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I was just approved for my first credit card. I will be making a large purchase soon which will exceed my credit limit. I could split the purchase between cash/debit card and my new credit card or I could pay for the entire purchase in cash. Could I use this as a way to build some credit history?

Would it be wise to instantly max out my credit card? I have 0% APR for the first 6 months so should I pay this portion of the purchase out over a few months? Should I pay the balance right away after the first month? Should I only put a small portion of the purchase on the card and only utilize x% of my credit? I just want to see if this is an opportunity to help build my nonexistent credit history.

If it matters, I was approved for the "Discover it Student Cash Back" credit card.

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If it were me, I would max out the card with the purchase, then pay it off in full shortly after so you can continue using the card for more purchases. The only reason I suggest doing this is because you will earn between 1-5% cash back on your purchase (depending on what it is you're buying). If your CC didn't have any rewards I wouldn't recommend using the card at all.

In your situation I wouldn't take advantage of the 0% promo APR for 6 months. I would treat the card like it doesn't have that and always pay it off in full on or before the due date. This is a good habit to get into. If in any month you don't think you'll be able to pay the card off in full, then don't use it that month.

If whatever you are purchasing will let you make two payments about a week apart, then I would max the card, immediately pay it off, then do it again after the payment clears and the balance is available again. (Just to get more rewards).

Regarding your question of building credit, just having the card and keeping it active (using it every once in a while and paying the bill on-time) is all that you need to do to build credit. If your credit card reports the balance is maxed out before you pay it off, your credit score will take a dive that month, but next month when it's paid off it will shoot right back up (historical utilization numbers are irrelevant). I actually like watching this happen because I find it interesting to see exactly how much a maxed-out card can affect my score temporarily for a month.

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    The card shows 1% on the non-bonus (5%) purchases, plus a match after a year. I agree, and recommend he pay in full, and always stick with that plan. The card also offers FICO score access, so he can follow the impact of his usage. – JTP - Apologise to Monica Dec 28 '18 at 15:58
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    +1 Like TTT said. Also you should not worry to much about your credit score, just use the card and always be on time to pay. it is indeed possible to boost your credit score in more efficient ways, but unless your plan is to have the best score possible you shouldn't worry too much about it. Also, try to not always load the card to the maximum. – Gainz Dec 28 '18 at 16:04
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    @JohnHardingII - I wouldn't worry about credit cycling unless you were actually doing something illegal. I'm pretty sure the worst thing that can happen with normal purchases is after a certain amount the bank will decline purchases until your next billing period begins. (This happened to me once with a business credit card that had an undocumented monthly spend limit of 2X the card limit.) – TTT Dec 28 '18 at 16:39
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    While I agree with TTT and Joe, @Aaron understand you're playing with fire. A single cycle with an interest charge blows the value of any points or cash back you receive. – quid Dec 28 '18 at 16:56
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    @JohnHardingII actually it's my understanding that the opposite is true. Routinely maxing and paying in full is about as much proof as can exist that you need a higher limit. In 90 or 180 days Aaron should start pressing for a higher limit. Remember, the bank makes its money when you spend. Someone jumping through hoops to outspend their limit without overdraftinf is a problem because of the hoops, the limit is too low. – quid Dec 28 '18 at 17:00
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There's multiple ways to do that, and none of them may stand out as the absolute best.

One thing to keep in mind is that high credit utilization hurts credit score, and given that this is your first credit card, you may benefit from improving your score somewhat.

You already mentioned that the purchase exceeds credit limit, and that you have enough cash to pay for it. Based on that, I would suggest paying for your big purchase with cash. At the same time, you would use your credit card for smaller purchases - groceries, gas, etc. - keeping the utilization under 20%. Then you pay off the balance in full every monthly cycle.

Not only that improves your credit score, but also makes it easier to learn to keep your credit card balance in check.

  • Does high credit utilization only affect your credit score at an instant, or does the history of credit utilization affect the score? – Aaron Dec 28 '18 at 3:43
  • @Aaron, utilization has no memory. The balance on your statement date is almost always the number that is reported so if you max the card and pay it before the statement date the reporting agencies would never even know the card was ever maxed. – quid Dec 28 '18 at 16:53
  • @quid: Your credit report has a memory of utilization, including intra-statement utilization, if the bank chooses to report "high balance". But the major credit scores don't use past utilization information. – Ben Voigt Dec 28 '18 at 18:41
  • @BenVoigt, I never considered the high balance flag! Thanks, good to know. – quid Dec 28 '18 at 18:43
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30% of your credit score is utilization. You should try to keep total utilization under 20% or even 10%. That being said I like the idea of using you credit card for everything and getting points. Its also a great way to see where you money is going if you use quicken in conjunction with your accounts.

So if you find that you are above 50% utilization I would suggest pay before the statement date. The Amount due on the statement date is the only thing reported to the credit bureaus.

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    This only matters when you're about to apply for more credit, and two months at recommended utilization will completely restore your score, no matter what your utilization did at other times. – Ben Voigt Dec 28 '18 at 18:43
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Depends where you are.

In some countries you're considered a bad risk if you've never used credit before (IIRC Belgium works like this), in others (UK) it depends more on your income relative to what you want to borrow.

In the former case I knew someone who bought a series of increasingly larger items on credit even though he could afford to pay cash, otherwise he wouldn't have been able to get a car loan or mortgage later down the line.

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