First credit card - How to improve credit rating?

thebritishbloke

Anthorn wrote: »

Which lenders don't want to make a profit on interest? That's a ridiculous statement isn't it.

American Express for starters. In terms of credit cards, they're the lender I want to eventually be a customer for.

Let's consider that the credit history at the CRAs is merely an introduction. What then follows is our ongoing relationship with the lender. Now if we want something more from that lender such as limit increases then sometimes we have the play the game according to the lender's rules. For example if the lender only gives limit increases to customers who keep a balance and you realise that then you will have to keep a balance to get your limit increases. When you do that it reflects in your credit history.

I've had limit increases on all the cards I've had, I've always paid it off in full. Yes it reflects in your credit history, that's not a good thing.

Lenders differ. While some lenders hand out limit increases arbitrarily based on time, others don't.

Sources?

In the example of the lenders who want their customers to keep a balance and pay them interest, customers who pay off their full balance every month are dead accounts, free-loaders. When the time comes to reduce the number of accounts the free-loaders will be the first to go.

This is the funniest thing I've read all week. There are people on here who've been paying off their credit cards in full for 30+ years. None of them are whining about their accounts being closed, and I doubt they ever will.

Your statement is like saying that it's good to always be in your overdraft, and that lenders will view it positively. I know a number of people who have had their overdrafts called in because they're always in it.

It's your ongoing relationship with the lender that really matters and it's in interacting with your lender that you find out what the lenders' prime motive is in providing you with credit.

To make money. They make a lot of money from transaction fees. If I'm spending £10,000 a year on my card, that's up to £300 in fees for them. They know that I'm a safe bet, I won't make them huge amounts of money, but I'll make them safe and easy money.

Anthorn

Here's something of a bombshell:

If someone never wants credit and will always pay off the balance in full why are they building a credit history? They might as well just stop wasting their time and use their debit card!

MallyGirl

because they might want a mortgage one day, or to rent via an agency, or to take out 0% finance on furniture or a car ...

Anthorn

MallyGirl wrote: »

because they might want a mortgage one day, or to rent via an agency, or to take out 0% finance on furniture or a car ...

Exactly: They are building a credit history so they can get credit. Thank you very much and goodnight larry.

pheonix254

Toosimple - in answer to your question, this, in a nutshell is how CCs work - you can use them in 3 ways to spend money - purchases, balance transfers, and cash advances.

Each of these ways generally has different interest rates, as explained in your Ts & Cs. Purchases are the most common form - generally when you put your card into a chip and pin machine in a shop, this is a purchase. Whether that be a supermarket, hair salon, petrol station - whatever. If you are "purchasing goods" it's a purchase.

Putting the card into an ATM and requesting cash (or betting shops or foreign exchange tellers) is a cash advance. These generally attract interest immediately (not always - check the Ts & Cs)

A balance transfer is generally transfering an owed balance from somewhere else (i.e. an overdraft, another credit or store card) and asking your CC issuer to put it on your card, and pay off the third party you transferred it from.

When you use your card, the CC issuer will pay the bill on your behalf, and send you a statement once a month showing your transactions, your balance (what you owe) and when it must be paid by. Being a credit card, you can choose to "pay the minimum amount" or "pay the full balance." The cheapest, most moneysaving way of using a credit card to build a credit history is to pay off the balance in full every month.

If you don't, or only pay the minimum, they you'll start attracting interest on the balance of your card. The estimated interest of you only paying the minimum will also be present on your statement. If you don't pay the minimum, you'll very quickly build up a lot of expensive charges and they'll be sending the debt collectors around.

It is best to set up a direct debit to pay off at the very least, the minimum, as this ensures that even if you forget, the money will just come straight out of your account. Better yet is to set up a direct debit to pay it off in full, and that way you can build history without paying interest (provided sufficient funds are always in the account the direct debit references on the day your statement is due to be paid) However - if you're taking advantage of a card with 0% on purchases deal, for instance, then there is no need to pay it all off in the first month - just pay the minimum and you keep the 0% term for as long as it lasts. Good if you plan to pay for something larger over a longer term. You can pay any amount you like, provided it is above the minimum, and not above the maximum (it's generally against CC Ts & Cs to build up a positive balance on the card by over paying)

I wouldn't say it is sensible to max the card each month - some lenders don't view this positively, and it is more likely you may inadvertenly breach your limit which lands you with a fee or charge - they often will deliberately let you go over your limit as opposed to declining the transaction with "insufficient funds," unless you're doing something stupid like putting a £1000 bill on a card with a £500 limit.

I tend to try to have a 20% buffer on my CCs at all times. Just use it in place of your debit card for those things you want a little longer to pay off. But don't use it to live outside your means - you will still have to pay this off in the future, so ensure you budget appropriately. See the Debt Free Wannabee section for plenty of stories of people who misued credit cards and make sure you learn from them.

Hope this helps!

thebritishbloke

Anthorn wrote: »

Exactly: They are building a credit history so they can get credit. Thank you very much and goodnight larry.

You really aren't getting the point, are you? The better credit history you have, the better credit you can get.

Paying off in full every month shows to mortgage lenders that you can live within your means and manage your finances every month. Holding a balance makes it look like you can't afford to pay all your bills, so you're having to use credit to live.

Credit cards are also a very useful tool. Lets say your payday has just been and gone, you have unexpected car repairs, good thing you have a credit card! Next payday, you pay it off in full. No extra money has had to be spent.

Anthorn

thebritishbloke wrote: »

You really aren't getting the point, are you? The better credit history you have, the better credit you can get.

Paying off in full every month shows to mortgage lenders that you can live within your means and manage your finances every month. Holding a balance makes it look like you can't afford to pay all your bills, so you're having to use credit to live.

Credit cards are also a very useful tool. Lets say your payday has just been and gone, you have unexpected car repairs, good thing you have a credit card! Next payday, you pay it off in full. No extra money has had to be spent.

It's you who doesn't get it. You keep on spouting the same old rubbish pertaining to credit and credit cards which applied 20 or more years ago. Hey I have news for you: This is 2014 and we are living in the aftermath of the crash of 2007/8 when the rules changed.

Let's answer the question,"What is a good credit history?" The answer can only be when the lender says it is, not when you say it is, I say it is or anyone else says it is. The lender is the be all and end all and everything in between.

bsms1147

Anthorn wrote: »

Here's something of a bombshell:

If someone never wants credit and will always pay off the balance in full why are they building a credit history? They might as well just stop wasting their time and use their debit card!

No, one of the best (if not, the best) ways to use a credit card is to use it as a debit card.

You only ever spend money that is in your current account already.

~56 days interest free credit
Section 75 protection
Consistent green ticks on your credit file
Doesn't cost anything
etc.

thebritishbloke

Anthorn wrote: »

It's you who doesn't get it. You keep on spouting the same old rubbish pertaining to credit and credit cards which applied 20 or more years ago. Hey I have news for you: This is 2014 and we are living in the aftermath of the crash of 2007/8 when the rules changed.

Let's answer the question,"What is a good credit history?" The answer can only be when the lender says it is, not when you say it is, I say it is or anyone else says it is. The lender is the be all and end all and everything in between.

You're right. The fact that I've got better credit cards than you with higher limits than yours combined, and you're the one who's had a default, means I know absolutely nothing about credit and you do.

Anthorn

bsms1147 wrote: »

No, one of the best (if not, the best) ways to use a credit card is to use it as a debit card.

You only ever spend money that is in your current account already.

~56 days interest free credit
Section 75 protection
Consistent green ticks on your credit file
Doesn't cost anything
etc.

Let's look at credit cards in more detail:

First of all we can dismiss the fallacy that lenders make a lot of money on card transaction fees. If that were the case retailers would be kicking up against it.

Now where does a credit card lender's profit come from? That comes from interest.

Now we consider that every penny we pay over and above the required minimum reduces the lender's profit. If we pay all of the balance we are preventing the lender from making any profit at all.

The point that paying the whole balance is best in the relationship with the lender doesn't stand up to scrutiny. It doesn't even make sense. It doesn't even make sense in the (re)building of a credit history: All it tells the lender is that a cat-in-hell has a better chance of making a profit.

Lastly if you're going to be a sheep be the sheep at the front and choose your own direction.