Author Topic: Safety Mechanism for Credit Card  (Read 1360 times)

ejmyrow

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Safety Mechanism for Credit Card
« on: January 20, 2018, 01:06:39 AM »
I wanted to share something that has been very helpful to me:

I started using a credit card again (in order to get airline points). In the past I had quit credit cards b/c I had made myself some credit card debt and it took a while to pay off. I'm using this new safety mechanism and it has really helped me:

- Open credit card account
- Simultaneously open second* savings account with my credit union
- I call this second savings account my "Credit Card Transfer Account"
- Place $300 in this savings account and always keep it there as the baseline so there is no charge to keep it open
- Any time I spend $11 or more with my credit card, I transfer money from my checking account to my Credit Card Transfer Account
- Every wednesday (yes, every week!) I pay my credit card balance (out of the Credit Card Transfer Account)

I had been accustomed to looking at my checking account to see how I was doing. Credit cards were troubling b/c it made it less easy for me to see my bottom line. I put about 45% of my income to retirement savings accounts so that means that when I look at my checking account only, I'm living "paycheck to paycheck" and need to be careful not to overspend. In fact, this helps me to stay in the budget. I just wanted to put it out there in case it's helpful to you!

* Note re: first savings account - I rarely touch it. Rule of thumb is to only put money into it. This is emergency liquid cash fund. I have it set up so that I can't take money out of it at an ATM, only at a bank.

BiggerFishToFI

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Re: Safety Mechanism for Credit Card
« Reply #1 on: January 20, 2018, 07:53:35 AM »
Not bad to have a safety net if it prevents you from paying interest to the CC company.

I prefer to float my balances on my credit cards for as long as possible, which mostly means paying off the due balance at the end of each month (Unless 0% APR).

Roadrunner53

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Re: Safety Mechanism for Credit Card
« Reply #2 on: January 20, 2018, 08:46:29 AM »
I was told about a person who has a Costco Credit card. Whenever she uses it anywhere and makes a purchase she immediately uses her on line checking account to pay for the purchase. She never carries a balance.

geekette

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Re: Safety Mechanism for Credit Card
« Reply #3 on: January 20, 2018, 08:55:49 AM »
My friend's husband logs in daily, and pays off each charge one at a time from their checking account.  Seriously?  Yes.

kpd905

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Re: Safety Mechanism for Credit Card
« Reply #4 on: January 21, 2018, 02:40:25 PM »
Just be aware that if you are trying to get a good credit score, you will be hurting yourself by paying off your card every week or after every purchase.  If you have no statement balance, the card will not report your use to the bureaus.  You want some balance to post each month, which you then pay off.
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Mezzie

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Re: Safety Mechanism for Credit Card
« Reply #5 on: January 21, 2018, 03:46:54 PM »
I just use my check register when I make credit card purchases.

Regarding carrying a balance: I have never carried a balance and have excellent credit. Carrying a balance really isn't necessary.
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kpd905

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Re: Safety Mechanism for Credit Card
« Reply #6 on: January 21, 2018, 03:50:15 PM »

Regarding carrying a balance: I have never carried a balance and have excellent credit. Carrying a balance really isn't necessary.

For someone with no other loans, they will have nothing reporting to the credit bureaus if they don't let a balance post.  I never said carry a balance, which would imply paying interest.
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bridget

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Re: Safety Mechanism for Credit Card
« Reply #7 on: January 21, 2018, 03:59:17 PM »

Regarding carrying a balance: I have never carried a balance and have excellent credit. Carrying a balance really isn't necessary.

For someone with no other loans, they will have nothing reporting to the credit bureaus if they don't let a balance post.  I never said carry a balance, which would imply paying interest.

Right - paying off a credit card in full as soon as the statement posts (or just before it is due, usually about 3 weeks later) is not "carrying a balance."  It is just letting a statement post at the end of the month.  I always let the statement post, but have never paid a cent in credit card interest because I don't let the balance "carry," as in pay less than the full amount due and push some portion of the principal to next month's statement.

On a couple of occasions, I paid it early because if I let it push to my balance it would actually show I was using too much of my available credit.  In general, you want to show you use your credit, but use less than 8-10% of it (demonstrating you are a good customer because you use the product, but do not just take every bit of credit available to you, which is indicative of people who are credit risks).  Once I had to put a $10k+ work airline ticket on my personal credit card, which pushed my credit utilization rate above 10%, so I paid it as soon as I was reimbursed, without waiting for the statement to post. 

Generally, though, paying anytime before the due date means that the credit card company is giving you a 0% interest loan for a few weeks.  I see how reason not to maximize on this and pay the day before it's due, no earlier, and let all of my extra cash in the meantime earn money for me in investment accounts.   

Frankies Girl

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Re: Safety Mechanism for Credit Card
« Reply #8 on: January 21, 2018, 04:42:38 PM »
I think you're misunderstanding how credit cards and credit reporting works? This sounds like a whole lot of busy work and shifting of things around to save absolutely nothing. There is no benefit at all to you and it wastes your time, besides that $300 you're leaving as a placeholder in the second savings account.

As bridget and a few others said, paying the card's balance in full once the credit card issuer posts the balance/due date means you are getting a free zero interest loan that has absolutely no bad effect on your credit.

As long as you pay the card in full before the due date, you'll reap the benefits of showing you're a good payer, and build up an excellent credit score.

What may be more helpful to monitor your spending if you for some reason won't track in your actual credit card's website for spending would be to use a budgeting site like Mint or YNAB that aggrigates all of your spending across all of your held cards and accounts.
I frequently have no idea what I'm talking about. Like now.

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Rosy

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Re: Safety Mechanism for Credit Card
« Reply #9 on: January 23, 2018, 01:48:09 PM »
I think the OP's concern was more about having a mechanism in place where he could access both the cc and the savings account at the same bank - one transfer and no worries ever about running up a higher than expected balance or not having the funds to pay off the card. If it helps you to monitor your budget and stay out of credit card trouble then it is a good thing.

It makes sense to not pay the balance until it is actually due - since there will be no interest charge, the usage is reported to the credit bureaus and you have the use of your funds for several weeks @ zero percent interest.

I tend to pay off my balance early, but not when I can get 1% interest in my checking account and the amount owed is significant. An extra $5 or $8 adds up over time.
It makes me feel good knowing that I could pay it off sooner if I wanted, but that I am actually getting paid to wait:).

MilesTeg

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Re: Safety Mechanism for Credit Card
« Reply #10 on: January 23, 2018, 02:30:22 PM »

Regarding carrying a balance: I have never carried a balance and have excellent credit. Carrying a balance really isn't necessary.

For someone with no other loans, they will have nothing reporting to the credit bureaus if they don't let a balance post.  I never said carry a balance, which would imply paying interest.

Right - paying off a credit card in full as soon as the statement posts (or just before it is due, usually about 3 weeks later) is not "carrying a balance."  It is just letting a statement post at the end of the month.  I always let the statement post, but have never paid a cent in credit card interest because I don't let the balance "carry," as in pay less than the full amount due and push some portion of the principal to next month's statement.

On a couple of occasions, I paid it early because if I let it push to my balance it would actually show I was using too much of my available credit.  In general, you want to show you use your credit, but use less than 8-10% of it (demonstrating you are a good customer because you use the product, but do not just take every bit of credit available to you, which is indicative of people who are credit risks).  Once I had to put a $10k+ work airline ticket on my personal credit card, which pushed my credit utilization rate above 10%, so I paid it as soon as I was reimbursed, without waiting for the statement to post. 

Generally, though, paying anytime before the due date means that the credit card company is giving you a 0% interest loan for a few weeks.  I see how reason not to maximize on this and pay the day before it's due, no earlier, and let all of my extra cash in the meantime earn money for me in investment accounts.   

Many CCs will have a 45 or 60 (or more) day grace period before they start charging interest, so paying of the balance every month isn't necessarily required. Check your terms.

Also, unless you are about to make a major purchase and need every credit score point you can muster, there's no reason to obsess about your statement balance. It's a tiny part of your score and goes away immediately once the balance drops. I do obsess about it sometimes, because I'm OCD, and it's just a waste of energy. I just have my CC set to pay the full statement balance on the day actually due. If I ever want a loan again, I'll be sure to pay  it down to < 1% before the statement clears =)

MikeK00

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Re: Safety Mechanism for Credit Card
« Reply #11 on: February 02, 2018, 07:57:52 AM »
I was just going to say just call your credit card company and setup automatic balance payment, just use it like cash/debit. never pay interest and collect points.

Scandium

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Re: Safety Mechanism for Credit Card
« Reply #12 on: February 02, 2018, 08:55:34 AM »
Why? This sounds overly convoluted. Why not just set it to autopay from your checking account? And why do you need the 2nd account anyway, couldn't you just pay every wednesday from your checking account directly?
I have 4-5 credit cards for point hacking. Most of them have zero or maybe $50-100 balance each month. One just does a $9 amazon allowance to get free money, some autopay different bills, some are used for certain bonus point categories etc. I don't want to keep track and bother making sure they're all paid so it's all automatic. Just easier. I just check the balance each month and make sure I have enough, thought I like to keep a ~$1,000 minimum in my account just in case.

Also; if you're bank charge account fees you got the wrong bank. Switch to an online bank that don't do that BS.
« Last Edit: February 02, 2018, 08:59:24 AM by Scandium »

netskyblue

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Re: Safety Mechanism for Credit Card
« Reply #13 on: February 02, 2018, 09:09:59 AM »
I write each expense in my spreadsheet (the equivalent of a checkbook register) when it is incurred, so I always know how much money I "have."  And I don't make charges that aren't within my budgeted amount for that category, except in case of emergency, and I have an emergency fund for that.

When I get the email, "your credit card statement is ready" I go online and schedule the payment, usually for 1-2 days before the due date, because I'm paranoid about technical errors making me late.  I don't set up autopay, because I want to be forced to go look at my credit card statement, in case there's any fraudulent charges or something like that.  My CC company sends a second email 10 days out from the due date, so if I happened to miss the first email for whatever reason, I get a second prompt to make sure I've scheduled that payment.

bridget

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Re: Safety Mechanism for Credit Card
« Reply #14 on: February 07, 2018, 11:49:59 AM »

Regarding carrying a balance: I have never carried a balance and have excellent credit. Carrying a balance really isn't necessary.

For someone with no other loans, they will have nothing reporting to the credit bureaus if they don't let a balance post.  I never said carry a balance, which would imply paying interest.

Right - paying off a credit card in full as soon as the statement posts (or just before it is due, usually about 3 weeks later) is not "carrying a balance."  It is just letting a statement post at the end of the month.  I always let the statement post, but have never paid a cent in credit card interest because I don't let the balance "carry," as in pay less than the full amount due and push some portion of the principal to next month's statement.

On a couple of occasions, I paid it early because if I let it push to my balance it would actually show I was using too much of my available credit.  In general, you want to show you use your credit, but use less than 8-10% of it (demonstrating you are a good customer because you use the product, but do not just take every bit of credit available to you, which is indicative of people who are credit risks).  Once I had to put a $10k+ work airline ticket on my personal credit card, which pushed my credit utilization rate above 10%, so I paid it as soon as I was reimbursed, without waiting for the statement to post. 

Generally, though, paying anytime before the due date means that the credit card company is giving you a 0% interest loan for a few weeks.  I see how reason not to maximize on this and pay the day before it's due, no earlier, and let all of my extra cash in the meantime earn money for me in investment accounts.   

Many CCs will have a 45 or 60 (or more) day grace period before they start charging interest, so paying of the balance every month isn't necessarily required. Check your terms.

Also, unless you are about to make a major purchase and need every credit score point you can muster, there's no reason to obsess about your statement balance. It's a tiny part of your score and goes away immediately once the balance drops. I do obsess about it sometimes, because I'm OCD, and it's just a waste of energy. I just have my CC set to pay the full statement balance on the day actually due. If I ever want a loan again, I'll be sure to pay  it down to < 1% before the statement clears =)

This just seems like an accident waiting to happen.  :)  My grace period is something like 15 days, which does not seem worth a potential error in calendaring for me.  It's super easy to just set up an automatic payment for the due date and forget about it, rather than setting it up for due date + 15 days and hoping the fine print doesn't change when I'm not watching. 

I only pay before the statement posts when it's a very large purchase that is getting reimbursed by work - $10k is when I start thinking about it.