Dumb question about credit

heyimbren

So I recently got my first credit card. I want to make sure that my understanding of credit is correct.

The credit limit I have is not for a certain time period, but just how much the bank will allow me to have in credit until I pay it off, right? So once I pay off how much is on the card, then it goes back down to 0 and I have my maximum limit allowed again (right away)?

Elle1036

Bren!  Hey!

Your understanding of the credit limit is correct.  It's just the max debt you can owe to the issuing bank.  So the "available credit" is the difference between the credit limit and your current balance.

BE CAREFUL using that card.  I made a couple credit mistakes when I was younger that are still haunting me.  But I'm sure you're smarter than I am...

[Deleted User]

Bren! We've missed you!!!

Like Elle said, you've got the credit thing correct. Just be smart and try to pay your balance off every month - it will save you interest and improve your credit score in the long run!

marleylikeair

Hey Bren!

Totally agree with Elle. Be careful. Don't spend money you don't have. Pay off your balance in full by the due date. Please. Listen to a couple of gals who goofed. I'm still trying to drag my credit score back up because I didn't really know how things were supposed to work in that department when I was just out of college.

Mint.com has some pretty sweet financial advice, and it's free. I've created a budget and a plan to pay off my cards, and it feels pretty good!

SKP82

Say you have a $300 credit limit.  You could spend all of that or a portion of it and your credit card company will send you a bill and expect some sort of payment every 30 days (they will have a minimum payment required).  You can pay the minimum or the entire balance at that time.  Depending on how long it takes to process your payment, you will have the payment applied to your balance and that amount of money will be available to you.

For example, your credit limit is $300.  You spend $200 on your credit card.  Your credit card company requires a minimum payment of $25.  You pay $100, so you then have available credit of $200 (and a balance of $100).

At least, that's how it is in the States.

It is suggested to not spend more than 30% of your available credit on your credit card.  I assume you have gotten this card to establish credit.  If that is the case, I would put a few items on it a month and pay it off each month.

I hope this answered your question. 

ETA: Just to clarify, I think you were saying you believe that you do not have a certain time period that you are tied to in regards to your credit limit.  That is not true.  You will be responsible for paying a portion back each month.  It's not only about the credit limit.  Even if you do not max out your card in a month, you will still have to make a minimum payment after 30 days. 

Hazel_B

Ditto Elle, you are understanding correctly.

Here are some other tips that I have learned....if they affect you at all read the fine print of your card to see what your card specifically says. For example,

You could have a $500 limit and buy enough to go over that limit. You'd think that the credit card company would just deny the purchase that sent you over your limit. However, I know with my Mastercard they don't do that, they fine you instead (from what I understand). The only reason I'm even aware of this is that I got a statement recently notifying of all the increases in fees they were making.

Also, another tip, you aren't charged interest on purchases until later but if you do a cash advance they start charging interest immediately (and it isn't cheap).

heyimbren

Yepp, I get it. I just wanted to make sure.

I'm not worried about not paying it. I do online banking and everytime I put something on the card, I pay it off within a couple days online. And I check my online statement before the end of the month just to make sure I have everything.

I never wanted a credit card but my grandpa suggested I get one to establish good credit. And it IS convenient for those pesky online payments at times. It's essentially a debit card that I have to go back and pay off in a couple days.

Thank you, ladies! My friends aren't exactly financial gurus

Hazel_B

Bren - Just a tip, if you are establishing credit, don't pay off your purchase immediately but wait until you receive your statement. I was told this when I was younger by the bank because the creditors (those who establish your rating) only see a zero balance when they look at your bills. Maybe double check that that is indeed correct, but it was what I was told. I'm not saying you have to do that for everything but allow something owing to show on your statement, so you have a paper trail.

* Edited for clarity

[Deleted User]

In Response to <a href="http://forums.theknot.com/Sites/theknot/Pages/Main.aspx/special-topic-wedding-boards_not-engaged-yet_dumb-question-credit?plckFindPostKey=Cat:Special Topic Wedding BoardsForum:136Discussion:b223874a-e1b8-493e-a131-2e8886618f52Post:9524a315-e504-4429-bfbd-a0eca0dd88fc">Re: Dumb question about credit</a>:
[QUOTE]Yepp, I get it. I just wanted to make sure. I'm not worried about not paying it. I do online banking and everytime I put something on the card, I pay it off within a couple days online. And I check my online statement before the end of the month just to make sure I have everything.<strong> I never wanted a credit card</strong> but my grandpa suggested I get one to establish good credit. And it IS convenient for those pesky online payments at times. It's essentially a debit card that I have to go back and pay off in a couple days. Thank you, ladies! My friends aren't exactly financial gurus ;)
Posted by heyimbren[/QUOTE]

I was the same way Bren! I was too scared to charge anything for a while. Trust me though, it can be a really good thing! I was able to purchase my first home, buy my first car and make other large purchases thanks to my credit score. If you start young and are careful with it - it can be a huge asset. Especially in this economy. Just don't let yourself get carried away later...it's easy to get used to "i'll put it on my card" after a couple years with it!

heyimbren

Thanks Hazel, I'll look into that!

It will show up on my paper statements once in a while (I get one every month) depending on when the purchase is made so there is something that shows up there at least.

[Deleted User]

In Response to <a href="http://forums.theknot.com/Sites/theknot/Pages/Main.aspx/special-topic-wedding-boards_not-engaged-yet_dumb-question-credit?plckFindPostKey=Cat:Special Topic Wedding BoardsForum:136Discussion:b223874a-e1b8-493e-a131-2e8886618f52Post:1ef5bc43-5c34-4873-afe4-7a4f9647f850">Re: Dumb question about credit</a>:
[QUOTE]Bren - Just a tip, if you are establishing credit, don't pay off your purchase immediately but wait until you receive your statement. I was told this when I was younger by the bank because the creditors (those who establish your rating) only see a zero balance when they look at your bills. Maybe double check that that is indeed correct, but it was what I was told. I'm not saying you have to do that for everything but allow something owing to show on your statement, so you have a paper trail. * Edited for clarity
Posted by Hazel_B[/QUOTE]

I believe this to be true as well Hazel. They want to see that you pay off your balance, not that you never have one. There are a lot of good articles online that explain how your credit score is calculated and what creditors are looking for. It is also a ding on your credit if you close accounts or open too many at a time...or if you have people check your credit too often. I don't know if anyone has the system completely figured out!

Hazel_B

Bren - it will on paper but when the bank or whoever looks up your credit rating it shows all your outstanding balances and I believe what your last "bill" was, which would be zero if you pay off everything immediately. Talk to someone at the bank about it.

lunarsongbird

Hi Bren!! ::waves:: How are you feeling?

I'm glad you got a credit card. Establishing credit is very important. My bank, Wells Fargo, offers some "credit monitoring" that I subscribe to so that I can see how my credit score changes ever quarter. It's pretty neat.

10 years from now- you'll be very pleased that you established some good credit!

[Deleted User]

HERE is a pretty basic article explaining your credit score. Like I said though, you can find a lot more online if you're interested. I know you'll be awesome with it Bren - You're well ahead of your physical age in so many ways already!!!

becunning2

I agree with Marley:  Mint.com is AWESOME. It's really helping me with my budget.

Wrkn925

The question has already been answered.  I just want to add that this is not a dumb question.

lunarsongbird

Oh yes- P.S. Agree with Wrkn- TOTALLY not a dumb question!

Hazel_B

I agree with Wrkn. 

When it comes to credit there is never a dumb question, a simple misunderstanding of a rule can have long term consequences.

cu97tiger

I already know you are smarter than me because you're paying things off as you charge them. I got my first credit card when I was a junior or senior in college and am STILL paying off all the things I put on that card. For example, I specifically remember a big dinner out with 7 or 8 of my friends where everyone else had cash but I had my credit card. I paid for it, took everyone's cash, but never put it towards the car. It irks me that I'm still paying for that dinner 15 years later. Anyway, don't do what I did ... keep doing what you're doing!

NurseyK

Bren,
Read the fine print. There may be annual fees (example $79) that automatically gets charged to your card whether or not you pay it.

Also, the more you use it and pay on it, the better the credit you'll have. However, the better the credit you have, the bigger the limit they will give you.  You can call the company and say "don't increase my limit" if you want, but keeping a low credit/limit ratio will increase your credit score in the long run.

Another really good resource is anything by Suzie Orman. She is a financial advisor who uses TV and radio to give advice (free advice!). She also writes books. I've gotten into, and out of, big credit trouble. If you have any questions, I unfortunately have already made most of the dumbest mistakes and can answer most anything if you need help. Just PM me.

SeaTea02

I just got a credit card too! I was very concerned that I couldn't pay off my whole balance on the due date, just from the last billing cycle and I called my dad freaking out.

We are grown-ups now, Bren :-)