Building the Credit

January 6, 2008 7:22 PM

I am trying to build up my credit. I would like to pay my rent by charging my credit card and then paying it off each month. Is there a service that will mail a check for you by charging a card? Can any one thing how to make this work?
posted by Morgangr to work & money (11 comments total)

Could you use the convenience checks that sometimes come with credit card statements?
posted by Lucinda at 7:29 PM on January 6

Assuming your landlord won't directly accept credit (and they probably won't), your best bet is likely your credit card's online billpay service. They'll either electronically wire the funds to your landlord, or print and mail a check to them. They might charge you for it, though.

Also, you might consider instead charging your daily incidental expenses (lunch, gas, groceries, etc) to the card, and paying it off at the end of the months (or even every two weeks).
posted by CrayDrygu at 7:30 PM on January 6

I doubt you will be able to do this without paying fees. Convenience checks almost always have a percentage fee attached. otherwise they would essentially be giving you free money for 30 days.

Worse, "convenience" checks tend to be billed as cash advances, meaning you pay interest from the day you use them- no grace period.

If your goal is to build up a credit history by paying your bill consistently, why not just use your credit card for all your day-to-day purchases, then pay it off at the end of the month? This is what I do- I pay no interest as long as I pay off the full balance, and it's convenient to keep track of all my purchases in one place.
posted by drjimmy11 at 7:35 PM on January 6 [2 favorites]

"You need three or four lines of credit to get a loan. Open up several credit cards. Use them each for different things. It's not how much the credit card bill is, its how many lines of credit you successfully maintain." At least that's what I've been told (citation needed.)
posted by proj08 at 7:42 PM on January 6

Worse, "convenience" checks tend to be billed as cash advances, meaning you pay interest from the day you use them- no grace period.

That's always been my experience with the checks you're looking for. The CC company no longer gets the commission off a CC sale, so they make it up on you directly.
posted by jmd82 at 8:17 PM on January 6

This sounds like a bad idea. As those before me mentioned, there's usually a fee involved and no grace period when your credit card company treats something as a cash advance. Most cash equivalents will be treated that way.

If for some reason you are desperate/determined to do this, you'll have to find something that can be converted to cash to give to your landlord, but won't be treated as a cash advance by your cc company. In this post if you skip down to the heading for "Recycling Points", the author talks about doing what you are trying to do. I have no experience with the Visa/MC debit gift cards that he talks about, but charging one of those and then turning that into a money order might work for you. If you attempt this, definitely take his advice and set your cash advance limit to $0. Finding out at the end of the month that a charge from 3 weeks ago was a unexpectedly a cash advance (and they've been charging interest) is not fun.
posted by ghostmanonsecond at 9:34 PM on January 6

Maybe they've changed the algorithm since I was young, but it used to be that paying off your credit card balance every month was bad for your credit rating, not good. What they wanted was for you to maintain a balance and to pay interest. That was more profitable for the bank.

A high credit rating doesn't necessarily mean you're responsible. It means you're likely to be profitable to loan money to. Low chance of default is part of that, since defaults are bad for banks, but things like paying off loans early, or avoiding paying interest in credit card balances, meant that you were less profitable to loan to, so your credit rating was worse if you did those things than it would have been if you paid minimal on all your loans, thus maximizing the amount of interest you paid, and maximizing the profit the banks made off you.
posted by Steven C. Den Beste at 9:57 PM on January 6

SCDB is right in that an individual bank would prefer for you to carry a balance, but credit scores are generated from information in your credit file at the credit reporting agencies (CRAs), which have far less information about you than the banks do. A CRA can't tell how much you are carrying -- they get a report of your balance each month, but for all they know, that could represent new charges after you paid last month's bill in full. A credit score such as FICO is therefore a measure of how risky you are, i.e. how likely it is that a lender will get their money back, not how profitable you'll be.
posted by kindall at 11:07 PM on January 6 [1 favorite]

I know of no reason why your credit would be better affected by charging your rent vs. something else. Having a record ontime payments for (at minimum) the last 24 months is important. What you charged to the card is irrelevant to your score. If your card awards points for certain purchases, just charge those items or whatever routine consumer purchases you make. Since debt-to-balance ratio is a factor in scoring, putting such a big charge like rent on your account every month has the potential to backfire on you.

Your score also improves as the average age of your accounts grows older. So if you need a bump soon, avoid opening new accounts right now and try not to close old ones unless you've absolutely got to.
posted by nakedcodemonkey at 11:57 PM on January 6

Maybe they've changed the algorithm since I was young, but it used to be that paying off your credit card balance every month was bad for your credit rating, not good. What they wanted was for you to maintain a balance and to pay interest. That was more profitable for the bank.

In the past, people pretty much just had anecdotal evidence of what helped or hurt your credit. Now that they have adopted numerical scoring (FICO, etc), you can test what effects your credit score empirically. A significant factor in your credit score is what the credit bureaus call "utilization" which is the percentage of your credit line that is in use. The higher your balances, the higher your utilization, the lower your score. In general, you want the highest credit limits you can get and the lowest balances.

It is also not true that your credit score reflects your profitability. Credit scores are intended to reflect the likelihood of default. On time payments are very important, the amount that you charge each month is much less important. The other key factor is the length of time you have held credit. The longer the better. Charging your mortgage would not have any significant impact on your score. If you just charged gas and paid it on time every month, it would be just as good.

Yodlee Bill Pay allows you to pay some bills by credit card, but probably not rent to a small landlord. I don't have any personal experience with it, but I know some people try to run as many bills as they can through it to maximize the cash-back rewards or frequent flier miles they generate. I don't know what the fee structures look like, you will need to do your own research if you elect to pursue this avenue.
posted by Lame_username at 5:19 AM on January 7

With my bank (Wells Fargo), I use BillPay and have a choice of which account I use (I have checking and Visa there). I personally just use checking, but you could use a credit card. J
posted by radioamy at 1:02 PM on January 7