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Comment by randomf1fan | Hacker News Reader

I'm always baffled by one thing in these sorts of articles - the belief that paying the minimum due on your credit cards is the right thing to do.

I'm not going to pontificate about living within your means or whatever, obviously people have reasons for doing what they do. But I don't understand how so many people are cheerfully paying the minimums and treating credit as basically an extension on their salary.

I have seen this at work as well, people making low six- figure incomes paying minimums. I've even had someone tell me that paying in full is bad for your credit score.

Is this a generally held belief? Do most people pay the minimum?

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> I've even had someone tell me that paying in full is bad for your credit score

That one I always find interesting. The credit bureaus definitely try hard to make it as confusing as possible, but even then, the amount of urban legends is baffling.

I moved to the US a few years ago knowing nothing of how that stuff worked. 3 years later after getting my SSN I had a credit rating of 760 and got a jumbo mortgage at a pretty good rate. The core of the "formula" for credit rating isn't too complicated. And "keeping a balance on your card and using it regularly" is absolutely not part of it (beyond the fact that many banks won't let you raise your limit if you don't use it, and your total unused credit IS part of the formula)

Credit cards have ridiculous interest rates (like 20%+ min.). It's far better to take out a loan and pay your credit dues since the loan will be at a far better rate (at least half).

Why would any sane person do this (pay min. balance)?

Yes, exactly. That's why I don't get it. I can understand going through a rough patch where you pay the minimum cause you can't afford it, but I cannot understand constantly paying the minimum when you can afford to pay much more

Its possible they are perpetually in a "rough patch" Americans do have a mind set of "temporarily embarrassed millionaire" That would lead to this kind of behavior.

Loans are not given out freely like that, easiest loan you can get is credit card and loans from loan sharks. But a bank loan? You have to explain for what, and have a collateral.

I other words, banks know that people can't pay back credit card debt.

I guess this depends on your credit, but I was able to take out a personal loan from my bank with a few clicks on their website, no big deal at all.

42% of respondents from a 2006 gallup poll said they paid off in full: http://www.gallup.com/poll/22879/Credit-Card-Owners-Average-...

I don't know how much people tie this to paying the minimum instead of paying nearly everything they owe, but there is perverse, pervasive belief that you have to carry a balance on your cards to build credit.

My understanding is that having 0% credit utilization is slightly worse for your credit rating than having 1%-10% credit utilization. That doesn't mean that you should only pay the minimum. My approach is to regularly pay them down to a $10 balance; it's possible this is pointless because it's rounded down to 0% in their calculations anyway, I'm not sure.

Your credit card utilization is a snapshot at a random day in the month. I pay off all my CCs in full every month, every credit report I have seen of myself show 1-90% utilization of all of my credit cards.

(The 90% is my Target Redcard with a $300 limit, pretty easy to max that puppy out... in fact its bad for my credit to even use, as the 90% utilization makes me look in trouble, but it can be hard to pass up 5% savings..)

You can ask for a credit limit increase.

Hah they actually told me "we are not giving credit card increases at this time" for like 3 years. Then they finally sold the business. Then I think I got a bump to 1000? Which still means if I buy an electronic device, I hit 50% utilization pretty quick.

If you carry a $10 balance, you're probably giving up the free float. Since I pay the card off each month, I get between 31 and 61 days of free float on purchases. If I don't pay it off in a given month, finance charges accrue from the date the charge is posted.

As to having utilization on the card, normal usage is enough to ensure that there is always a balance due on the card anyway. (If you spend money on the card regularly, the payment you send in August is for things you bought in July and by the time it posts, you have more August charges on the card, meaning the balance is only ever zero if you do a massive return or if you have a multi-week spending embargo hit at just the time the credit company pulls your report.)

> If you carry a $10 balance, you're probably giving up the free float.

Not sure what the mechanics are behind the scenes, but I keep an eye out for interest charges and I haven't seen any for years.

> meaning the balance is only ever zero if you do a massive return or if you have a multi-week spending embargo hit at just the time the credit company pulls your report.

I think I implemented the $10 policy because I wasn't using my cards very much at the time. Your system makes the most sense for anyone who uses their card regularly.

That is simply not true. There are many factors influencing your credit score in the US, however as far as credit utilization goes, the lower the better. Your credit score is based on how much unused credit you have.

Your bank may not want to increase the limit on a credit card you never use, but that's about it. If you want a high credit score, get the highest limit you can, always pay it off, keep it around for a long time, and never miss a payment for over a month. You also want multiple lenders (a single credit card won't, or multiple ones from the same bank won't cut it).

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