0% APR Question...

Discussion in 'Buying Tips and Advice' started by superwoman, Feb 15, 2006.

  1. superwoman macrumors regular

    Joined:
    Apr 25, 2005
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    Monterey,CA
    #1
    I was told that we should always clear our credit card bill every month, so as to maintain good credit records. But with 0% APR, what happens to my credit history when I don't clear the amount in full at the end of the month?
     
  2. TsuaSai macrumors 6502

    Joined:
    Jan 9, 2006
    Location:
    TX
    #2
    How long is the 0% APR offer for? A lot of places offer it for six months or a year. In which case I normally pay if off slower. But I always pay it off about 3 months before the end. Cause if you are one day late they will hit you with some crazy amount of intrest.
     
  3. Sdashiki macrumors 68040

    Sdashiki

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    #3
    0% APR is the bane of the credit industry.

    I personally have a few cards, and have had quite a few before the ones currently. Why? Because I always balance transfer from one card to a new card before its 0% period is up.

    That way I am never paying interest.

    I always pay more than the minimum due, and I am always on time with payments.

    I hate credit cards, and I wont get into how I got the debt on the ones I currently have, but when they are paid off I wont use them again.

    Always have a 0% APR card handy, you never know when you might need it.

    Just dont trust AMEX's 0%, they charge a fee for balance transfers to the 0% (sometimes $30+ per card) and if you are late one ONE payment, your 0% is removed and replaced with the current percentage (like 19%+) and all the interest deferred prior is added on. So DONT BE LATE.
     
  4. mfacey macrumors 65816

    mfacey

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    Feb 1, 2004
    Location:
    Netherlands
    #4
    Unless you want to end up like the vast majority of the US population: up to you ears in debt, you should just not spend more than you can afford.

    ALWAYS pay off your credit card bill 100% when its due. 0% APR is nice while it lasts, but he first payment you realize you don't have 0% APR anymore you're going to get slapped in the face with hefty interest.

    Credit cards are a great way to purchase things and delay payment, but they get abused tremendously and can cause people serious financial issues. As long as you know how much you can spend you'll be fine.
     
  5. Sdashiki macrumors 68040

    Sdashiki

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    #5
    I had to charge stuff that I never thought I would, like bills and a few groceries, over a summertime span.

    Thus, I got about $2000 in debt on my cards, and since I dont have that kind of money to toss about I slowly pay if off, and when a 0% finishes on one card, I move it to the next.

    I of course DO NOT EVER recommend HAVING a credit card in the first place

    or

    if you must have one, to only use it to save on pulling out cash, get rewards/benefits.

    having debt is stupid.
     
  6. mpw Guest

    Joined:
    Jun 18, 2004
    #6
    I heard on the radio a little while back that borrowing on UK credit cards accounted for 75% of borrowing in the EU!

    What happens when all these people reach the age of retirement and still haven't cleared their ever growing debts?

    I think that at some point in the next 20years there are going to be periods of massive personal bankruptcies which will lead to massively huge losses at credit providers and real dents in the UK’s economy as a whole as people reject credit and credit providers become as stringent as they should be now.

    I may be a pessimist but it's, the economic timebomb, one of the few things that scares me in a similar way to nuclear war did as a kid in the early 80's.
     
  7. mpw Guest

    Joined:
    Jun 18, 2004
    #7
    Guilty as charged.
    *goes to sit in corner*
     
  8. grapes911 Moderator emeritus

    grapes911

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    Citizens Bank Park
    #8
    The advice I'm going to give does not have anything to do with 0% APR, but rather credit cards in general. This advice came to me from a mortgage loan officer (I think that is her title). This is for the US. I have no idea if it is in the same in other countries.

    Not having a credit card will screw you in the long run. When you go to get a larger loan (car, house, etc) it will be extra tough to get good terms. No credit is almost as bad a bad credit. If a company doesn't know if you will be a good choice for a loan, then they don't rate you much higher than someone they know will be a terrible choice for a loan.


    This is generally a good idea, but not a great one. If you always pay 100% of your credit card bill you are not earning much credit at all. This is really not different than not having a credit card. Every once and a while (once or twice a year), pay off the minimum balance due. Take the small finance charge, and the next month pay it all off. This makes it look like you planed out a future payment in advanced even though you didn't have the money right then and this looks very good when compiling a credit score.
     
  9. mpw Guest

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    Jun 18, 2004
    #9
    Financial planning? You don't know me at all do you?:D
     
  10. coal macrumors regular

    coal

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    Oct 22, 2005
    Location:
    Portland, OR
    #10
    I don't know about your source for this information, but this is entirely unnecessary. Most people pay their credit card after their statement for that month has been generated. When this is done, the credit bureaus recieve an update with the status of the account as of the statement date. As a result, your account WILL show that you're carrying a balance regardless if you pay the balance in full or merely pay the minimum.

    In regard to the 0% promotions sometimes offered, keep in mind that credit card companies reserve specific rights outlined in their universal default clause.

    This means that once you have established an account, the card company that you have a relationship with will monitor your credit report frequently. If they notice any change at all with ANY of the relationships with ANY of your creditors, then they reserve the right to alter the agreement between you and them. (Meaning they can revoke their 0% offer.)

    As previously stated, it is a good idea to avoid carrying a balance on any credit account if possible.

    Keep in mind though, if you are planning on carrying a balance, try to keep the balance low as a percentage of the total credit available to you. A general rule of thumb is to not go over 25-30% of the total credit line.

    Take care of your credit!
     
  11. rjfiske macrumors regular

    Joined:
    Dec 8, 2003
    Location:
    Washington State
    #11
    credit cards and credit score

    superwoman,

    Since you asked about credit history, I'll chime in with one more myth... that paying off a credit card, then closing it, helps your score.

    WRONG WRONG WRONG.

    Paying off a credit card is absolutely fine (and will help your score of course).. But closing credit cards you don't use actually can worsen your score, not improve it. (grapes911 hinted at the similar notion of not having available credit). It seems counterintuitive but here's the idea... straight from one of my clients:

    She had 3 cards, all maxed at $3,000 apiece. She moved all three to a fourth card, at $9,000 (obviously), with a $9,000 limit, then closed the first three. So what do the credit agencies show? That she had zero available credit and only one open credit line. What would the agencies show if she had left them open? That she had $9,000 available credit ($3K apiece on the now-paid-off cards) and four open credit lines.

    But this is just ONE of a number of things that can effect your score. Getting back to the original point... I've always seen that having available credit (room between what you owe and what the limit of the card is) is vastly more important than carrying a zero balance month to month.

    For what it's worth...

    rjfiske

    edit: DARN IT COAL! You beat me to it!
     
  12. jeremy.king macrumors 603

    jeremy.king

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    Jul 23, 2002
    Location:
    Fuquay Varina, NC
    #12
    I can definitely say this is true, it has happened to me...Rate was jacked from "fixed" 7.9 to 24.99. So I paid the balance off almost immediately and asked for reinstatement of my original terms. They wouldn't budge so I told First USA (then Bank One...now Chase) to go **** themselves as I closed my accounts (1 cc, 1 bank account).

    Edit: I also listen to the Clark Howard show for interesting financial related information. Definitely check out his site.
     
  13. D0ct0rteeth macrumors 65816

    D0ct0rteeth

    Joined:
    Mar 11, 2002
    Location:
    Franklin, TN
    #13
    There is a ton of misinformation in this thread. Typical of debt conversations.

    All credit cards are bad. If you can't afford it, dont buy it. Period.

    I have no credit cards. No debt (other than my mortgage) and by approaching a mortgage lender and having a 25% down payment I purchased a 425,000 home. If anyone tells you that you need to have a credit card in order to by a car (which I wouldnt finance anyway - pay cash, idiot) than run away. as fast as you can.

    Any financial guy who actually HAS MONEY (isnt a broke banker with a leased car) will agree with me. Credit cards and debt only destroy your financial stability.

    Read some Dave Ramsey and Thomas Stanley books. Preferably from the library (its free :))
     
  14. jeremy.king macrumors 603

    jeremy.king

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    Jul 23, 2002
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    Fuquay Varina, NC
    #14
    To have a credit history, you need some form of a credit line, whether it be a credit card or loan of some sort. While I agree all credit cards are bad, you won't be getting a $318K mortgage loan without a credit history....period.

    PS...your mortgage, while considered a good debt, is still debt. So you can't say that debt destroys your stability...
     
  15. Sdashiki macrumors 68040

    Sdashiki

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    #15
    credit comes from many sources.

    bank accounts
    cars
    homes
    and credit cards

    the world is not run by credit cards, but financially it IS run by CREDIT SCORES.

    but isnt using the word CREDIT and SCORE together misleading, when you dont ever need a credit CARD to have credit.
     
  16. D0ct0rteeth macrumors 65816

    D0ct0rteeth

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    Location:
    Franklin, TN
    #16
    If you can show 2 years of rental history, a tax return showing the mortgage is 25% of your monthly salary, stable work history (2 years employment in your industry), and no negative debt history (bankrupsy/late payments) any quality mortage underwriter will approve it. A good credit history makes it easier of course - as does a 750 credit score, but it isnt necessary.

    True enough. Which is why I am planning on paying off the mortgage ASAP.
     
  17. jrk07 macrumors regular

    Joined:
    Oct 24, 2005
    #17
    Well what about for somebody who is trying to get their first car. You need credit to get that car loan (maybe not REQUIRED, but def. for a good APR), and the same for a home. So that leaves Bank Accounts, which I doubt do much at all for your credit since you aren't paying any bills, and CREDIT CARDS. They are a necessary evil if you ask me.
     
  18. Sdashiki macrumors 68040

    Sdashiki

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    #18
    agreed they are a necessary evil, but not required to function in society like everyone else.

    if you dont have a CC, you just buy what you need and can afford.

    if you cant afford a car, you dont need one, sucks to be you, but thats life.

    not everyone gets a mortgage in their lifetimes either, most likely because they could NEVER afford one.
     
  19. rjfiske macrumors regular

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    Dec 8, 2003
    Location:
    Washington State
    #19
    sorry but...

    All credit cards are NOT bad.

    Having maxed out credit cards, needlessly buying things you cannot afford, making only the minimum payment due, buying everything with debt.. these are what is bad. The cards themselves do not cause evil... the user does.

    There is nothing wrong with having credit cards you don't use (or else use and make the full payment month to month). There is everything wrong with having cards and running them up with little regard to how much interest you are paying.

    I want to differentiate between the two. Saying that you should never have credit cards is rather extreme. But as has been eluded to, "credit" comes from many sources. Some are bad, some are necessary, some are dare I say good. To make a blanket statement that all debt is bad is to not take into consideration the condition or financial goals of the user (nevermind, most business owners and financial investors would disagree).

    rjfiske

    p.s. Dr. Teeth, did someone really tell you that you need a credit card to buy a car? Or was it you need credit "history" to buy a car?
     
  20. Sdashiki macrumors 68040

    Sdashiki

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    #20
    thats the word I wanted to use, credit history.

    where does that come from?
     
  21. D0ct0rteeth macrumors 65816

    D0ct0rteeth

    Joined:
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    Location:
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    #21
    grapes911 and JRK07 are suggesting that large ticket items (cars, houses and so on) require a credit history. Im suggesting otherwise.
     
  22. topher macrumors member

    Joined:
    May 1, 2004
    #22
    Back to the original post/question...

    Among the many things that impact your credit score, two important ones are:

    1) Do you always pay at least the minimum payment, on time.
    2) What is the ratio of credit card debt to available credit.

    Whether you pay in full, or make a minimum payment, you are building a good standing with regard to item 1. But carrying a balance doesn't "help" your credit score, because it actually hurts you with regard to item 2.

    Now, if you're really considering paying these off monthly, vs. letting it ride, you're probably not talking about thousands of dollars, which means that it may not impact that ratio very much. So the amount of "damage" that you do might be very very marginal. But the idea that carrying a balance helps is wrong.

    Interestingly, if you can keep the 0% thing going forever (highly doubtful), then you could theoretically invest that money in some other asset (CD, Home that is appreciating) and gain money on the investment while not losing money on the CC debt. But again, if we're talking about a value that you could (if you wanted) pay every month, we're probably only talking about very marginal gains on any kind of investing.

    Just a thought.
     
  23. rjfiske macrumors regular

    Joined:
    Dec 8, 2003
    Location:
    Washington State
    #23
    As far as it pertains to houses, you're both right (or rather all three of you are right). Fannie Mae guidelines SPECIFICALLY require a valid credit score for the borrower before the loan will be purchased by them. Therefore most lenders have this same requirement. Having a valid score means having a valid history (including but not requiring the dreaded credit cards mentioned). So they're right.

    But of course not everyone has credit history. So as you mentioned, you can provide rental history, utility bills, etc. to get around this requirement. You're right too.

    What's the downside to doing it their way? You need to have credit lines in your past. This shouldn't be an issue to most people but there are some people like you who aren't comfortable with this. It isn't "wrong" as far as I'm concerned, it's just a comfort thing.

    What's the downside to doing it your way? Purchasing a house is incredibly complex... you have the listing agent and the seller to convince that you are a worthy buyer. Doing this while not having a credit score is time consuming, a hassle to the buyer, a hassle for the lender, etc. All of these delays provide even the slightest opportunity for the seller to move on to a "better" buyer. Or in a worst case scenario it limits where the lender can shop for the best rate, lowest closing costs, etc., which could potentially cost the buyer thousands of dollars in higher interest over the life of the loan. (I know of three lenders for instance who give a 0.125% price break for clients who have a FICO over 740, for instance). And I know some lenders who will not give loans for borrowers who put less than 20% down, again limiting their choices.

    You both are right (and you both are wrong), just not on every case and with every client. But as I've said, I would never tell a client that having a credit card is foolish. I'd only stress to them that using the credit card irresponsibly is foolish.

    on-topic again... yes it is NOT required to carry a balance on your credit cards in order to have a good score. The much more important factor is how much available credit you have (on top of good payment history, no bankruptcies, etc).
     
  24. WildCowboy Administrator/Editor

    WildCowboy

    Staff Member

    Joined:
    Jan 20, 2005
    #24
    Wow. I agree 100% with your second statement, but certainly not your first. As long you pay off your balance every month, there are several great reasons to have a credit card.

    1. Rewards cards...I get 5% back at the grocery store, gas station, and drug store when I use one of my cards. 1% everywhere else. Why would I turn down free money?

    2. Convenience...carrying a credit card is a lot easier (and safer) than carrying around loads of cash or a checkbook.

    3. Deferring payment...putting off your payment for up to a month keeps the money in your pocket, where you can earn interest on it.

    I'll leave the arguing about credit score relevance and impact to others...
     
  25. TsuaSai macrumors 6502

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    Jan 9, 2006
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    TX
    #25
    I think the problem is that most people don't have the discipline to pay there bill off every month.

    If you dont think you can do it and don't get one.
     

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