Credit Card Question

[chughes65]

Hey everyone,
I am an aspiring mustachian and have had a student credit card throughout my entire collegiate career. I decided to upgrade to a reward card (barclaycard world elite mastercard). My credit score was really good, and I decided that with my new card I would put all of my purchases on it and pay it off monthly as if it were my debit card. I did this to keep all of mine and my wife's transactions on one statement and build points accordingly. Since we have been doing this, we have not had any late payments or anything as i normally pay it off weekly. I noticed today that my credit score was dropping. What is the cause of this, and is this not a smart decision? I was under the impression that this would increase my credit score. Do I need to change my payment interval or what?

This is also my first post, so hello everyone! I absolutely love what all of you have to say here!

-Chase

[AmandaS1989]

Your credit score is based on a lot more than just paying your card on time. It also depends on the types of accounts you have open, the length of time they've been open, and also how much credit you use versus how much is available. If the credit card is the only line of credit you have, then your credit score will drop eventually.

[JZinCO]

Hey everyone,
I am an aspiring mustachian and have had a student credit card throughout my entire collegiate career. I decided to upgrade to a reward card (barclaycard world elite mastercard). My credit score was really good, and I decided that with my new card I would put all of my purchases on it and pay it off monthly as if it were my debit card. I did this to keep all of mine and my wife's transactions on one statement and build points accordingly. Since we have been doing this, we have not had any late payments or anything as i normally pay it off weekly. I noticed today that my credit score was dropping. What is the cause of this, and is this not a smart decision? I was under the impression that this would increase my credit score. Do I need to change my payment interval or what?

This is also my first post, so hello everyone! I absolutely love what all of you have to say here!

-Chase

The change may or may not be related to that line of credit. It could be that someone fraudulently opened a credit card in your name. Who knows, it could just be that on that day of the month before you pay off your CC, your credit card company reported that you have a high utilization rate.

You need to get the dashboard view of your credit report. I recommend you use free services (e.g. credit karma) or better yet, use your free official annual credit report (https://en.wikipedia.org/wiki/AnnualCreditReport.com). The latter will be helpful in determining all the information that is going into your credit score. The former, if you use it over time, at least one month, will help you determine what factors may be driving your credit score movements.

[frugaliknowit]

Your credit score will normally drop with new credit.  This is due to a recent "hard pull" and decrease in the average age of your accounts.  Read:  http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

[vhalros]

I'd look at creditkarma.com or similar websites and see what factors might be effecting your credit. Off the top of my head, the fact that you are using it more now may mean you are closer to your credit limit. You generally don't want your balance to exceed more than 10% of your available credit (total balance across cards not more than 10% of total credit across all cards).

[chughes65]

Your credit score will normally drop with new credit.  This is due to a recent "hard pull" and decrease in the average age of your accounts.  Read:  http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

So since it is such a new line of credit (august of this year) it has caused my credit to drop? I can expect it to go back up though, right?

[klystomane]

How much of your credit limit (%) are you using each month?

[chughes65]

How much of your credit limit (%) are you using each month?

I have been using a good bit recently, but have been paying it off frequently. If I pay it off more frequently without letting it build up will it be considered as using less of a % or does is take all the money spent per cycle (paid off at the beginning of the cycle or not) and add it up to find the percentage?

[Bracken_Joy]

How much of your credit limit (%) are you using each month?

I have been using a good bit recently, but have been paying it off frequently. If I pay it off more frequently without letting it build up will it be considered as using less of a % or does is take all the money spent per cycle (paid off at the beginning of the cycle or not) and add it up to find the percentage?

Does not matter how often you pay it off. Simply a % of usage.

[chughes65]

Does not matter how often you pay it off. Simply a % of usage.
[/quote]

So would it be smarter to not use it as much, even if I am in no trouble of not being able to pay it off? My

[Another Reader]

The balance reported to the credit agency is what determines utilization.  The balance reported is usually the closing balance that is billed to you each month.  It's best to show about 5 percent utilization on the closing day each month.  B of A and Chase both tell you what the closing day is in advance, not sure about Barclay's.

Every hard pull temporarily drops your score.  Over time, your score should go up, as you have more available credit and utilization drops.  Your credit history lengthens as well.

[galliver]

How much of your credit limit (%) are you using each month?

I have been using a good bit recently, but have been paying it off frequently. If I pay it off more frequently without letting it build up will it be considered as using less of a % or does is take all the money spent per cycle (paid off at the beginning of the cycle or not) and add it up to find the percentage?

Does not matter how often you pay it off. Simply a % of usage.

Not sure that's true...my understanding is that it's based off the balance (though I couldn't confidently say if it's maximum or average). My bf used to pay off his card once a week or something because he was stuck with a really low limit and wanted to keep his balance (and thus utilization) down. As as I know it didn't end up reporting as >100% utilization or something. I would guess it's statement balance/limit?

OP, can you clarify whether you closed the student card? That would adversely affect your credit (account age dropping, number of accounts dropping, possibly utilization % going up, in addition to hard credit check due to the new card...)

[Bracken_Joy]

Does not matter how often you pay it off. Simply a % of usage.

So would it be smarter to not use it as much, even if I am in no trouble of not being able to pay it off? My
[/quote]

There's a difference between small, medium, and large impact factors to your credit score. Here's a decent intro article: https://www.creditkarma.com/article/credit-score-factors

So it's a complicated answer. It also depends if you NEED your credit. We're buying a home soon, so keeping our credit high is important. But sometimes, something like churning for rewards will reduce your credit score (temporarily, anyway), but you're making $. So if you don't need the score for any reason, that is still worth it.

Like so many things, it depends on your goals.

DH and I got around the utilization by having high limits (we ask for increases every 6months or so- especially with the cards we know don't do hard inquiries for the request), several cards, and relatively low expenses. We hang out around 5% utilization usually.

[Dicey]

Following so I can look up all these great references later. Thanks!

[Bracken_Joy]

A note: rumor has it that certain rewards cards will sometimes in error not give you rewards points if you pay it off before it goes into the "statement" period. We know this happened to us at least once on our Chase Amazon card- they fixed it when we pointed it out, but I hate to think how often we missed it. Anyway, word around this internet is that this is not an uncommon issue.

[JZinCO]

How much of your credit limit (%) are you using each month?

I have been using a good bit recently, but have been paying it off frequently. If I pay it off more frequently without letting it build up will it be considered as using less of a % or does is take all the money spent per cycle (paid off at the beginning of the cycle or not) and add it up to find the percentage?

Does not matter how often you pay it off. Simply a % of usage.

Not sure that's true...my understanding is that it's based off the balance (though I couldn't confidently say if it's maximum or average). My bf used to pay off his card once a week or something because he was stuck with a really low limit and wanted to keep his balance (and thus utilization) down. As as I know it didn't end up reporting as >100% utilization or something. I would guess it's statement balance/limit?

OP, can you clarify whether you closed the student card? That would adversely affect your credit (account age dropping, number of accounts dropping, possibly utilization % going up, in addition to hard credit check due to the new card...)

The total balance that is due on the date your credit card statement is issued is the balance that gets reported to credit bureaus
Read more: Credit Utilization Rate Definition | Investopedia http://www.investopedia.com/terms/c/credit-utilization-rate.asp#ixzz3r2Ypsu85

For me, not something worth timing..

[chughes65]

I really appreciate all of the help everyone! I am trying my hardest to live this mustachian lifestyle, haha.

[Eric222]

I wouldn't obsess over your credit score (been there, done that) - unless you are looking at a getting a mortgage within the next year.

The key long term things are: 
Keep some credit open (average age of credit).
Don't get into debt (for entirely other reasons, but it will prevent other problems).
Pay off everything on time - your utilization can be what it is.  Only worry about it when you need to apply for something.  Utilization is something you can change in a month or two if you aren't in debt. 
Check your credit report once per year.  If any delinquencies ('black marks', etc) show up, dispute them with all three credit agencies.  If it is a one off, they will just drop them.  (annualcreditreport.com - you can check each of the 3 credit reports once per year). 

Your credit score will bounce around.  It only matters in very specific situations (borrowing lots of money).  6 months before you do that, learn how to game the system.  In the meantime, don't sweat it!

Good luck!