Zero2Cool
14 years ago
I recently purchased a 'new' car that I'll be paying for the next 4-5 years. I chose to do this in an effort to help my 570 credit score, and also to obtain a more reliable vehicle.

I was told to also get a credit card, several times over the years. I hate the things, but apparently it's one of the better ways of improving ones credit.

So, understanding I'm going to have a high APR, or whatever I started looking for cards.

My plan is to spend only 100-150 a month on the card and then replenish it at the due date. I figure the max I'll be approved for is 500.

My question is, how much is this going to cost me per month? Do I pay the 19.90 on the money I spent?

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Zero2Cool
14 years ago
Doing some research on this ... is this accurate?


So, during a 12 month period, if I spend $110 each month and pay it back on the monthly due date (assuming there is one) each month, at the end of this annual cycle I'll have "borrowed" $1,320. And with an APR of 19.90% that means I'll owe $262.68?

So by borrowing $1,320, I'm saying my thanks for allowing me to borrow said money by paying the $262.68, correct?




Also, does it make a difference for the positive impact on your credit score with borrowing more money? Meaning if I borrow $1,500 it'll raise my credit score 15 points, but if I only borrow $200 it'll only improve my credit score 2 points?

(I know it doesn't work like that, just asking if the more money I borrow, the more my credit score improves)
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Wade
  • Wade
  • Veteran Member
14 years ago
Kevin,

Paying 19% interest strikes me as a bad idea, period.

Using a credit card and keeping it current should improve your credit score, but running a balance at 19% -- any balance -- strikes me as counterproductive. Better to get the card and treat it like a utility bill, paying the balance in full at the end of each month.

As I understand it, the big effects credit cards can have on your credit score come from three things:
1. (the biggest positive or negative) how quick do you pay, do you miss payments? "Always pay on time" is good; miss payments/pay late is bad.
2. (next biggest negative) amount of balances being run, relative to your income level. Zero is best, bigger is worse.
3. Available credit line. Creditors see this as "how much can he borrow from people other than me." If the number is big, they have a bigger risk,
because there is a greater chance the borrower might overextend, borrowing from everyone and not being able to pay back.

Only the third factor is affected at all positively by running a balance on the credit card. (But #2, more important, is affected negatively.

Creditors will often suggest that you improve your credit by keeping a balance, but be wary. Remember they have a vested interest in keeping you on the hook. Credit card companies make their profits from the interest they receive. They set the rates high because they know lots of people will default and figure that if they get $X from 19% interest payments for just Y months before default, they profit.

Credit card companies aren't in it to improve your credit. They don't want you to repay the principal, ever. They're in it for your interest payments.

I've learned this the hard way. I have balances on my credit cards right now, unfortunately, because of earlier extravagances, balances big enough that I can't pay them all off at once. I keep them current, which keeps me from taking a big hit to my credit score. But I do take hits, both to the credit score, and to my ability to do other things, because my balance is bigger.

Paying 19 percent interest is NEVER a good idea. Pay on time, pay it all on time.

The only time I would advise running a balance is if you get one of those low rate (4 percent or less) "promotional" offers that runs for at least 15 months. And even those are almost never worth it, since the credit card companies have steadily increased the "transaction fees". The bigger the transaction fee, the longer the offer has to hold to be worthwhile to you. Because that transaction fee effectively means a very high "hidden" interest cost: anytime you have to pay a fee up front it gets added to the balance, you're giving up the ability to earn a return on the monies paid until you've paid the balance off.

There might be a small benefit from showing that you can keep a small balance current without it starting to creep up. But any returns on your credit score are going to rapidly diminish. That first few hundred might get you a small jump....but adding to it isn't going to do much if anything, and before long its going to start taking away from the credit score again.

But running any balance at 19 percent as a good idea? Only if you need the money for an operation and the only alternatives are 25%.
And do not be conformed to this world, but be transformed by the renewing of your mind, that you may prove what is that good and acceptable and perfect will of God.
Romans 12:2 (NKJV)
DakotaT
14 years ago
Never run a balance on a credit card. Crash your savings if need be. Most of the time, you'd be able find a card to roll a balance over too and then use their year promotion to pay it off.

Julie was lying to me about 18 months ago and carrying a balance of almost $5,000. I made her roll it to another card, gave her an ass chewing, gave her a time value of money lesson, and then paid her card off in a year's time.

Zero the best way to improve your credit is by making timely payments on a car, mortgage, school loans etc. And the quickest way to ruin your credit is to get into credit card hell. Its' really all about control like anything else in life. Know what your income versus buying power is. I always tell Julie when she wants to buy something is if she wants it or if she needs it, before even deciding if you can afford it.
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Zero2Cool
14 years ago
Thanks for the reply.

If I use the card with 19.90% APR and say I use it for gas ($50) once a month and pay it off that same month ... what extra am I paying?

I guess I don't know how the APR is applied. Is it applied to every purchase I make? The left over amount from what I borrowed that month? The total amount I put on the card for the year?

Month of April
I used the card for $50 of purchases.
I'm paying the card off on time ... do I pay $50 or $59.95 to zero out the bill?
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Zero2Cool
14 years ago

Never run a balance on a credit card. Crash your savings if need be. Most of the time, you'd be able find a card to roll a balance over too and then use their year promotion to pay it off.

Julie was lying to me about 18 months ago and carrying a balance of almost $5,000. I made her roll it to another card, gave her an ass chewing, gave her a time value of money lesson, and then paid her card off in a year's time.

Zero the best way to improve your credit is by making timely payments on a car, mortgage, school loans etc. And the quickest way to ruin your credit is to get into credit card hell. Its' really all about control like anything else in life. Know what your income versus buying power is. I always tell Julie when she wants to buy something is if she wants it or if she needs it, before even deciding if you can afford it.

"DakotaT" wrote:



I'd only use the card for gas once or twice a month. Just to have something around $50 to pay off every month and I need gas either way.

I'm paying school loans and soon a car payment.

My thing is, if I can spend $50 on the card, pay it off at the end of the month and only be paying the yearly $25 to have the card, I'm fine with that.

I'm also fine with paying 19.90% at the end of the month for whatever the balance is ... because it's always going to be $0.00 thus I shouldn't have to pay anything.

BUT, if I'm paying 19.90% on every purchase, it's not worth it to me.

Make sense?
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vikesrule
14 years ago

Kevin, Paying 19% interest strikes me as a bad idea, period.
...

"Wade" wrote:



The problem here Wade is that Kevin has a poor credit rating and his options are limited.
With that said, it is great Kevin that you are trying to re-establish / improve your credit scores.
It will not be easy and will take a little time.

I see that by what is on the bottom of that application, that you are dealing with HSBC Nevada. There are some good and bad reviews/experiences with them.

Question for ya Kevin, does the company that you work for offer access to a credit union?. If so this can be a very good place to get a secured or even an unsecured limited credit card.

Another thing you might want to do is check out Clark Howard on CNN and/or his website .
He is a pretty good consumer advocate for "the little guy" and is pretty savvy on financial matters. There is even a forum on his site for Q & A
Clark Howard 

Oh ya, and believe it or not, even DakotaT has offered some sage advice.
While you never ever want to listen to him about where to live or what NFL team to support,but he is somewhat savvy when it comes to finances.
He is some kind of tax weenie (a publican in his past biblical life I believe).

Or perhaps shoot a PM to trippster...he is a financial guy.
macbob
14 years ago
Kevin-The terms indicate that you will owe $39 to apply for the card, and an annual fee of $29, so they'll charge you $68 just to give you the card.

Under "How to avoid paying interest on purchases" The credit card terms you posted says they give you a 25 day grace period after the end of the billing cycle to pay off the balance on the card. If you pay off the entire balance on the credit card within that 25 day cycle, you just pay the amount of your charges. If you miss by just 1 day, they charge you 19.9% back to the day the charge was made.

The company is relying on you screwing up and not paying off the balance within the grace period. The first time you do that, they've got you even if you pay off the balance on the statement. Because of the interest you'll owe more than the statement says.

There's also an "up to $35 late payment" fee that they are not clear on at all on when that applies. That alone would make we leery of this card.

I'll check Consumer Reports--they usually have advice for people with low credit ratings.
rabidgopher04
14 years ago
As long as you pay the statement balance by the due date you will not pay any finance charges (interest). It's that simple. I've have credit cards for 10 years. At first I was completely irresponsible, but I cleaned that up after a couple years. I use a credit card for every purchase I make (gas, groceries, phone bill, etc.), but I pay the statement balance in full each month. I use the card to get the points for free airline tickets (which I am using next month). When I bought a house 2 years ago I had a 790 credit score (and I doubt it's changed all that much if not improved).

Point is - if you don't have the cash to back it up then don't buy it. You can use a credit card without any additional cost (finance charges) like me, but only if you are determined to spend within your means and pay it off each month.
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Zero2Cool
14 years ago
So basically, whatever I put on the credit card, if I pay it off at the end of the month, I'll be okay, right?



Sorry for being dense on this, but I want to make sure I'm doing the right thing if I go through with it.


Example for month of April,
Charge $35.00 for gas
Charge $40.00 for dinner
Charge $25.00 for misc items

Then at the end of the month, satisfy that by paying off the $100.00 before the due date.


What I think I'm understanding is a credit is borrowing money and if you repay the money past due, that is when you are paying the finance charges. However, if you pay back the money you charged on the credit card prior to the due date, you'll always be fine, true? False?


If I do go through with this and get the credit card, I would only charge what I can replenish. Mainly, I'd use it for gas only and making the payment on time won't be an issue at all. At most I'd be paying $60 or so a month.
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