I just got approved for a $1500 cash secured credit card from Wells Fargo.

This means I have no credit history whatsoever, and am going to use this card to establish one.

With fall semester at school already in full swing, I need to pay for my $1200 health insurance by next week.

I am thinking of paying for my car and health insurance, both using this credit card, but that would bring my utilization to 100% - maybe a few bucks left at the most.

Now, this scenario would happen, if you guys recommend me to go ahead with it, once a year, when I need to pay for both.

The remaining time of the year, my utilization would be 30% at most.

How bad would hitting the credit limit affect my growth of credit history and score?

Should I go ahead and max out my secured credit card, once a year?

I already have the money in my CU's checking account, and they pay 1.15% on it.

If maxing out is really a very bad idea, I can go ahead and pay the money using my debit card.

  • I wanted to note that I am not going over my limit (although, this tells me that 99% is just as bad as 101%: money.stackexchange.com/questions/8671/…) – f1StudentInUS Sep 12 '11 at 16:54
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    101% is certainly worse than 99% by a measurable amount. See the chart in my reply. 101% will also cause an over-the-limit fee/penalty. Not good. – JoeTaxpayer Sep 12 '11 at 17:54
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    FYI, usually you can't pay loans (cars, mortgages, other credit cards) with credit cards. They either just won't let you, or if there is some mechanism to do so (at either end) you will more than pay for the privilege (in other words: don't do it). – Nicole Sep 13 '11 at 4:02
up vote 9 down vote accepted

credit utilization

This chart above is taken from a Credit Karma snapshot I used in an article titled Too Little Debt? 30% of your score is based on utilization and this portion is scored as the chart indicates. A 61-100% utilization should really be avoided, but once paid, your score does bounce back, real time.

2018 update - Note that not all cards report your statement balance. Since posting this answer, 7 years ago, one of my cards changed banks. Now, the end of month balance is reported as compared to the fact the statement is cut on the 15th of the month. To 'game the system' and optimize utilization, I need to make a payment by the 30th/31st including those charges made since the statement was cut. In effect, I need to give up 2 weeks of float on this money. With near zero interest rates, not a big deal. And of course, the last 10-20 points on my FICO score make little difference even when applying for credit, as my score is above 800.

  • Your article gave me an idea! Why don't I max out my card today, and then pay 70% of it just before my first statement is cut? This should be exactly the same as if I had used 30% of my card in the first place? – f1StudentInUS Sep 12 '11 at 16:53
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    That 'should' work. I believe the reported amount is what's billed, not mid-cycle amounts. In the rare case that my utilization would go too high or risk exceeding my limit, I've made payments during the month. – JoeTaxpayer Sep 12 '11 at 17:03
  • Great answer! How good is Credit Karma by the way? How much spam do you get because of them? – f1StudentInUS Sep 15 '11 at 16:10
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    Actually, quite excellent. Keep in mind, the 3 scores, from the 3 agencies will differ, this score follows TransUnion, I believe. I get no solicitations at all (I know, because I own a domain I use to give every company a unique email address) and one from Karma if I've not signed in after about 6 weeks. Just a reminder inviting a visit. I'm ok with that, considering nearly every business sends 50 times that many emails. – JoeTaxpayer Sep 15 '11 at 16:18
  • It is wonderful to have you share your insights in so much details. Thank you. – f1StudentInUS Sep 15 '11 at 16:23

The best way to use your new credit card to establish credit history is to use it for small-medium purchases and pay it off in full each month. There is no reward for using it more than once a month.

If you are getting some sort of rewards for using the credit card to pay your health insurance (air miles, points, etc.), then you could go ahead and use it. Your credit score will take a temporary hit for high utilization. You can actually avoid this by making a partial payment before the end of the billing cycle so that your utilization is never reported as near 100%.

  • I need to find out when the statement comes up. Then, I would be making a partial payment before the end of the billing cycle so that my utilization is 30%. Hope this works! – f1StudentInUS Sep 12 '11 at 19:43

Maxing out your credit card and then paying it all back once a year will not affect your long term credit score at all.

On your credit report, only your current credit utilization is shown; there is no history of your utilization. This means that, for your credit score, the utilization has no memory. When you max out your credit card, your utilization will approach 100% which will have a negative effect on the credit score, but only for one month. The next month, when your utilization is back to normal levels, your score will be back to normal as well.

As long as you aren’t trying to apply for a new loan during the month that your credit score has dropped, I don’t think there are any negative ramifications at all to your plan.

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