5% Pharmacy, 1% everything (redeemed in at least $50 increments, $300 yearly)

#3 give the most back - but you can only redeem the money after you hit $50 first.
#1 is the "easiest" with a credit every month. They also over a 90 day promo of 6% ( i think ) on gas

There are TONS more cards - but those, IMO, are some of the best to have.

Depending on your income, Citi has a good variety of College Student cards that you should be able to quailify for.

There is nothing wrong with accumulating rewards points on amazon/sony/etc branded cards - but you are limited to where/when/what you can redeem them for.

[sdcrym]

Well, the past few days have been fairly productive and enlightening (credit-wise).

On Wednesday I checked out my credit reports via annualcreditreport.com (free because of the FACT act) and I opted to see my FICO score from my Equifax report for $7. I was pleasantly surprised by my score of 734, and the reasons they listed for affecting my score were what I expected (except for the credit inquiries, since there was only one).

-The proportion of balances to credit limits (high credit) on your revolving/charge accounts is too high
-The length of time your accounts have been established is relatively short
-You have recently been seeking credit or other services, as reflected by the number of inquiries posted on your credit file in the last 12 months
-The amount owed on your revolving/charge accounts is too high

Armed with this information, I tried to reactivate my local bank issued credit card I mentioned previously, since my credit report listed the account as open. Unfortunately they had no current records of the account, so it seems the info on the credit reports is not accurate. I was a little disappointed because it would've been my oldest open credit card account by a couple years, but I don't think it'll matter too much in the long run.

Next I tried to remedy the high percent utilization of my $2300 credit line, the reason for my starting this thread. Yesterday I called to request an increase, meekly asking for a bump to $3000, and they turned around and gave me $4800. I was a little surprised since just last March they would only give me a $300 increase. My only hypothesis is that Chase must have a more generous policy than Bankone.

Bursting with confidence, I applied online for the #3 card jasonr114 mentioned, the Citi Dividend Card, and was approved with a credit line of $2300. Now I wonder what would've happened if I had waited a little bit to apply. The $2300 number looks pretty suspicious, so obviously they just matched the limit of the only other open card listed in my credit report. I'm curious if they saw the updated number of $4800 if they would've matched that as well, or if they would have been less likely to offer me credit because I had just made another hard inquiry for the line increase.

Nevertheless, I'm quite satisfied with the way everything turned out. With these two cards I shouldn't have any trouble keeping my percent utilization well under 50% for the forseeable future, which is all I wanted. Thanks again for the advice on the matter

[Sloth911]

Congrats - FYI Citi usually does not increase your credit limit within the first 6 months of opening an account.

[The Bus]

Originally Posted by sdcrym

I was pleasantly surprised by my score of 734, and the reasons they listed for affecting my score were what I expected (except for the credit inquiries, since there was only one).

-The proportion of balances to credit limits (high credit) on your revolving/charge accounts is too high
-The length of time your accounts have been established is relatively short
-You have recently been seeking credit or other services, as reflected by the number of inquiries posted on your credit file in the last 12 months
-The amount owed on your revolving/charge accounts is too high

734 is excellent!

Just so you know, even with people that have an 820 score, they still give "bad reasons" as to why the score is where it is. Don't pay attention to the reasons, they're boilerplate.

Congrats and keep it up!

[sdcrym]

Originally Posted by The Bus

734 is excellent!

Just so you know, even with people that have an 820 score, they still give "bad reasons" as to why the score is where it is. Don't pay attention to the reasons, they're boilerplate.

Congrats and keep it up!

Thanks.

Yeah, the report mentioned that above the bullets, but I didn't bother including it because I figured the post was long enough already. Although those bullets are what I need to address first if I want my score to be an 820.