With low-limit cards, watch credit utilization closely

You may want to pay twice a month


Credit Wise
Credit Wise columnist Kevin Weeks
With more than 20 years experience in the nonprofit credit counseling industry, Kevin Weeks joined the Financial Counseling Association of America (, @TrustFCAA) as its president Dec. 1, 2014. Weeks has extensive knowledge of both the credit counseling industry and the FCAA organization, having served in leadership positions for three of its member agencies and on the FCAA board of directors. In addition, Weeks is working with FCAA members to help develop a long-term solution to the student loan crisis through the website Weeks holds a bachelor of science degree in business administration, management information systems from Salem State University.

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Question for the expert

Dear Credit Wise,
If I have a credit card at 0 percent for 12 months for $300, and I spend the $300, but put it back before the next month. Can I use the $300 again before the 12 months are over? -- Shay

Answer for the expert Dear Shay,
In your case, you have a credit card with a $300 limit. That means that at any time you can charge up to $300 on the account. If you make a $50 purchase using your card, your limit becomes $250, since right now you have a 0 percent interest rate. If you don't use your card again that month and you pay the $50 by the due date, you will once again have $300 available to you. If you only pay $25, you will have $275 available.

This will hold true even if you charge $300 every month for the next 12 months, as long as you pay back $300 every month on time. However, I do not recommend that you do that.

What I do recommend is that you use this card to begin building a stable credit history. One of the key factors in credit scoring is credit utilization. The less of your credit you use, the better it is for your credit score. Your credit card has a relatively small limit, so this is of particular importance to you. Once a month, your credit card issuer will report to the credit bureaus (such as Experian, Equifax and TransUnion) how much of your credit you have used. You never want the card issuer to send in a report saying you've used a large amount of your credit.

With your low-limit card of just $300, one clothes-shopping trip or big grocery-store run would be enough to consumer the majorit of your credit limit. That's your challenge: to manage your credit limit wisely. You want to use the card, to demonstrate you can use credit wisely, without ever using too much of your credit limit.

So here's what I'd recommend you do. Over the next few months, use your card every month for a few small purchases. Be sure that you will be able to pay the bill in full when it arrives to maximize your responsible use of your card. If you need to make a larger purchase on your card that will eat up a big chunk of that $300 limit, send in a check for that amount immediately, even though it isn't due. That way, your card issuer will never be able to report that you have used up most of your credit.

If, for any reason, you cannot pay the bill in full when it is due, be sure to pay at the very least the minimum amount due and be sure you pay it on time. You will also need a plan for paying the remaining balance due before the end of your 12-month, 0-percent promotional period.

If you are able to do this, you will show your creditor that you can be trusted with the credit extended to you. At the end of your promotional period, your interest rate is likely to increase. However, if you have been doing what I have recommended, you won't have to worry about a high interest rate because you will be paying your balance off in full every month and the interest rate will not matter.

More importantly, you will have demonstrated to the credit scoring gurus that you are responsible with your money and you will find that in time, your credit score will increase. Along with that, you will likely find yourself inundated with better offers of credit than ever before, with low rates and higher credit limits.

When that happens, just remember that you must pay your bills on time, every time -- and preferably in full.

Be wise with your credit!

See related: How to get, use a low-limit card, Credit limits and how they work

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Published: October 31, 2015

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Updated: 10-26-2016

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