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Besides the obvious interest implications if not paid off, would I be better off having recurring monthly charges going to a Visa debit card than a Visa credit card, for credit score reasons, or if my $4k limit car pops up to 200 and is paid off monthly, is that fine?

I like the consumer protection afforded by the credit card, but the thought came to mind.

-NevDullNJ
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No.

The debt card is just that. It provides no indication of your ability to handle debt.

Having the trasnactions go through a credit card will help. It will not help as much as running a balance. I am not sure of the exact, added benefit on your credit score.

Think of it this way.

A credit score is a grade for how well you preform in the lab called 'managing debt'. If you never have any debt the scoring system has little to work with.

Debt is neither good nor bad. It depends on what you do with it and how you manage it. The score reflects that fact. It measures how risky you are and one axis is the amount of debt vs. capacity to pay. The other is your track record in the past.

John
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A debit card will have no impact on your credit rating because the activity is not reported to the credit reporting agencies -- they (i.e., the checking account backing them) won't show up on your credit report at all. Only true credit card accounts will show up.
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Only true credit card accounts will show up.

Only true credit card USERS will care.

About the only benefit a CC has over a DC is the rewards offered for CC purchase, but that's not a big one. One can argue (and I have) that those rewards provide incentive for impulsive buying--like an appetizer, or that thing sitting at the end of the aisle at Home Depot.

Fred

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NevDullNJ,

You wrote, Besides the obvious interest implications if not paid off, would I be better off having recurring monthly charges going to a Visa debit card than a Visa credit card, for credit score reasons, or if my $4k limit car pops up to 200 and is paid off monthly, is that fine?

I like the consumer protection afforded by the credit card, but the thought came to mind.


Making purchases with your credit card and paying them off monthly may help establish a credit/payment history on that account. Most accounts don't report anything on months they are inactive. Charging up $200 on a card with a $4,000 limit isn't going to have a negative impact on your FICO, unless you're already maxed out on other revolving accounts. In general, I think the activity you're suggestion would have a neutral to mildly positive affect on your credit score.

Yes, I think the consumer/fraud protections on a credit card are an excellent reason to use them over a debit card.

- Joel
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activeREinvestor,

You wrote, Having the trasnactions go through a credit card will help. It will not help as much as running a balance.

Not true. Running a balance may actually be worse than paying off the balance in full every month. It depends on how much of a balance you're talking about. Besides, it's not worth running a balance and paying interest just to try to improve your FICO.

Also, A credit score is a grade for how well you preform in the lab called 'managing debt'. If you never have any debt the scoring system has little to work with.

Again, not exactly true. Your credit report is a collection of snapshots on your liability accounts. There's really not any precise way of determining whether a user is paying off their accounts monthly or not from these snapshots. Besides, if you're actively using your credit card and paying it off each month, the account never really falls back to zero. Your credit report will reflect this and it will look much the same as if you were carrying a balance.

Also, credit scores factor in the age of accounts, number of accounts, etc. So all the scoring system has to work with is how long you've had credit, how much credit you have, how much debt you have, and whether (and how recently and badly) you've made a mistake repaying/managing that credit.

- Joel
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Joel,

I have looked at this more then you might understand. Call me a professional when it comes to managing my credit score.

What will help is to site that has the simulator. It can show how different levels of debt and number of accounts impact things. It takes you specific situation and then lets you vary the details.

I started managing my credit score in 1983 when I started investing in RE. I have also worked for a credit card company plus some other banks so have inside knowledge of the score cards, etc.

John
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Only true credit card accounts will show up.

Only true credit card USERS will care.

The OP specifically asked how the two cards would differ in their impact to his credit score, which is what I answered.
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"I like the consumer protection afforded by the credit card, but the thought came to mind."

-----

And that consumer protection is HUGE!

DW discovered that her debit card was being used 3 states away while doing some on-line banking after work on a Friday afternoon. She immediately called to cancel the card and close the account number. The bank was not able to do either until MONDAY! All told, over 10k was charged that weekend. Fortuitously, DW was cleared of all charges, but not before her account was frozen. As this was her only checking account, she was reliant on mine for a couple of weeks while the issue was sorted out.

A CCard can be shut off immediately.

We don't use debit cards anymore. Lesson learned.

-l
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I started managing my credit score in 1983 when I started investing in RE. I have also worked for a credit card company plus some other banks so have inside knowledge of the score cards, etc.

This may be true, but some of what you say is either wrong or poorly written so as to be unclear.


You said: Having the trasnactions go through a credit card will help. It will not help as much as running a balance.

There is no way to tell from a credit report whether the person carries a balance or pays their accounts in full every month. As such, there is no benefit to your credit score from carrying a balance.


You said: If you never have any debt the scoring system has little to work with.

This is true, but it is poorly written. If you never establish any kind of debt device -- credit card, auto loan, home loan, school loan, etc. -- the system will not have anything to work with. This is why foreign people typically have to get secured credit cards when they initially come to the United States...these cards are reported to the CRAs and can be used to build credit history with little risk to the issuer.

However, many would take your statement to mean if you never carry a balance on your credit accounts, the system has nothing to work with. This is untrue. Simply having credit cards -- even if you never use them -- gives the system something to start with. Making charges and paying off the cards each month can give you every bit as much benefit as carrying a balance.

As I said earlier, there is nothing in the system that tells whether you pay the account in full or carry a balance. For this reason, there is no inherent benefit to your credit score for carrying a balance. There may be a "sweet spot" where the percentage of availble credit being used is optimal...but that spot can be reached via carrying a balance *OR* by having that balance at the time when the credit cards report to the CRAs.

I have never carried a balance on my credit cards. But every month, the *current balance* is reported to the CRAs. This piece of data along with my credit limit (or highest balance ever depending on how the card reports) is used to generate my credit score.

If information regarding how much balance a user carried *were* included in the reports, it would dramatically change the scoring system. Of course, it would not really impact me because I don't care what my interest rates are...they never come into play anyway!

ACME
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Good eyes.

Lets sharpen the edge slightly more.

It is true that using a card and paying it off will show an average balance for reporting purposes. Like you pointed out exactly what that balance is at any one point and when the report is sent on to the bureau is not obvious (and not worth trying to tightly manage IMHO).

If you want to demonstrate the ability to manage larger amounts without running a balance you will need to charge larger amounts in a single month (or two) so that the number is larger when the report is sent. I am talking about charges above $10,000 or $20,000 as an example.

Individual lenders do look at the average balance and do care about what you carry over vs. pay off. If you want them to then raise your limit having shown a tendency to carry a balance can make a difference (they do look to see if a customer is profitable to them). Card companies have policies and score cards that are not completely driven by a credit score so you can better optomise if you understand what they care about.

Credit is a tool and there are ways to take care of your tools so that when you need the credit it is the most available.

Side note. With zero interest deals you can carry a large balance for no practical cost.

John
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Ahh...now I understand better where you are coming from...


It is true that using a card and paying it off will show an average balance for reporting purposes. Like you pointed out exactly what that balance is at any one point and when the report is sent on to the bureau is not obvious (and not worth trying to tightly manage IMHO).

I agree completely. You can manage your accounts and time the really big purchases to avoid temporary dings...but if you have strong credit, these temporary dings are insignificant anyway. 720+ typically gets you the best rates on cards and loans...so if you are at 750+, you really do not need to manage your credit cards any more than you already are and you are safe to get the good loans.


If you want to demonstrate the ability to manage larger amounts without running a balance you will need to charge larger amounts in a single month (or two) so that the number is larger when the report is sent. I am talking about charges above $10,000 or $20,000 as an example.

True. And this can be important to get the Platinum-level cards at some companies...which often come with added benefits that make them great cards. I have the Platinum Delta AMEX because of the extra benefits it provides me...


Individual lenders do look at the average balance and do care about what you carry over vs. pay off.

No question...but they cannot get this information from your credit report. They can only get it from the account(s) you have with them.


Card companies have policies and score cards that are not completely driven by a credit score so you can better optomise if you understand what they care about.

Again I agree...but they can only use: (1) the information found in your credit report; and (2) additional information they track regarding the account(s) you have with them. So if you are purely looking to see how a *new* lender will view you, the only thing that matters is the snapshot on your credit report and that does not include anything about balances carried over.


Credit is a tool and there are ways to take care of your tools so that when you need the credit it is the most available.

I 100% agree.


Side note. With zero interest deals you can carry a large balance for no practical cost.

I agree here too...though I choose not to use them very often.

Now that I understand where you are coming from better, I think we agree almost entirely on credit. It is a wonderful tool for those able and willing to use it properly. The proper use varies from person to person based on their temperament and the time they are willing to spend maximixing their benefits.

ACME
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About the only benefit a CC has over a DC is the rewards offered for CC purchase, but that's not a big one. One can argue (and I have) that those rewards provide incentive for impulsive buying--like an appetizer, or that thing sitting at the end of the aisle at Home Depot.

There's another big one. If something gets messed up with my debit card, like it gets stolen, it's a bigger impact on my life since it actually impacts the available balance in my checking account while the issue gets straightened out. Kind of a pain in the arse when the mortage payment is due. A CC doesn't wreak as much havoc.

The only time I use a debit card is when I am doing a purchase of under about $25 at a place that doesn't take discover.
d

trust me, I know on this one.
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I agree that we are aligned and largely on the same page.

John
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About the only benefit a CC has over a DC is the rewards offered for CC purchase, but that's not a big one.


This is simply not true. Even if you believe the long-term protections are equivalent (I do not agree with this belief personally), there is still an immediacy issue.

Scenario #1: Credit Card gets stolen and $10,000 in fraudulent charges hit the account the day I need to pay a $5000 bill from my checking account. No problem. I report things to the CC and the $10,000 never actually leaves my bank accounts.

Scenario #2: Debit Card gets stolen and $10,000 in fraudulent charges hit the account the day I need to pay a $5000 bill from my checking account. Big problem if I had less than $15,000 (plus the minimum balance if any) in the account prior to the card being stolen. It takes time -- even if it is just a day -- for the bank to credit the account back with the money.


As for the issue of rewards...my wife and I will get well over $1000 in reward value (some is cash; some is not) from our credit cards this year. In my mind, that is nothing to sneeze at.

And no...we do not charge more because we use credit cards. We are responsible with our credit. But the system is set up currently such that people that are responsible with credit can really make a killing...and that is what we do. It takes a little work, but it can be well worth it.

ACME
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