How does PayPal's Bill Me Later thing work?

[CFFJR]

Even better, only use that card to purchase fuel, so you're not motivated to go blow money.

That's...actually a really, really awesome idea. Maybe I'll look into getting a credit card soon...

Good man.

And believe me, it works, particularly if you don't carry the card with you at all times. It'll force you to plan your trips and think about how you spend the money.

Just remember, both of you, to pay it off every month without fail. Doing this will build your credit score over time.

One other thing, when you go after your first card: Do your damnedest to get a card with a fixed rate apr. If you get a variable rate, they can change your interest rate at will, and that can really fuck you over if for some reason you've racked up a lot of debt.

It won't matter as much if you're careful about your spending and pay off the bill regularly, but its something to keep in mind.

[Parn]

Don't pay off your credit card bill in full every month if you're intent on building credit. Your credit score is indicative of two factors: the ability for the lender to make interest off of the money you're basically borrowing, and your reliability with regard to making payments. If you pay your entire credit card bill off every month, the lender will never make any money from interest. Your credit score will not go up as a result. Additionally, missing any monthly payments will impact your credit negatively because it reflects you as unreliable and/or inconsistent with payments.

Basically, you want to strike a balance when it comes to building credit. You never want to miss a payment, but you want to also let the lender make a little money. Don't pay the entire bill every single time. Just keep the balance really low and maintain that for awhile, a figure under $50 so that you're not being raped from interest but the bank is making something off of your account. Your credit score will slowly go up over time.

[Limewater]

Don't pay off your credit card bill in full every month if you're intent on building credit. Your credit score is indicative of two factors: the ability for the lender to make interest off of the money you're basically borrowing, and your reliability with regard to making payments. If you pay your entire credit card bill off every month, the lender will never make any money from interest.

I believe this is a myth.

[Parn]

There is debate on exactly when the account balance is reported to credit agencies... before or after the payment is due. There are conflicting reports on that. What can be said for certain though, is that a $0 balance for the month on a credit card can negatively impact credit because it reflects an unused account that costs money to maintain. If your account balance is reported to the credit agency before you make payments every month, then you're fine.

Considering that your credit score is nothing more than an indicator of risk with regard to the ability to make money off of a person, someone who pays their bill in full every month is not someone you can make money off of, which is the entire point of the credit industry.

[CFFJR]

Cleared this post because I keep thinking back on my own experience and didn't feel right about it...

[gtmtnbiker]

Don't pay off your credit card bill in full every month if you're intent on building credit. Your credit score is indicative of two factors: the ability for the lender to make interest off of the money you're basically borrowing, and your reliability with regard to making payments. If you pay your entire credit card bill off every month, the lender will never make any money from interest.

I believe this is a myth.

Agreed. Even though I always pay off my credit cards in full every month, whenever I get a credit check for a home loan, the check always shows some sort of balance for each card (I only have 2) and a code for each month that states whether I paid on time or was late.

The other issue with keeping a balance is that you will pay interest on the small amount plus anything you charge that month. It won't be just on the small amount.

[gtmtnbiker]

What can be said for certain though, is that a $0 balance for the month on a credit card can negatively impact credit because it reflects an unused account that costs money to maintain. If your account balance is reported to the credit agency before you make payments every month, then you're fine.

Completely wrong. Keep in mind that even though someone does not pay any interest, a credit card company still makes money on every transaction that you do. They get a fee from the merchant which you indirectly pay in the form of higher retail prices. This is why some merchants will post signs that a minimum credit card transaction must be $10 or $20. At one time this was illegal but I seem to read somewhere that it's now allowed for transactions under a certain amount ($10?).

[Parn]

Rather than play this back and forth, anyone wondering about credit can read up on it straight from the horse's mouth.

http://www.myfico.com/CreditEducation/W ... Score.aspx

[Limewater]

Rather than play this back and forth, anyone wondering about credit can read up on it straight from the horse's mouth.

http://www.myfico.com/CreditEducation/W ... Score.aspx

That doesn't really answer the question we're arguing about. The actual algorithms used for calculating a credit score are proprietary.

Also, for what it's worth, I pay my credit card bill off in full every month, yet alway have a positive balance on the card. Say my bills coincide exactly with the months on the calendar. I spend money in April, and my bill for that comes due on May 15th. I pay off the entire bill on May 15th, but the charges for the gas I bought on May 10th are still on the account.

But yes, credit card companies make money off of folks using their cards and paying them off every month. That's how they can afford their rewards programs.

[Parn]

That doesn't really answer the question we're arguing about. The actual algorithms used for calculating a credit score are proprietary.

Probably because it wasn't intended to answer the bit that we were arguing about. I thought the sentence preceding the link made that clear, but...

But yes, credit card companies make money off of folks using their cards and paying them off every month. That's how they can afford their rewards programs.

No, credit card companies can afford their rewards programs because credit cards with rewards programs generally carry higher interest rates than those without. Families armed with rewards cards also tend to use their cards more often than those that don't, many of them out of a desire to "maximize their rewards". Credit card companies are counting on the consumer to not be savvy and pay their bills in full because the interest charges will exceed any rewards program costs. Given that the average credit card debt per household in the United States is over $14K, they're playing their cards right (pun intended).