I seen posts saying utilization is pretty much a myth and only a thing to worry about if someone has an application within the next month or 2. I am a college student and want to build as much credit as possible before I am out of college as to make it the best possible situation for me to own a home. Making interest payments lower, the overall monthly payment lower, etc…
Now, seeing as that utilization is pretty much useless since my plan all along has been to use my credit card and pay it off completely at the end of every month, is a secured card not the best for that? I have Chime Credit Builder and for the past few years I have had every paycheck I earn goes straight to it and then I just use that for everything, so does that not just equal what I would be doing with an unsecured card pretty much? So, is a secured or unsecured card better for building credit, and why?
Also, as a college student, my monthly interest rate right now is $9.16 a month. I have a total of $5,602 in student loans. How much should I be paying off a month to best build my credit? Is it best to pay it all off ASAP like if possible just flat out pay the $5,602 right now or do monthly payments of small amounts, ty.
> Now, seeing as that utilization is pretty much useless since my plan all along has been to use my credit card and pay it off completely at the end of every month
If by “pay it off completely” you mean pay your statement balance in full, that’s exactly the right approach. If you mean pay it to $0, however, that’s not the right approach / isn’t the way credit cards are designed to be paid.
> So, is a secured or unsecured card better for building credit, and why?
Neither is better than the other. Both accomplish the same exact thing with respect to your credit file and “building” credit.
> Also, as a college student, my monthly interest rate right now is $9.16 a month. I have a total of $5,602 in student loans. How much should I be paying off a month to best build my credit? Is it best to pay it all off ASAP like if possible just flat out pay the $5,602 right now or do monthly payments of small amounts, ty.
It’s never better for your credit to pay off debt slowly rather than all in one shot, although it’s a common myth to believe otherwise. How fast you pay off that student loan debt should be a financial decision, not a credit profile/score decision.
@Zorion
> If by “pay it off completely” you mean pay your statement balance in full, that’s exactly the right approach. If you mean pay it to $0 however, that’s not the right approach / isn’t the way credit cards are designed to be paid.
Oh, I did mean to pay it to $0. I don’t know how credit cards work at all; with my credit builder, I just use it as a debit card pretty much.
I’m not fully understanding so hopefully this question will help me, lol. If I paid $100 to my student loans per month using my credit card, would I not want to pay off all that $100 in my credit balance by the end of the due date or whatever it’s called?
@Tristan
Credit cards are designed to be paid just like any other monthly bill (cable, electric, Netflix, whatever) where you wait until you receive your bill (statement) and THEN pay the statement balance by the due date on it. Think of your credit card like your electric bill. You use your card throughout the month, growing your current balance the same way you use electricity throughout the month, which is adding to your bill. At some point when the statement period ends, you are provided with your bill and are given (say) 3 weeks to pay it. During those 3 weeks, you’re still using your credit card the same way you’re still using electricity. Your statement balance may have been $200 when it generated 3 weeks ago. You’ve continued to use electricity though, the same way perhaps you’ve used your card for another $100 in purchases. Come the due date, you’re not supposed to pay $300. The reason why is that you’ve only been billed for $200. $200 is your bill. You aren’t supposed to pay more than your bill. You wouldn’t pay your electric company $300 when your bill only says $200, right? The same is true of credit cards. If you’re paying your credit card to $0, you’re paying beyond your statement balance for charges that you haven’t been billed for yet because they haven’t yet landed on your statement. Let me know if that makes sense.
@Zorion
Yeah, that makes sense, thank you. Should I be using my credit card for everything (that I have money for to pay it off)? Or are there times where using a debit card is more beneficial than a credit card?
It’s not a myth per se, as its effects are real. It’s just that it has no long-term impact whatsoever and constraining your utilization serves absolutely no purpose unless you’re actively applying for more credit.
> is a secured card not the best for that?
It doesn’t matter from a credit-building perspective as long as you’re paying bills on time. Secured cards are often an inevitable starting point for someone with a limited history, but they’re undesirable in the long run since your own money is collateral, the perks/benefits are nonexistent, and the limits very low.
> How much should I be paying off a month to best build my credit?
Whatever your monthly student loan bill is or whatever more you can/want to pay; these sort of “hacks” you’re looking for are useless in the long run. Just paying on time over a long time is the best way to build a good credit foundation. A lower outstanding balance is generally more beneficial, though, but nobody can assess the exact impact on your specific scenario.
Finances over FICO is also important. Pay your loans because you don’t want to pay interest, not because you want to structure it in a way to make a significant impact on your score (which it won’t). Similarly, don’t pay student loans in a lump if you’re getting a better interest rate on storing those savings elsewhere, like in a HYSA.
@Devlin
>It doesn’t matter from a credit-building perspective as long as you’re paying bills on time. Secured cards are often an inevitable starting point for someone with a limited history, but they’re undesirable in the long run since your own money is collateral, the perks/benefits are nonexistent, and the limits very low.
So, should I even get an unsecured card or just stick to my chime builder one? And am I using it correctly by just having all of my paychecks go to my credit builder account and spending it like a debit card and not going negative?
@Tristan
It’s up to you, but I don’t know many people who would ever specifically choose a secured card over an unsecured card. Why use your own paycheck as collateral when unsecured cards — beyond what I mentioned previously — are basically 30-day interest-free use of the bank’s money (assuming you’re continuing to pay your statement balance in full)? You’ll also get a better return by keeping your money elsewhere until you pay your statement.
@Devlin
I think I understand, thank you. Should I be using my credit card for everything (that I have money for to pay it off)? Or are there times where using a debit card is more beneficial than a credit card?