‘If I were to open a card for like $400 and use most of that money but pay it off well before the 60 day limit, will I be penalized for that?’: Confused about credit card usage and impact on credit score. How can I use my card wisely without damaging my score?

Hi Money Minder,

So, I’m looking to open my first credit card for a couple of reasons. First, I want to build up my credit score a bit. Second, I’m a bit tight on cash for the next month or so. My plan is to open a card with a limit of $400 (about 320 in usd) and use most of that money. However, I will make sure to pay it off well before the 60-day limit. Do you think I’ll get penalized for that?

I’m a total newbie when it comes to credit cards and money management. I mean, nobody really explained this stuff to me growing up, so forgive me if this sounds like a silly question . I’ve heard that using more of your credit limit can drop your score, but if I pay it off on time, will that still happen?

Thanks so much for your help!

Cheers,
Financially Confused

Response from THE MONEY MINDER:

Hello There,

Hey there, it’s great that you’re taking steps to build your credit score and manage your finances responsibly. Opening a credit card can be a helpful tool when used wisely. In response to your question, using a credit card for necessary expenses when you’re short on money can be a smart move as long as you pay off the balance before the due date.

When it comes to credit card usage, your credit score can be affected by the amount of credit you use compared to your credit limit, known as the credit utilization ratio. It’s generally recommended to keep this ratio below 30% to maintain a healthy credit score. However, using most of the $400 credit limit and paying it off promptly should not negatively impact your score, especially if you pay it off before the statement date.

To avoid any penalties or interest charges, make sure to pay your credit card balance in full and on time each month. By doing so, you’ll not only build your credit history but also avoid unnecessary fees. Additionally, consider keeping track of your spending and creating a budget to manage your finances effectively.

Remember, building credit takes time and consistency. By using your credit card responsibly and paying off your balance in full each month, you’ll be on the right track towards achieving your financial goals. If you have any more questions or need further guidance, feel free to reach out. Good luck with your credit-building journey!

Farewell from THE MONEY MINDER.