Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
I have recently gotten a high interest rate credit card with a low $300 credit limit. I used the $300 credit and made my first payment of half my credit line ($150). I still show no available credit. How long before I can use the $150 I paid back in? Am I looking at this the wrong way? -- Shawn
I commend you for paying such close attention to your credit card activity. By keeping a focused eye on your statements and credit reports, you can monitor your good progress as well as spot errors. Then, if anything needs addressing, you'll be on it before damage can take hold.
That said, you may be a little overzealous in this matter. It takes an issuer a little time to credit an account with a payment. Until it does, the balance will remain what it was before the bank got it. It's been a few days since you wrote to me, and by now I'm certain the issuer has your money, so the remainder of your charging limit should now be available.
To know exactly how long it takes for this particular creditor to process payments, pick up the phone and call the number on your card to ask them. The representative should be able to give you a precise answer. In fact, another healthy habit to adopt is regular communication. Too many people avoid calling their creditors when they have valid questions and concerns. Yet doing the opposite is the best approach. Lenders want you stay on track almost as much as you do. After all, if you default, they lose. It's expensive to have employes call you about a bill, and to sell delinquent accounts at a loss to collection agencies. If they can help you mitigate problems, they will.
As for the way you're using your account, typically I steer cardholders away from charging up to the limit and then only paying half. First, it hurts a FICO score. One of the most important factors in FICO's rating system is your credit use ratio -- the amount of debt you're hanging onto in relation to the amount you can borrow. It's a sliding scale, with owing nothing at the good end. Owing it all hurts your score a lot; owing half still hurts, but not as much.
Second, paying in full is best for your overall financial health. If you always pay the balance in full, you'll never spend a penny in interest charges. This is especially important for you, because your credit card comes with a high interest rate. The finance charges that will be tacked on to what you rolled over to the next month will be especially costly.
However, because your credit limit is so low, even a small revolving balance -- such as $150 -- can push you over the recommended ratio. So be careful. You can stay out of debt and build a positive credit score by only charging inexpensive things, then sending the entire amount due by the date on your statement. By doing so, you're also developing an excellent relationship with your credit card company. After about a year, you will probably be eligible for a larger credit line. If they don't automatically offer it, again, give them a call and make a request.
While you're on the phone, also ask for a lower interest rate. Terms are largely based on past behavior, so if you have consistently treated the card well, the issuer should be more than happy to accommodate you. You may also qualify for other credit cards from different banks. Exercise your power as a consumer and check out better offers.
Rest assured, Shawn, that you are indeed looking at account management in the right way -- you just jumped the gun a bit.
See related: FICO's five factors: The components of a credit score
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