Unused credit cards and overdrafts

Fryy

So as not to go in circles on this thread, I'm just going to accept as true that temporarily going into debt with credit cards is somehow good whereas doing it with overdrafts is somehow bad. This leads me to further questions. Yes, everyone is different etc, etc, but in general.

1) Is having a big credit card limit seen as good (because they trust you) or bad (because you can get in huge debt)?

2) What percentage of my available limit on my credit card should I use to get the best score? All of it? 10%? 1%?

[Deleted User]

Is this thread a wind up? How many different ways can you put the same question, and people give you the same (correct) answers!?

1 - bigger limits are good, if you manage them well. If all your limits are £250, £500, £750 etc that screams sub-prime and/or that others don't trust you.

If I were a company and saw one lender trusted you with £6,000, I'd be more likely to give you a grand or two myself.

2 - Scores don't exist. But the general rule is probably 50 - 75% of your limit.

No higher than 75% as then you look: A) Desperate and Vulnerable to interest/charges/mistakes putting you over your limit and hitting you with fees.

As said - credit 'scoring'/building/ratings are an art. You need to look at the end GOAL.

- Do you want a mortgage? Don't use payday loans, don't live in your overdraft.

- Do you want a T-Mobile contract? You can probably do whatever you fancy (just don't default on payments) - they couldn't give a monkeys if you live in your overdraft if they think you can afford the contract.

HappyMJ

Fryy wrote: »

Well, by "score" I mean the number(s) they give you on the credit file.

Like I say, I'm asking for:
(i) general rules of thumb to help raise these numbers, and
(ii) how people can trust/give certain advice about raising these numbers.

Well that's just a made up number. It means nothing.

The company creating the credit score has no idea how much you earn for instance. My credit looks poor but it's actually very good. It looks poor because I stooze the money by regularly borrowing at low interest rates and put it in savings accounts earning more in interest than I am paying out. It looks like I am in severe debt but I'm not really.

Fryy wrote: »

But surely if your credit rating is high, you'll be able to be accepted for lots more deals, and therefore will be able to get a better deal!?

Despite my credit making it look like I am in severe debt I still get offered very good rates of around 3% rates on loans and 0% on credit cards.

Fryy wrote: »

So as not to go in circles on this thread, I'm just going to accept as true that temporarily going into debt with credit cards is somehow good whereas doing it with overdrafts is somehow bad. This leads me to further questions. Yes, everyone is different etc, etc, but in general.

1) Is having a big credit card limit seen as good (because they trust you) or bad (because you can get in huge debt)?

2) What percentage of my available limit on my credit card should I use to get the best score? All of it? 10%? 1%?

Occasionally using an overdraft is fine and if the overdraft is 0% then using it every month can earn you more money in interest so you should use it.

I wouldn't use more than 50% of the limit on an ongoing basis. I also would only charge no more than I earned each month on to the cards. If you say you earn £36,000 then I'd only charge up to £3,000 each month onto the card which would reflect what you earned. Regularly spending more than you earn wouldn't be seen as good.

However, if you're going to make a big purchase then you will need to use the card and possibly spread the payments over several month so it's not really a set rule either.

Ben8282

Somerset_La_La_La wrote: »

Is this thread a wind up? How many different ways can you put the same question, and people give you the same (correct) answers!?

1 - bigger limits are good, if you manage them well. If all your limits are £250, £500, £750 etc that screams sub-prime and/or that others don't trust you.

If I were a company and saw one lender trusted you with £6,000, I'd be more likely to give you a grand or two myself.

2 - Scores don't exist. But the general rule is probably 50 - 75% of your limit.

No higher than 75% as then you look: A) Desperate and Vulnerable to interest/charges/mistakes putting you over your limit and hitting you with fees.

As said - credit 'scoring'/building/ratings are an art. You need to look at the end GOAL.

- Do you want a mortgage? Don't use payday loans, don't live in your overdraft.

- Do you want a T-Mobile contract? You can probably do whatever you fancy (just don't default on payments) - they couldn't give a monkeys if you live in your overdraft if they think you can afford the contract.

There is not a lot to add to this excellent answer.

Improving your score is in itself meaningless. What you need to do is try to match your credit history to what the lender that you intend to make an application to wants. What is your ultimate goal? The advice that I would give to somebody having difficulty obtaining a 'bad credit' credit card would not be the same as the advice I would give to somebody trying to get their AMEX charge card upgraded to Centurion level. It is all relative to your overall situation.

Defaults are VERY BAD. Late payments are BAD. These days with faster payments, direct debits, internet banking, mobile aps etc there really is very little excuse for somebody with the funds available not to make an on time payment (see also comments on not using overdraft below).
Having said that, certain lenders may accept you with a few late payments, for example issuers of 'bad credit' cards, as they will be thinking about the interest they can earn from you, the late payment fees they can impose etc. But I guarantee you that late payments will get you declined for a charge card.

Being a homeowner is GOOD. It shows both long term stability and severely restricts your ability to default and disappear. I was accepted for a Diners Club card at a younger age than would be considered normal and I am sure that that acceptance was as a result of me being able to answer 'homeowner' on the form.

Using an overdraft is BAD. Having an overdraft facility (within reason, the larger the better) is GOOD.
To add to what I wrote in my previous reply on this subject, the existence of this facility gives an added re-assurance to potential lenders that your direct debits will not be returned unpaid. If a lender sees bank account held for several years and £1500 overdraft facility unused for several years, that lender can feel confident that no minimum payment direct debit will be returned from that account unpaid. Remember the lender has no idea of your actual credit balance. You may have 1p or £1M in the account. But when an unused overdraft facility is in place the lender can be sure that that amount of money will be 'available' in your account. The more the facility is used, the less confident the lender becomes.

You speak of temporarily getting into debt on credit cards but I don't see it that way. I do not regard using a credit card or charge card and repaying in full the following month as getting into debt. I regard it as sound financial management. I rarely use my debit card except to withdraw cash and put all of my general spending through a credit card.

You ask about credit limits and use 0%.
A high credit limit is good as it implies a certain amount of trust. Yes, you could get into huge debt which is where your stable history comes in. Both the likelihood of your actually doing this and your ability to repay should you actually do this. Remember, lenders do have to make money so if they think you can afford to repay a huge debt ...

There are many good reasons not to fill a credit card up to the limit, but looking at it from the credit rating point of view only it shows that either a) if repaid in full every month, the individual has low credit limits disproportionate to their demonstrated means and/or ability to spend and repay, and wonder why the limits are not being increased or b) the individual is in debt and using a large proportion of the credit available to him. A downward trend would be viewed more favourably than an upward trend.

High levels of debt must of course be viewed as BAD. Remember even 0% debt is still debt and has to be repaid eventually.

Your credit score does not take into account your income, employment history and many other factors. But the other factors are important, sometimes very important. Length of employment shows employment stability, less likelihood of your loosing your job or getting a substantial redundancy payment if you do, therefore less likelihood of loosing income and therefore less likelihood of your defaulting.

Fryy

Somerset_La_La_La wrote: »

Is this thread a wind up? How many different ways can you put the same question, and people give you the same (correct) answers!?

1 - bigger limits are good, if you manage them well. If all your limits are £250, £500, £750 etc that screams sub-prime and/or that others don't trust you.

If I were a company and saw one lender trusted you with £6,000, I'd be more likely to give you a grand or two myself.

2 - Scores don't exist. But the general rule is probably 50 - 75% of your limit.

No higher than 75% as then you look: A) Desperate and Vulnerable to interest/charges/mistakes putting you over your limit and hitting you with fees.

As said - credit 'scoring'/building/ratings are an art. You need to look at the end GOAL.

- Do you want a mortgage? Don't use payday loans, don't live in your overdraft.

- Do you want a T-Mobile contract? You can probably do whatever you fancy (just don't default on payments) - they couldn't give a monkeys if you live in your overdraft if they think you can afford the contract.

Have you answered (ii) though? I simple Google search contradicts half of what you said here. Eg., some statistics suggest that an 8% utilisation ratio is best, yet you're suggesting 50%-75%? Why are you suggesting this number? Where did it come from?

Like I say, it's not an art at all.

Anyway, this is going in circles. Thanks for the advice all.

Fryy

HappyMJ wrote: »

Well that's just a made up number. It means nothing.

The company creating the credit score has no idea how much you earn for instance. My credit looks poor but it's actually very good. It looks poor because I stooze the money by regularly borrowing at low interest rates and put it in savings accounts earning more in interest than I am paying out. It looks like I am in severe debt but I'm not really.

I don't want to go in circles anymore but I really must disagree. It's not a meaningless number. Yes, you might not really be in debt and so on, but the credit scoring companies do care about the number.

HappyMJ wrote: »

Despite my credit making it look like I am in severe debt I still get offered very good rates of around 3% rates on loans and 0% on credit cards.

You must understand that "it's fine for me" isn't an argument for generic advice for everyone? Credit scores matter. Just because you can get some "good" deals (in your opinion) doesn't mean (a) nobody should care about a credit score and (b) that you wouldn't be able to aquire even better deals with a higher credit score.

That is like saying there's no need to eat five fruit and veg every day just because you personally haven't got cancer. Maybe you don't, but eating five fruit and veg a day is still a good idea in general, right?

And finally...

HappyMJ wrote: »

I wouldn't use more than 50% of the limit on an ongoing basis.

This is in direct contrast to someone else a few comments ago. This is why we go in circles.



Anyway, thanks for the advice.

chuckley

Fryy wrote: »

I don't want to go in circles anymore but I really must disagree. It's not a meaningless number. Yes, you might not really be in debt and so on, but the credit scoring companies do care about the number.

Disagree all you want but each CRA generates a dumb number based on positives and negatives on your file. Noddle will rate you as 1/5 yet you can still get offered a top line card.

some have a '999' score on Equifax but can't even get a credit card.

All the judging company sees are the facts and figures on your file and makes a judgement based on that. they don't go 'oh she had 1/5 on noddle so i can't lend to her'. why because they can't see any of that.

hence why it's meaningless.

Ben8282

Fryy wrote: »

I simple Google search contradicts half of what you said here. Eg., some statistics suggest that an 8% utilisation ratio is best, yet you're suggesting 50%-75%? Why are you suggesting this number?

Where are you getting this nonsense from? Which website?
Common sense should be telling you that an 8% utilisation ratio is somewhat small.
If this was correct I would need a credit limit of around £25,000 just to make my normal monthly credit card purchases and for it not to look bad not to mention any 0% balances..

Fryy

Ben8282 wrote: »

Where are you getting this nonsense from? Which website?
Common sense should be telling you that an 8% utilisation ratio is somewhat small.
If this was correct I would need a credit limit of around £25,000 just to make my normal monthly credit card purchases and for it not to look bad not to mention any 0% balances..

I do not mean to offend you or drag this thread out any longer, but since you asked... What makes your comment (a friendly comment on an online forum from a complete stranger with no apparent relevant qualifications on credit scoring) any more valid or less nonsense than some other random comment I read on the internet? If you don't want to Google it yourself, here are a couple instances:

https://money.stackexchange.com/questions/59071/what-evidence-that-reporting-a-small-utilization-vs-no-utilization-leads-to-a

https://www.nerdwallet.com/blog/finance/30-percent-credit-utilization-ratio-rule/

You must understand that form my prospective, your comments on the matter have no more authority than someone else's with equal credentials, so please don't get mad and say it's all nonsense or against common sense. Hell, you need to justify your number against a few other people who have offered equally random numbers on this thread while you're at it.

Again, sorry if this offends, but I don't care what you or someone thinks is "common sense". A figure of 50% or 70% or 30% could all be called "common sense". A figure of 0% shows you don't even need to use a credit card, which some might argue is common sense. I literally only care about what the credit scoring agencies think. I even saw some charts (wow, charts!) that show 1%-20% looks best because someone else online actually experimented with his own credit score to deduce what was optimal.

HappyMJ

Fryy wrote: »

You must understand that "it's fine for me" isn't an argument for generic advice for everyone? Credit scores matter. Just because you can get some "good" deals (in your opinion) doesn't mean (a) nobody should care about a credit score and (b) that you wouldn't be able to aquire even better deals with a higher credit score.

As you can see by my signature I borrow money using personal loans from the Nationwide at 2.9% and put that money into savings accounts earning 5%. It's 2.9% as they guarantee it will be 0.5% less than any competitor.

I really don't think I could get even better deals than that.

My score is 556. I don't care about the number as it really does mean nothing. It says I have a poor score but did I enter my income into Noddle? No. Does Noddle know what job I do? No. Does Noddle even know if I own a home? No. The answers to those questions are far more important than any score.