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I am getting a new Student Credit Card . It has as 0% Intro APR for 18 months. The credit card company is ready to loan me money, which I can repay in 18 months at 0% APR. With this loan money I intend to travel to a few places right after I graduate and before I join my Full Time job.

This would be my second credit card. I have built a fairly good credit history using my first credit card Questions:

  • Is it ok for my credit history to take such a kind of a Loan ?

  • If my credit limit for my card is $1500, what amount of Loan can I take without a substantial hit to my credit score?

  • I have a job offer to work after I graduate. I plan to close these loans as I start working.

How would pre-closing a loan affect my credit history

  • Check what the transfer fee is to get the money. Very often, it is a percentage of the amount pulled, with a minimum of $10-25. You say "loan" so I am assuming this is a balance transfer type of offer. – Aaron D. Marasco Mar 28 '15 at 22:07
  • Yes, it is balance transfer type of offer. I looked it up and the transfer fee is 3% – RamNat Mar 30 '15 at 14:41
  • If you get 0% APR on purchases for 18 months (see terms), you can also use that card to make purchases on stuff you would typically buy. This way, you can rack up the maximum and get 0% APR without the BT fee. You can create a special savings account you put money equal to what your credit balance to pay off is. – Sun Mar 31 '15 at 0:55
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Paying off a loan early isn't a bad thing. Having a credit card for 6 months and then closing it is probably unneeded; pay it off and then keep it as an emergency card.

The key is debt:available credit ratio. Look at this article for example which explains the different elements; the only one you're affecting here is the second, your debt load. If you're not planning on asking for another loan in the next six months, none of this really matters - assuming you are paying it off for sure, in six months, your debt will be gone and your credit score recovered from any hit it takes (and if you get a $1500 credit card and only put $300 on it, it might actually improve your credit).

But having an open $1500 credit card with a 0 balance will probably improve your credit rating, unless you have a really high amount of available credit. It will improve your debt/credit ratio (ie, total $ you owe divided by total $ you could put on your CCs/revolving credit).


This is all aside from the "is it a good idea to borrow money for a 3 month vacation before starting working", which the answer is "Well, not exactly". That's not from a credit perspective, just from a living within your means perspective. If you have a firm job that will easily pay off the vacation, it's probably not a bad thing, but definitely a certain number of people will take this and end up in 'spending bad habits' that last their life. Be aware of that, and if you're just loaning yourself money from the future, make sure you understand the terms of that loan... and are certain you can pay it off.

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Your use of the term "loan" is confusing, what you're proposing is to open a new card and take advantage of the 0% APR by carrying a balance.

The effects to your credit history / score will be the following:

  • The hard inquiry when you apply for the card will remain on your history for 2 years and lower your score for 1 year.
  • The new account will lower your Average Age of Accounts; since you currently have 1 card it will be cut in half. Assuming you already have a very short history, this probably won't be a significant change.
  • As you charge your vacation expenses your credit utilization will increase, which may lower your score depending on how much you charge and the limit on your other card. A rule of thumb to avoid dramatic decreases is to keep overall utilization below 30% and each card under 50%
  • When you pay off the balance your utilization will decrease and your score will increase accordingly. Your score doesn't care about utilization history, once you've paid off your balance your score will be the same as it would have been if the vacation had never happened.
  • To clarify your last point, 0% utilization will give you a slightly lower credit score than a small utilization such as 7% to 10%. Greater score wants some utilization rather than none. – Sun Mar 30 '15 at 17:36
  • Agreed. I'm assuming that he uses his other card regularly which will give him > 0% utilization overall. – VBCPP Mar 31 '15 at 0:45
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Your desire to travel before starting work is smart and something you should do. There are very few opportunities in life where you will have a chunk of time to do such travelling. Having said that, your life plans may or may not pan out the way you expect. Ideally, you'd take the 0% APR for 18 months and max it out. A 3% balance transfer (BT) fee breaks out to 1.5% APR, but due in 1.5 years. That's a very good loan rate if you can pay it before the APR changes. Say, you take 6 months to travel. When you return, you have one year to pay off your credit card bill. Calculate how much you will borrow and how much your monthly payments will be. $1,500 across 12 months is $125. Can you add that as a monthly expense? What will your life circumstances be when you return from travel? Do you know what your income will be? Do you know what your expected expenses will be? How much padding will you have for emergencies?

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