Are credit cards not viewed as credit until you miss one payment?
K, welcome to Money.SE.  You knew enough to add good tags to the question. Now, you should search on the dozens of questions with those tags to understand (in less than an hour) far more than that banker knows about credit and credit scores.  My advice is first, never miss a payment. Ever. The advice your father passed on to you is nonsense, plain and simple. I'm just a few chapters shy of being able to write a book about the incorrect advice I'd heard bank people give their customers. The second bit of advice is that you don't need to pay interest to have credit cards show good payment history. i.e. if you choose to use credit cards, use them for the convenience, cash/rebates, tracking, and guarantees they can offer. Pay in full each bill.  Last - use a free service, first, AnnualCreditReport.com to get a copy of your credit report, and then a service like Credit Karma for a simulated FICO score and advice on how to improve it. As member @Agop has commented, Discover (not just for cardholders) offers a look at your actual score, as do a number of other credit cards for members.  (By the way, I wouldn't be inclined to discuss this with dad. Most people take offense that you'd believe strangers more than them. Most of the answers here are well documented with links to IRS, etc, and if not, quickly peer-reviewed. When I make a mistake, a top-rated member will correct me within a day, if not just minutes) "First, a note of my personal experience: up until a year ago, my credit lines were composed exclusively of credit cards with perfect payment histories, and my credit score is fine. If you mean that credit cards have no impact on a person's credit score until they miss a payment, that is certainly not correct. FICO's website identifies ""payment history"" as 35% of your FICO score: The first thing any lender wants to know is whether you’ve paid past credit accounts on time. This is one of the most important factors in a FICO® Score. ... Credit payment history on many types of accounts Account types considered for payment history include: ... Details on late or missed payments (""delinquencies"") and public record and collection items FICO® Scores consider: How many accounts show no late payment A good track record on most of your credit accounts will increase your FICO® Scores. Clearly, from the last item alone, we see that credit lines (a category which includes credit cards) with no late payments is a factor in computing your FICO score, and certainly other credit bureaus behave similarly. Possibly the banker was trying to explain some other point, like ""If you're careful not to spend more on your card than you have in the bank, you can functionally treat your credit card as a debit line,"" but did so in a confusing way." "Not sure what you mean by ""missing"". Credit card debt can be paid back in full when you get the bill, or you can ""take a loan"" and ""pay in installments"". If you do the latter, and pay back at least the minimum required amount on time, you are not ""missing"" your payment. Technically, you are taking a small, but expensive loan, and if you pay that loan back according to the terms and conditions that apply to your credit card, this is reported to the credit bureau and improves your credit. If you are really ""missing your payment"", paying late (more than a few days), less than minimum or nothing at all, this won't help to improve your credit. A ""first-time offender"" won't always be reported to the credit bureau, but if he is, it won't be a positive report." "I can't think of any conceivable circumstance in which the banker's advice would be true. (edit: Actually, yes I can, but things haven't worked that way since 1899 so his information is a little stale. Credit bureaus got their start by only reporting information about bad debtors.) The bureaus only store on your file what gets reported to them by the institution who extended you the credit. This reporting tends to happen at 30, 60 or 90-day intervals, depending on the contract the bureau has with that institution. All credit accounts are ""real"" from the day you open them. I suspect the banker might be under the misguided impression the account doesn't show up on your report (become ""real"") until you miss a payment, which forces the institution to report it, but this is incorrect-- the institution won't report it until the 30-day mark at the earliest, whether or not you miss a payment or pay it in full. The cynic in me suspects this banker might give customers such advice to sabotage their credit so he can sell them higher-interest loans. UDAAP laws were created for a reason." Of course credit cards are viewed as credit. If you're using money on a credit card, you are not directly paying for your transactions on goods/services immediately: this is the act of borrowing credit to pay for them. Debit cards, on the other hand, work where the funds are taken from an account immediately (or subject to a small delay - but usually no more than 24 hours - depending on various factors). You should never miss credit card payments, as that will affect your credit rating. If you have unpaid money on your card this is debt - plain and simple. But to answer your question succinctly - yes, credit cards are a form of credit, as the name suggests. When you apply for a mortgage any unpaid credit (debt) is considered and would adversely affect you if you have such debts. The level to which it affects you depends on the amount of debt. This is how it works in the UK, but to my knowledge it is the same in the US and most other countries. Please clarify if you think this is incorrect. "There's a difference between missing a payment and ""carrying a balance"" (making an on-time payments that are less than the full balance due). I have heard mortgage brokers claim that, if you have no other credit history, carrying a small balance here and there on a credit card may improve your score.  (""Small"" is in relation to your available credit and your ability to pay it off.)  But actually missing a payment will probably hurt your score. Example: You have a card with a credit limit of $1000.  In July you charge $300 worth of stuff.  You get the next statement and it shows the balance due of $300 and a minimum payment of $100. If you pay the entire $300 balance in that cycle, most cards won't charge you any interest.  You are not carrying a balance, so the credit scores may not reflect that you actually took a $300 loan and paid it off. If you instead pay $200, you'll be in good standing (because $200 is greater than the minimum payment).  But you'll be carrying a $100 balance into the next statement cycle.  Plus interest will accrue on that $100.  If you do this regularly, your credit score will probably take into account that you've taken a small loan and made the payments.  For those with no other credit history, this may be an appropriate way to increase your credit score.  (But you're paying interest, so it's not free.)  And if the average balance you carry is considered high relative to your ability to pay or to the total credit available to you, then this could adversely affect your score (or, at least, the amount of credit another provider is willing to extend to you). If you instead actually miss a payment, or make a payment that's less than the minimum payment, that will almost certainly hurt your credit score.  It will also incur penalties as well as interest.  You want to avoid that whenever possible. My guess is that, in the game of telephone from the banker to you, the ""carrying a balance"" was misinterpreted as ""missing a payment.""" "This does not directly address the question, but how the Bank views your behaviour is not the same as a credit reporting bureau.  If you do not ""go deep"" on your card at all, you may be deemed not to be exercising the facility, indeed they may ask you to reduce your credit limit. This is not the same as ""missing a payment"". At the same time, do not just make the minimum payment. Ideally you should clear it within 3 months. Think of it as a very short term line of credit. Not clearing the balance within three months (or turning it over) demonstrates a cash flow problem, as does clearing it from another card. Some banks call this ""kite flying"" after similar behaviour in older days with cheque accounts. If you use the credit and show you can pay it off, you should never need to ask for a credit increase, it will be offered. The Bureau will be informed of these offers. Also, depending upon how much the bank trusts you, the Bureau may see a ""monthly"" periodic credit review, which is good if you have no delinquencies. Amex does this as a rule."
"Not only does the interest get charged from Day 1 on new purchases as long as you have a revolving balance, but the credit card agreement often says something to the effect that any partial payment is applied first to the  interest to date, and then transfer balances on which no interest is being charged and so the bank is losing money on it, then to other transfer  balances and cash advances (and no refund of that 3% fee that was  collected up front on the cash advance) and finally to the purchases starting from the most recent back to the oldest one. Even the FAQ on my card site says in simple language  ""We apply payments and credits at our discretion, including in a manner most favorable or convenient for us."" (see mhoran_psprep's answer). The moral is indeed what Dheer has already told you: do not carry a revolving balance on a credit card and if you have a revolving balance, pay it off as soon as possible,  Do not wait for the end of the grace period; if possible, pay it off the day the statement is  issued, or if you can make only a partial payment, make it as soon as possible.  Make multiple partial payments each month if you have cash flow problems, or improve your cash flow by forgoing one or more of the many Grande Vente Mocharino Espresso Lattes you consume each day.  Credit card debt is close to the worst kind of debt that you can have, and it is best to get out from under as soon as possible. Remember, there is effectively no grace period as long as you have a revolving balance on your credit card.  You are paying interest for every one of those days." I just want to stress one point, which has been mentioned, but only in passing. The disadvantage of a credit card is that it makes it very easy to take on a credit. paying it off over time, which I know is the point of the card. Then you fell into the trap of the issuer of the card. They benefit if you pay off stuff over time; that's why taking up a credit seems to be so easy with a credit (sic) card. All the technical aspects aside, you are still in debt, and you never ever want to be so if you can avoid it. And, for any voluntary, non-essential, payment, you can avoid it. Buy furniture that you can pay off in full right now. If that means only buying a few pieces or used/junk stuff, then so be it. Save up money until you can buy more/better pieces. Technically, yes but, in practice, no.  I use a card for everything and pay it off every month. Sometimes, several times a month depending on how the month is going. In the last 10 years, I've paid a total of $8 in interest because I legitimately forgot to pay my balance before the statement came out when I was out of town. I wasn't late, I just didn't beat the statement and had a small interest charge that I couldn't successfully argue off.  In the same time period, I've had one card cancelled at the banks request. The reason was that I hadn't used it in two years so they cancelled me.  I never pay annual fees, I get cards with great rewards programs and I (almost) never pay interest. If your bank cancels your card because you're too responsible, find a better bank. "A lot of credit card companies these days uses what they call ""daily interest"" where they charge the interest rate for the number of days till you pay off what you spent. This allows them to make more money than the ""period billing"".  The idea of credit, theoretically, is that there isn't really a day when you can borrow without paying interest - in theory" "I have never had a credit card and have been able to function perfectly well without one for 30 years. I borrowed money twice, once for a school loan that was countersigned, and once for my mortgage. In both cases my application was accepted. You only need to have ""good credit"" if you want to borrow money. Credit scores are usually only relevant for people with irregular income or a past history of delinquency. Assuming the debtor has no history of delinquency, the only thing the bank really cares about is the income level of the applicant. In the old days it could be difficult to rent a car without a credit car and this was the only major problem for me before about 2010. Usually I would have to make a cash deposit of $400 or something like that before a rental agency would rent me a car. This is no longer a problem and I never get asked for a deposit anymore to rent cars. Other than car rentals, I never had a problem not having a credit card." "I'm not sure if this answer is going to win me many friends on reddit, but here goes...  There's no good reason why they couldn't have just told him the current balance shown on their records, BUT...  **There are some good reasons why they can't quote a definitive ""payoff"" balance to instantly settle the account:**  It's very possible to charge something today, and not have it show up on Chase's records until tomorrow, or Monday, or later. There are still places that process paper credit-card transactions, or that deal with 3rd-party payment processors who reconcile transactions M-F, 9-5ish, and so on.   - Most transactions these days are authorized the instant you swipe the card, and the merchant won't process until they get authorization back from the CC company. But sometimes those authorizations come from third-party processors who don't bill Chase until later. Some of them might not process a Friday afternoon transaction until close-of-business Monday.   - Also, there are things like taxicab fares that might be collected when you exit the cab, but the record exists only in the taxi's onboard machine until they plug it into something else at the end of the shift.   - There are still some situations (outdoor flea-markets, auctions, etc) where the merchant takes a paper imprint, and doesn't actually process the payment until they physically mail it in or whatever.   - Some small businesses have information-security routines in place where only one person is allowed to process credit-card payments, but where multiple customer service reps are allowed to accept the CC info, write it down on one piece of paper, then either physically hand the paper to the person with processing rights, or deposit the paper in a locked office or mail-slot for later processing. This is obviously not an instant-update system for Chase. (Believe it or not, this system is actually considered to be *more* secure than retaining computerized records unless the business has very rigorous end-to-end info security).   So... there are a bunch of legit reasons why a CC company can't necessarily tell you this instant that you only need to pay $x and no more to close the account (although there is no good reason why they shouldn't be able to quote your current balance).   What happens when you ""close an account"" is basically that they stop accepting new charges that were *made* after your notification, but they will still accept and bill you for legit charges that you incurred before you gave them notice. So basically, they ""turn off"" the credit-card, but they can't guarantee how much you owe until the next billing cycle after this one closes:  - You notify them to ""close"" the account. They stop authorizing new charges.   - Their merchant agreements basically give the merchant a certain window to process charges. The CC company process legit charges that were made prior to ""closing"" the account.   - The CC company sends you the final statement *after* that window for any charges has expired,  - When that final statement is paid (or if it is zero), *THAT* is when the account is settled and reported to Equifax etc as ""paid"".   So it's hard to tell from your post who was being overly semantic/unreasonable. If the CC company refused to tell the current balance, they were just being dickheads. But if they refused to promise that the current balance shown is enough to instantly settle the account forever, they had legit reasons.  Hope that helps." This is a question with a flawed premise.  Credit cards do have two-factor authentication on transactions they consider more at risk to be fraudulent.  I've had several times when I bought something relatively expensive and unusual for me, where the CC either initially declined and sent me a text asking to confirm immediately (after which they would approve the charges), or approved but sent me a text right away asking to confirm (after which they'd automatically dispute if I told them to).  The first is legitimately what you are asking for; the second is presumably for less risky but still some risk transactions). Ultimately, the reason they don't allow it for every transaction is that not enough people would make use of it to be worth their time to implement it.  Particularly given it slows down the transaction significantly (and look at the complaints at the ~10-15 seconds extra EMV authentication takes, imagine that as a minute or more), I think you'd get a single digit percentage of people using that service. "It's not usually apparent to the average consumer, but there's actually two stages to collecting a payment, and two ways to undo it.  The particular combination that occurs may lead to long refund times, on top of any human delays (like Ben Miller's answer addresses). When you pay with a credit card, it is typically only authorized - the issuing bank says ""I'm setting this money aside for this transaction"", but no money actually changes hands.  You'll typically see this on your statement as a ""pending"" charge.  Only later, in a process called ""settlement"", does your bank actually send money to the merchant's bank.  Typically, this process starts the same day that the authorization happens (at close of business), but it may take a few days to complete.  In the case of an ecommerce transaction, the merchant may not be allowed to start it until they ship whatever you ordered. On the flip side, a given transaction can be voided off or money can be sent back to your card.  In the first case, the transaction will just disappear altogether; in the second, it may disappear or you may see both the payment and the refund on your statement.  Voids can be as fast as an authorization, but once a transaction has started settlement, it can't be voided any more.  Sending money back (a ""refund"") goes through the same settlement process as above, and can take just as long. So, to specifically apply that to your question: You get the SMS when the transaction is authorized, even though no money has yet moved.  The refund money won't show up until several days after someone indicates that it should happen, and there's no ""reverse authorize"" operation to let you or your bank know that it's coming." "The short answer is no, it's probably not ok. The longer answer is, it might be, if you are very disciplined.  You need to make sure that you have enough money to pay off the card after a year, and that you pay the card on time, every month, without exception.  There may also be balance transfer or other fees that only make it worth while if the interest rate or balance on the other loan is high. The problem is most of these offers will raise your rates to very high levels (think 20% or more) if you are even one day late with one payment.  Some of them also will back charge you interest starting from day one, although I have only seen this on store credit ""one year, same as cash"" type offers.   In the end you need to balance the possible payoff against how much it will cost you if you do it wrong.  Remember, the banks are not in the business of lending out free money.  They wouldn't do this unless enough people didn't pay it back in one year for them to make a profit." Yes, as long as you are responsible with the payments and treat it as a cash substitute, and not a loan. I waited until I was 21 to apply for my first credit card, which gave me a later start to my credit history. That led to an embarrassing credit rejection when I went to buy some furniture after I graduated college. You'd think $700 split into three interest-free payments wouldn't be too big of a risk, but I was rejected since my credit history was only 4 months long, even though I had zero late payments.  So I ended up paying cash for the furniture instead, but it was still a horrible feeling when the sales rep came back to me and quietly told me my credit application had been denied. "No. Credit card companies will typically not care about your individual credit card account. Instead they look either at a ""package"" of card accounts opened at roughly the same time, or of ""slices"" of cardholder accounts by credit rating. If an entire package's or slice's balance drops significantly, they'll take a look, and will adjust rates accordingly (often they may actually decrease rates as an incentive to increase you use of the card). Because credit card debt is unstructured debt, the bank cannot impose an ""early payment penalty"" of any kind (there's no schedule for paying it off, so there's no way to prove that they're missing out on $X in interest because you paid early). Generally, banks don't like CC debt anyway; it's very risky debt, and they often end up writing large balances off for pennies on the dollar. So, when you pay down your balance by a significant amount, the banks breathe a sigh of relief. The real money, the stable money, is in the usage fees; every time you swipe your card, the business who accepted it owes the credit card company 3% of your purchase, and sometimes more." "With the scenario that you laid out (ie. 5% and 10% loans), it makes no sense at all. The problem is, when you're in trouble the rates are never 5% or 10%. Getting behind on credit cards sucks and is really hard to recover from. The problem with multiple accounts is that as the banks tack on fees and raise your interest rate to the default rate (usually 30%) when you give them any excuse (late payment, over the limit, etc). The banks will also cut your credit lines as you make payments, making it more likely that you will bump over the limit and be back in ""default"" status. One payment, even at a slightly higher rate is preferable when you're deep in the hole because you can actually pay enough to hit principal. If you have assets like a house, you'll get a much better rate as well. In a scenario where you're paying 22-25% interest, your minimum payment will be $150-200 a month, and that is mostly interest and penalty. ""One big loan"" will usually result in a smaller payment, and you don't end up in a situation where the banks are jockeying for position so they get paid first. The danger of consolidation is that you'll stop triggering defaults and keep making your payments, so your credit score will improve. Then the vultures will start circling and offering you more credit cards. EDIT: Mea Culpa.  I wrote this based on experiences of close friends whom I've helped out over the years, not realizing how the law changed in 2009.  Back around 2004, a single late payment would trigger universal default on most cards, jacking all rates up to 30% and slashing credit lines, resulting in over the limit and other fees. Credit card banks generally apply payments (in order, to interest on penalties, penalties, interest on principal, principal) in a way that makes it very difficult to pay down principal for people deep in debt. They would also offer ""payment plans"" to entice you to pay Bank B vs. Bank A, which would trigger overlimit fees from Bank A. Another change is that minimum payments were generally 2% of statement balance, which often didn't cover the monthly finance charge. The new law changed that, resulting in a payment of 1% of balance + accrued interest. Under the old regime, consolidation made it less likely that various circumstances would trigger default, and gave the struggling debtor one throat to choke. With the new rules, there are definitely a smaller number of scenarios where consolidation actually makes sense." Cancelled cards don't fall off the system for a long time, up to ten years. Card terms change, with notice of course, but it can happen at any time.  I had a card with a crazy perk, 5% back in Apple Gift cards. This was pre-iPod days, but it was great to get a new computer every two years for free. But it was short lived. Three years into it, the cards were changed, a no-perk card from the bank. That is now my oldest account, and it goes unused.  Instead of holding cards like this, I wish I had flipped it to a different card years ago. Ideally, your mix of cards should provide value to you, and if they all do, then when one perk goes away, it's time to refresh that card.   This is a snapshot from my report at CreditKarma. (Disclosure, I like these guys, I've met their PR folk. I have no business relationship with them) Elsewhere on the page it's noted that average card age is a 'medium impact' item. I am 50, but I use the strategy above to keep the cards working for me. My current score is 784, so this B on the report isn't hurting too much. The tens of thousands I've saved in mortgage interest by being a serial refinancer was worth the hit on account age, as was the credit card with a 10% rebate for 90 days, the 'newest account' you see in the snapshot.  In the end, the score manipulation is a bit of a game. And some of it is counter-intuitive. Your score can take a minor hit for actions that would seem responsible, but your goal should be to have the right mix of cards, and the lowest interest (long term) loans. In a traditional IRA (or 401k or equivalent), income tax is not taken on the money when it is deposited or when dividends are reinvested, but money you take out (after you can do do without penalty) is taxed as if it were ordinary income. (I believe that's true; I don't think you get to take the long-term investment rate.) Note that Roth is the opposite: you pay income tax up front before putting money into the retirement account, but you will eventually withdraw without paying any additional  tax at that time. Unlike normal investments, neither of these requires tracking the details to know how much tax to pay. There are no taxes due on the reinvested dividends, and you don't need to track cost basis. Go to your local bank or credit union before talking to a dealership. Ask them if putting both names on the loan makes a difference regarding rates and maximum loan you qualify for. Ask them to run the loan application both ways. Having both names on the loan helps build the credit of the spouse that has a lower score.    You may find that both incomes are needed for a car loan if the couple has a mortgage or other joint obligations. The lender will treat the entire mortgage payment or rent payment as a liability against the person applying for the loan, they won't split the housing payment in half if only one name will be on the car loan. Therefore sometimes the 2nd persons income is needed even if their credit is not as good. That additional income without a significant increase in liabilities can make a huge difference regarding the loan they can qualify for. Once the car is in your possession, it doesn't matter who drives it. In general the insurance company will put both spouses as authorized drivers. Note: it is almost always better to ask your bank or credit union about a car loan before going to the dealership. That gives you a solid data point regarding a loan, and removes a major complexity to the negotiations at the dealership.