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BraveCheesecake6090 OP t1_j1z8x32 wrote

Reply to comment by DeluxeXL in How to incorporate credit into budget? by BraveCheesecake6090

I haven’t used the card for much yet but would like to build credit. I’d also like to pay things off in a fair amount of time so I can cover both smaller expenses but also larger expenses by freeing up credit easily

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t-poke t1_j1z9f02 wrote

> I haven’t used the card for much yet but would like to build credit.

You can build credit with a credit card without paying interest.

> I’d also like to pay things off in a fair amount of time

If you're not paying the full statement balance each month, then just stop right now. Do not use credit cards to pay things off over time.

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Loutro-Fift t1_j1z9f0m wrote

Set up your utilities and subscriptions to be paid by the card. Pay the card off monthly. Don’t use the card to buy things you can’t afford. Don’t maintain a balance on the card, this isn’t free money.

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FerrociousButtn t1_j1z9nv4 wrote

I think what they were saying is that you should create your budget independent of your credit. E.g. your income of $x,xxx with $xxx going into savings, $xxx for expenses, etc. The only time your credit comes into play is using it to pay for those already budgeted expenses. I cannot stress enough that you should only put what you can pay off immediately on your credit card to avoid carrying a balance and creating debt. Even by putting small purchases on your card will build credit if you pay it off in full at the end of the cycle.

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BraveCheesecake6090 OP t1_j1zcb1w wrote

Ok I think I understand, I thought the wisdom was to keep the balance to what you can pay by the end of the month. I’m not suggesting I increase my budget for x BECAUSE of credit but rather suggesting if it would be a wise choice to “replace” my usage of the “variable” debit card with the credit card so that by the end of the month I have a full pay check stashed away to use to pay off the credit card amount RATHER than the current system when I have half a paycheck every 2 weeks, with the first “2 weeks” having a fair portion going immediately to bills. Obviously there are ways to budget around this so it doesn’t feel like I have significantly more money in the second half of the month than I do in the first half but I wonder if it would be easier to think and plan around those expenses using a credit card — although perhaps just moving all my utilities into the card all together would be easier? And then just using the $200 or so saved on the “static” account to go towards the credit balance EOM ?

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DeluxeXL t1_j1ze8mk wrote

Based on your comment, you still have the mindset of someone living paycheck to paycheck.

Once you have a one-month buffer in your checking account, when you get paid and when expenses are paid no longer matters.

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BraveCheesecake6090 OP t1_j1zf4pv wrote

Hm i wonder if that’s a symptom of how I have my finances organized. I’m in the process of turning my 1 month buffer I currently have into a healthy 3-6 month emergency fund. It’s a little juvenile but it keeps all the bills paid on time, a consistent amount going into savings, kitchen stocked, etc. but does keep me perhaps overly wary of larger purchases like new (and needed) furniture.

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DeluxeXL t1_j1zfrjc wrote

> I’m in the process of turning my 1 month buffer I currently have into a healthy 3-6 month emergency fund

They are not the same thing. You should put the emergency fund in a separate savings account. Your one-month buffer stays in the main checking account.

Open a 3rd account to save for short term needs, like furniture and sinking funds.

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BraveCheesecake6090 OP t1_j1zgp7p wrote

Ah ok! This was something I had been thinking of doing once I hit 3 months in the emergency fund. (Holiday spending might have set me back a bit but I should be to that point by the end of February or so)

This is my first job out of college and I was basically broke once I took it after paying for associated moving expenses so savings has been a little slow.

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DeluxeXL t1_j1z9kmr wrote

> I haven’t used the card for much yet but would like to build credit.

Only requirement to build credit is to pay obligations on time. You don't have to carry a balance to build.

> I’d also like to pay things off in a fair amount of time

21 days is a fair amount of time.

> so I can cover both smaller expenses but also larger expenses by freeing up credit easily

You have savings. Use it. It's very expensive to borrow with a credit card past the due date.

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gbtx96 t1_j1za32t wrote

You can build credit without carrying a balance. Keep your credit utilization low (less than 30%, even better if you can do less than 10%) at the end of your billing period. You may want to make mid-month payments to achieve this.

Request a CLI at whatever interval the card issuer will allow you to (usually 6 or 12 months) - that will also help you keep your utilization low.

Spending money you don’t currently have in your checking account is a slippery slope and will likely end up hurting your credit in the end.

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certifiedintelligent t1_j1zclwa wrote

Using the card more does not build more credit. Don’t fill up the card, do pay it off every month and your credit will slowly rise.

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BraveCheesecake6090 OP t1_j1zd4ga wrote

Right! I just meant I want to make sure I’m keeping the card active every month rather than treating it as a “last option” and ending up with holes and dry spells in my credit history

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FleetAdmiralFader t1_j1zgf8c wrote

From a credit risk perspective it is best to use <3% of your total credit line at any time. For you with only one card with a $3k limit this means $90. So if you consistently have a balance above that, let's say $200 you will get slightly dinged for "high utilization".

Your goal should be to always pay off the card fully each month and keep the card active. Active does not require a purchase every month but rather once a year or so, whatever prevents the card from being closed by the issuer.

You should put a Netflix subscription or something similar on the card and then use it however much or little as you want as long as you pay the balance each month.

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certifiedintelligent t1_j1zjci4 wrote

Holes and dry spells aren’t a thing so long as the account is open. I have 14 credit cards (sign up bonus collecting), I use 1 on a regular basis, maybe 3 in a given month (depends on perks and types of purchases). The rest rarely if ever get used but consistently report “paid as agreed” to the credit agencies every month.

IF you can be responsible with it and pay it off every month, the credit card should be your first choice to pay for things because of the protection and perks (if any). For example, if someone skims your debit card and steals from your bank account, it’s a pain to fix that takes time. If someone skims your credit card and racks up false charges, you simply tell the card company you didn’t make those purchases and you don’t lose a cent.

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