Advice on credit card payments

[bakergrl]

I decided to apply for a small $300 limit credit card at 9.9% in order to start rebuilding my credit. It comes with a crappy $59 annual fee so I hope to get rid of it before 1 year is up for one without a fee.

I do not really need this card other than building my credit back up so I plan on using it for gas. I need information on the best way to use this to build my credit.

Do I pay it off right after I use it or do I need to make the payment only for the minimum and spread it out a bit? I'm just confused on how they report it to the credit bureaus, I have talked to the customer service and they report to all 3 but I do not want to jip myself by paying to quickly and the payment not be reported.

Any advice would be appreciated.

[smokedurhonda]

The credit card company would report your balance, and if your payment was made on time. You would not get jipped by paying your balance off early, your balance would be reported as zero and on time, thats a good thing. Keep the balance below 30% of your credit limit.

[jadams]

With most companies, charging a once a month $9 NetFlix bill or something similar and having an automatic payment from your bank pay the balance a few days later would be all you need to rebuild credit. It will keep the card active and they will still report "$0 due, paid as agreed" every month to the credit bureaus.

You could easily secure the card away and let this setup take care of itself. Just make sure to read every bill to ensure your automatic payment was posted correctly. Since you're paying just a few days after charging (and before the statement closes) your monthly bill should be $0 with $0 due. If, by chance, your automatic payment didn't go through -- you still have at least 20 (or is it 25 now post CAARD act?) days to correct it before the due date.

If you are intending to secure the card away, I like how in this arrangement every bill should be $0. Makes it really easy to open the mail and know right away everything is fine -- vs. opening the bill, scheduling a payment, remembering to verify it posted before the due date, possibly forgetting, etc.

There is no need to carry a balance to rebuild credit. All you need is the monthly reporting that you "paid as agreed" -- it doesn't matter that your agreed payment in this case was $0.

[eastbaybk]

Use it a lot (for small things like starbucks, gas, etc.) AND pay it off each month. Credit card companies eventually want you to carry a balance and eventually will up (in this economy its no longer clear how soon) your credit line. When they do that, keep paying it off each month. Unless you want to file again in the future a credit card is only really good for when you have those expenses you can't pay off immediately (i.e. car expenses, med bills, etc.).

[Pandora]

I doubt you'll be able to avoid that yearly fee even if you close the account down before the year is up. Does it specifically state no annual fee will be charged if the account is closed prior to the 1 year period? Usually those types of cards are charged upfront the annual fee.

Best to read your contract and the small print.

[Amy26]

Also be careful with closing credit lines that you need to rebuild your credit. If you close the credit line your payment history no longer gets reflected in your scoring.

[bakergrl]

Thanks for the replies, I just wanted to make sure it was okay to pay off the balance before the bill was due each month.

Pandora- I will get charged the annual fee up front for the first year but hopefully will not get the 2nd years if I close it before the year is up?

Amy- how long do I need to keep this card in order to build my credit but move to another one? I really do not want a card that is $59 a year, I was hoping after a while to move on to one with no annual fee once my credit is better.

[Pandora]

Thanks for the replies, I just wanted to make sure it was okay to pay off the balance before the bill was due each month.

Pandora- I will get charged the annual fee up front for the first year but hopefully will not get the 2nd years if I close it before the year is up?

Amy- how long do I need to keep this card in order to build my credit but move to another one? I really do not want a card that is $59 a year, I was hoping after a while to move on to one with no annual fee once my credit is better.

Are you asking me a question as to IF they're going to charge you the first year up front or ...?? I dont know if they charge it upfront or not - usually lenders that have annual fees do charge upfront when the card is first opened. You need to read the small print that came with the card to find out how it all works.

As far as closing the card out and what Amy stated - thats correct. If you close an account, it does affect your credit score, even if you paid it faithfully every month on time every time. As soon as you request it closed, your score takes a hit.

Given you have a secured card, I dont know if you can balance transfer it to another card or not. I havent had a credit card in over 2 years and never a secured one so I dont know how that would work. It may be on the small print too - if you can transfer balances to other cards or if you must close the account down.

[bakergrl]

They already told me that they are going to add the first year fee to the card when I get it but I was hoping to get a better card before the next year was due and close this one but I did not realize that it will hurt my score again.

This is an unsecured card, so if I balance transfer it later and then close it I will still be taking a hit on the score right? Paying $59 a year forever just seems like a lot.

Are you asking me a question as to IF they're going to charge you the first year up front or ...?? I dont know if they charge it upfront or not - usually lenders that have annual fees do charge upfront when the card is first opened. You need to read the small print that came with the card to find out how it all works.

As far as closing the card out and what Amy stated - thats correct. If you close an account, it does affect your credit score, even if you paid it faithfully every month on time every time. As soon as you request it closed, your score takes a hit.

Given you have a secured card, I dont know if you can balance transfer it to another card or not. I havent had a credit card in over 2 years and never a secured one so I dont know how that would work. It may be on the small print too - if you can transfer balances to other cards or if you must close the account down.

[Amy26]

I'm not sure how long you should keep it before its "safe" to close it. Generally if you're rebuilding... its best to get a decent card and stick with it for a while. Specially post Bankruptcy because pretty much ALL our accounts have been closed.

Closing accounts also affects the "average age of credit history" calculation... or something like that I can't remember what its called exactly but they do a calculation based on all the cards you have how long you have had credit. I have had this one nick me in the past. I was denied credit because my average length of credit history was too short. Some places look for long standing accounts.

Have you already received the card and activated it? A lot of us were able to get HSBC Mastercards and/or Hooters cards without annual fees...also capital one. I dunno your credit situation and if you're in a place to have another inquery on your file, but I would try for a card without an annual fee before I settled for one with.

The other option, keep it for a year and see if next year you can get the fee waived or threaten to close it and see if they will get rid of the fee. I have seen companies do this....

Hope that helps.

[Flamingo]

Note as to high annual fees on cards obtained right after discharge....you will not be able to get rid of the fee even when your credit is absolutely fine. I obtained an Orchard Bank Mastercard right after discharge in the fall of 2006. The BK was off our credit reports in April 2009...I've inquired twice to Orchard Bank to remove the fee and/or give me a better credit card as our credit scores are right up there close to 800. They won't remove the fee. You will have to close the card to get rid of the fee and they charge that fee at a certain month (the month you open the account) each year. My yearly fee is only $39 but since we have a Chase and Citibank Visa and Mastercard now, we don't need the account anymore and I will take steps in August to close it out. I can't see paying a fee on a card I hardly use anymore (used it to buy gas, clothing, etc. and paid it off every month a week or more before the due date).

[eastbaybk]

Given these economic times the banks are not as flexible as they used to be when waiving fees. Sometimes, as with many things in life, the question we ask determines the answer we get. They may not "waive" the fee but do make sure you ask the bank if you can get a "courtesy waiver" or "courtesy credit" for being a good consistent customer. I've had clients who had a $59 fee and got half of it credited. Worth a shot. Good luck (luck being when opportunity meets preparation)!