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worried about carrying balancesworried about carrying balances
dontbesojumpy said: "sorry if this has been addressed but i m a young person developing credit and i am worried about some things.
i am close to 25, in college, and have (or had) great credit. last i talk to a creditor, which was about a car loan, was about 2 years ago. i was applying for a car loan in my name. i was denied the loan because of my debt to income ratio. as a college student and waiter, i just cant prove my income on paper. however i was told that my credit score was as good as possible for my age. she assured me waiters and home-business owners are hard to approve for loans.
fast forward to now. i have had NO late bills past a month and no bills go to collection. i have paid no credit card payments past a day late (a few online payments were submitted past midnight of the due date...never later than this.) NO MONTH LATE PAYMENTS.
basically i keep all my min payments paid on time, sometimes i pay more, but i always pay on time. the only thing i am doing that i worry about is carrying this balance. i lost my job in feburary, which ironically was about the same time i started a business endevour. i had to move in the middle of all this, so...long story short a few thousand bucks in totally unforseen expenses came up. now i have a balance on two cards that i have to carry for a while because i simply cannot pay them in full.
this scares me because i read that carrying a balance is bad news. but i also find sites that say carrying a balance and paying the bills on time is OK...as long as you keep everything current. whats the truth?
the fundamental PURPOSE of credit is so you can spend money that you need to pay back in increments (think morgages and car payments.) carrying a balance not only makes the credit card companies MORE money, it also means you are USING your credit. it seems like it shouldnt hurt, but i dont know. hopefully you do. am i wrecking my good credit because i carry a balance but still pay my bills on time?"
anchorbob said: "The biggest problem with carrying balances is how large of a percentage they end up being. If you use 95% or so of your credit balances, it will look like you are "maxed out" and are a potentially poor credit candidate."
TampaDude said: "Ditto that...I heard that you should keep your balances below about 30% of your credit limit for better FICO scores."
dontbesojumpy said: "so let me get this straight--your FICO score will actually go DOWN if you use your credit card?
where did you get this info? i know online all the sites you find will say it's BETTER to have lower balances or no balances, but that's just like saying it's better to have world peace and harmony. sure, it's BETTER. it's not always possible.
at what point do they ding your credit?
i mean, i understand that having high balances can affect loan approval, but that would be based on income-to-debt ratios. however, if you are constantly keeping up payments, at what point would a credit company take away FICO points? do they subtract points every month? how many points do you lose per % point?
and how often?
that just doesnt make sense that they would lower your score."
anchorbob said: "I actually got it from one of the CRAs online credit calculators. I'm not sure which one.
But basically, if the balance goes up to like 80% of the outstanding credit line, your score plummets!"
randyd said: "[QUOTE=dontbesojumpy]so let me get this straight--your FICO score will actually go DOWN if you use your credit card?
where did you get this info? i know online all the sites you find will say it's BETTER to have lower balances or no balances, but that's just like saying it's better to have world peace and harmony. sure, it's BETTER. it's not always possible.
at what point do they ding your credit?
i mean, i understand that having high balances can affect loan approval, but that would be based on income-to-debt ratios. however, if you are constantly keeping up payments, at what point would a credit company take away FICO points? do they subtract points every month? how many points do you lose per % point?
and how often?
that just doesnt make sense that they would lower your score.[/QUOTE]
Payment history is a big part of your Credit Score, so as long as you are making payments on time, every month you are doing fine.
Another important part of your score is the Percentage of outstanding debt (not debt to Income, debt to income is looked at when you apply for a loan, but Income does not play a part in your credit score). If you have $10,000 in total credit offered to you and your balance is $9900 then you are seen as a higher risk for future loans, with the posibility of over extending yourself on credit.
It goes along with the number of Recent inquiries, if a creditor sees that you have applied for more credit it may be a sign that you are looking for more credit because you are over extended.
all three of the major credit reporting companies calculate and weigh these factors differently. so there is no exact percentage of credit to debt ratio to recommend. however a a safe bet would be around 35% keep it under that and it should not effect your score too much.
one thing to remember is that your credit score does not matter at all UNTIL you try to get a loan and it is pulled. So if you need to carry a balance now, i wouldn't worry to much, 30 days after you pay down that balance your score will be back up to the level it was previously."
anchorbob said: "Reality dictates that you if you have to use credit, your have to use it. But if you can manage your credit lines, it can be a big help to you."
dontbesojumpy said: "[QUOTE=randyd]Payment history is a big part of your Credit Score, so as long as you are making payments on time, every month you are doing fine.
Another important part of your score is the Percentage of outstanding debt (not debt to Income, debt to income is looked at when you apply for a loan, but Income does not play a part in your credit score). If you have $10,000 in total credit offered to you and your balance is $9900 then you are seen as a higher risk for future loans, with the posibility of over extending yourself on credit.
It goes along with the number of Recent inquiries, if a creditor sees that you have applied for more credit it may be a sign that you are looking for more credit because you are over extended.
all three of the major credit reporting companies calculate and weigh these factors differently. so there is no exact percentage of credit to debt ratio to recommend. however a a safe bet would be around 35% keep it under that and it should not effect your score too much.
one thing to remember is that your credit score does not matter at all UNTIL you try to get a loan and it is pulled. So if you need to carry a balance now, i wouldn't worry to much, 30 days after you pay down that balance your score will be back up to the level it was previously.[/QUOTE]
this makes a lot of sense. this is also very helpful info. thanks a whole lot.
the only near furture loan i might take out is a new home loan, but i will have to have a cosigner because my income is based on private art jobs and whatnot so i dont have enough provable tax income to get a loan on my own. does my credit score matter (it's high, i m doing ok, and i just checked my report and there are no negative factors to affect me)?"