Credit Building credit card - how much to use?

Thom_Atkinson

Hi everyone,

I'm hoping you might be able to advise me on the subject of credit building credit cards...

I've just received a new credit card from my bank. I intend to use it to improve my credit score. I have set the card up to be repaid in full each month from my bank account. I now plan to use the card to pay for something which goes out regularly each month - e.g. a utility bill. This way I can forget about it, leave it ticking over, and hopefully I'll see an improvement in my credit score in a few months.

My question is: does it make any difference how large a monthly payment I use the credit card for? Or how many monthly payments I make with it?

For example, will my credit score improve MORE if I use my credit card to make, say, 3 monthly payments at higher amounts e.g. 3x utility bills each for £50? Or would it be exactly the same if I just made 1 monthly payment for say, £10? Either way the credit card bill would be paid in full each month.

Hope you can help,
Thom

Tixy

Hi

It isn't likely to make much difference at all in terms of how other lenders looking at your credit file will view the account.
Ideally you might want to keep the purchases to less than 50% of the limit but unless it has a very small limit then that doesn't sound like it will be an issue for yourself.

Ben8282

This depends to some extent on what you want to achieve. For what specific purpose do you want to improve your credit score?
Your conduct of this card must be considered in relation to your credit report as a whole. Just make sure you pay all your bills on time, no late payments, no defaults, no exceeding credit card/overdraft limits, no failed direct debits etc and things should really just take care of themselves.
Is there any particular reason why you don't plan on using the card to make any purchases? There is nothing wrong with using a credit card to pay utility bills as such, but it would be more normal behaviour to use the card for purchases as well. This pattern of use could give the impression that you never buy anything and require credit in order to pay your household bills on time.

Assuming the card has a low limit, I would say for best results spend about 25% of credit limit each month and pay in full every month by direct debit (payment taken on payment due date), keeping the maximum balance during the statement period down to less than 50%.

Nebulous2

Do your utilities even accept credit card payments? Even if they do they may charge a fee. I'm not sure how people would know, but I'd agree with Ben8282 that paying household bills with a credit card could be seen as a sign of financial distress.

I'd use it for modest purchases, shopping, petrol, stuff like that. Keep well within your credit limit and pay the bill in full every month. There is absolutely no problem if you 'miss' a month and don't buy anything.

Thom_Atkinson

Thanks everyone.

Trixy - that's interesting and you're right, it wouldn't be a problem for me to stay below 50% of the credit limit. I'm trying to discover how little I can use the card whilst still improving my credit score.

Ben, it sounds like you disagree with Trixy - I should try to use 25% of the credit limit, which in my case would be £1500 per month. The trouble with that, is that my monthly outgoings are around that amount as a whole, so it wouldn't be possible at all. In answer to your questions:
- I want to improve my credit score because I hope to apply for a mortgage in the next 1-2 years.
- The reason I was thinking to avoid making purchases on the cards was just convenience. If I could set up my card to pay for certain small regular monthly outgoings e.g. utilities, spotify, netflix etc, I could just forget about it. If I need to actively remember to use the card every month, there are two inconveniences: I have to remember to do this, and I risk cash flow problems fro paying the credit card bill - spreading payments for fuel, shopping etc over the month means I can always pay them, lumping them into one payment on the credit card bill requires me to carefully budget for the payment date each month - inconvenient and not always possible as I'm self employed and don't have a regular monthly pay day - my invoices are paid throughout the month and payment dates are not predictable.

Nebulous2 - Sorry - I wasn't clear. In my case, gas, electric, phone and broadband only accept bank DD as you suggest. But I was including any smaller monthly regular payments in my definition of utilities, e.g. spotify, netflix, web hosting, adobe software, google apps. These are all small payments of around £10-15 each per month.

Does any one have any other thoughts on this? It seems as though the answer isn't a simple one and there are some different views. My aim is basically to increase my credit score as much as possible for a mortgage application, using a credit building credit card as little as possible so as to be more convenient and to avoid cash flow problems.

Thanks everyone for your thoughts - much appreciated!

takman

All you need to do is show a pattern of responsible borrowing and paying it back on time. If you are only using it for small payments each month then that is good because it will show you can control yourself and only borrow what's needed. But some lenders may not give you as many "points" because they are such small amounts.
I only use 5% of my total available balance and I am slowly paying it back because it's interest free plus any extra i spend each month (on another card). But lenders seem happy with my report and I have a total credit limit equal to my annual salary and I have just opened 3 current accounts without any problems.

redux

I don't think anyone really knows, and in any case the credit references won't record what you were actually spending on.

I'd say just use it for normal spending - groceries shopping, fuel in the car or rail fares, etc.

I notice you say you're self-employed. I used to have 3 credit cards, using one for all motoring, one for other work expenses, one private. This meant the annual accounting was fairly simple, just check the items and add up some columns on a paper spreadsheet.

Ben8282

Thom_Atkinson wrote: »

Ben, it sounds like you disagree with Trixy

Not at all. I am saying exactly the same thing. As you will repay the full balance by direct debit each month, to keep the maximum balance below 50% you should only spend 25% of the credit limit as there can be up to 56 days worth of purchases on the account at any one time.
When you said credit builder card I didn't realise you had been given an immediate 6K credit limit. This is not a low limit card. Which credit builder card is this?

Thom_Atkinson

Ok, thanks again everyone. Picking this apart:

If lenders can't see details of the actual payments I make on the credit card, then it seems I don't need to worry about the types of things I use the credit card for. Great.

But lenders can potentially see the amount of money I spend on my credit card. It sounds like it would be better if this amount wasn't too high, or too low, and possibly better if it was an irregular amount.

In my circumstances I need to factor in cash flow, so it isn't an option to spend large amounts on the credit card. I could for example risk paying all of my fuel or shopping on it every month...

So I think I'll hedge my bets. I'll use the credit card for the small monthly regular payments I mentioned, which would amount to a total of perhaps £20 per month. Then I'll use the card perhaps once a month to buy fuel or shopping.

Thanks a lot for your advice. I'd be interested to hear if anyone out there has another point of view, but I think that solves the problem.

Thom_Atkinson

Ben - just saw your reply - thank you. Ok, I see, my mistake. That's great and confirms what I just wrote.

The card is just a normal Mastercard from my bank, rather than a card designed or chosen specifically to build a credit score. My credit score is not too bad at present - I'd just like to improve it a little further.

Candyapple

Thom - there is no such thing as a credit score, it is your credit history that matters.

If you are wanting to appear credit worthy in order to obtain a mortgage then you should

1. Obtain copies of all 3 of your credit reports from Experian, Equifax and Call Credit

2. Check that you are showing as being on the electoral roll

3. Make sure that any bank accounts / credit card / mobile contracts / loans etc. are showing and that the data is correct

4. Set up a DD on your credit card to avoid ever being charged a late payment