Credit building cards repayment help!

newbie_emma

Hi all..I am slowly rebuilding my credit rating and using a couple of credit building credit cards to show that I can pay back my debts. I currently have £300 on one and £150 on the other that I pay by direct debit every month. Rebuilding my credit is painfully slow - my question is; would it help to just clear the balances in one payment to reduce the amount of debt I have, or would it look better to continue making small payments every month to show I can make regular payments?

Thanks in advance!

ashp_2

It's best to clear the balance in full every month

[Deleted User]

Only make interim payments if you need to do so, to stay way from the limit.

Sncjw

I would pay off in full fhen you won't have interest charges on top of balance

HeCh

Some also recommend using between 1-10% of the credit limit only at any given point in the billing cycle. Although like most things on life, opinion is divided on the matter.

Chappaz

HeCh wrote: »

Some also recommend using between 1-10% of the credit limit only at any given point in the billing cycle. Although like most things on life, opinion is divided on the matter.

Up to 30% of credit utilisation is fine. Maybe even a bit more, but it's just best to keep on the safe side.

Anyway, it is better to pay the cards off in full every month because the interest on credit building cards is often massive.

However, there is a train of thought that it's wise to at least have some credit on your file where you've accrued some interest.

This is because many lenders not only check your file to assess your risk. They also check it to see if you're a good "fit" as a customer.

One of the main ways credit card providers make money is by charging interest on those who keep balances month-to-month. This means that if a lender sees you paying the balance off in full every month, they'll realise that you're not a very profitable customer and therefore may be more inclined to reject you.

It's a minor point (certainly don't risk it if accruing interest could get you in financial trouble), but a little bit of evidence here and there that you're a profitable credit user can help with certain future applications.

But that aside, building credit history is quite a long process. You just have to be patient.

Ben8282

You have credit card balances totalling £450.
If you pay in full by the date due you are demonstrating that you can spend and repay £450 in a month.
If you pay this off slowly you are demonstrating that your financial situation is such that you can't afford to repay £450 but instead need to borrow the money at the high interest rates charged by credit builder cards.
If you want to carry a balance wait until your credit rating improves sufficiently to enable you to obtain a 0% card and then carry a balance on that.
On the subject of % utilisation. The 'balance' that is reported and is taken into consideration when calculating these ratios is not the statement balance but the balance on the day of reporting (top figure in the column of Experian reports).
In the case of both of my main credit cards, this date is very close to the payment due date so that if I pay in full by direct debit the balance is pretty close to 2 months spend. This means that to keep the balance down to 10% , almost £200 of credit limit is needed for each £10 spent. Therefore, on a credit card with £150 credit limit spending more than £10 a month would always push you over the desired 10% even if paid in full each month by direct debit.
If, however, I don't wait for the dd to be taken on the payment due date but pay manually a few days before, the balance has dropped by the reporting date meaning that only current spending and not the balance of the previous statement as well is reported, thus reducing the utilisation %.
The only reference I have seen to this 10% idea is a mention on the Barclaycard website that 'this card would suit those with less than a 10% balance on their credit card' (or words to that effect), but I don't really know what they consider a 'balance' to be in this sense (ie do they consider a card which is repaid in full every month to be carrying a balance?) and a thread I started on here received no replies so I never had the question answered.
The more common opinion appears to be that 30% should not be exceeded, but again with very low limit cards such as you hold it is difficult to say if it is better to keep the utilisation down to that or to spend more and repay more each month to convey the message 'I've got money to spend on your card. Put my limit up!'
You also need to tailor your credit file to the type of product that you are applying for.
If say you want to apply for a charge card, then a long history of full on time monthly repayment is probably a must.
If however you want to apply for a high interest rate credit builder card from a provider who wants customers who pay lots of interest, then demonstrating that you are someone who pays interest may help you to obtain their product.
Applying for cards can be a bit like applying for a job. You can also get rejected by being over qualified. A recent Barclaycard eligibility checker result will illustrate this. 9.5/10 for all platinum cards and the freedom rewards. 8/10 for the barclaycard initial.

HeCh

A couple of other views on utilisation:

This US site reported that there seems to be a correlation between a particular CRA score (broadly indicative of how you may be perceived by lenders) and credit utilisation. Anything up to 30% seems better than no utilisation at all but 1-10% is best of overall:
https://www.creditkarma.com/article/CreditCardUtilizationAndScore

Noddle (Callcredit) advise staying below 25% utilisation:
http://www.blog.noddle.co.uk/how-can-you-improve-your-credit-score/

Some Noddle members do receive a 'high utilisation/close to credit limit' type warning when a reported balance reaches or exceeds this value.