Establishing credit: Are store credit cards worth it?

zkt

I currently pay student loans and have a credit card, which I haven't used for 2 months. These are the only two ways currently Im establishing credit (as far as I know). Would signing up for store credit card, such as Amazon.com or whatever be in my best interest?

Improvolone

Yes

Hevach

Since you mention not using the card you already have for a while, note that just having the card isn't much help. Use it and keep it paid off.

MushroomStick

Usually, with a store credit card, you'll be able to get 0% financing from time to time and, assuming you keep up your payments, you'll be able to build credit without paying interest.

Chases Street Demons

It's in your best interest as long as you can pay the balance off entirely from month to month. Those cards have some ridiculous rates - I recommend you stay away from Gap in particular. They're tricksy.

zkt

Well because of my financial situation (which im optomistic is finally changing for the better starting next week) I have been only able to pay off a little over the minimum of $15 on my credit card which has a limit of $300. I only used it to pay for my WoW sub anyway, and a $50-$100 purchase every 8 months, so it has only ever been fully paid off a few times. It was my understanding as long as you pay something, and pay on time, your credit would approve. Also, I wouldn't be caught dead in a Gap...

Chases Street Demons

Sounds like you're in the beginning of building your financial portfolio. I would suggest getting another major credit card if possible and making sure you make the payments on that as well. Your rating goes up when you keep paying as long as you don't miss payments. It does tend to flatten out if you're only making the minimum payment for an extended amount of time though.

MushroomStick

You're going to have to start making larger payments than $15 if you want to build up your credit with any kind of speed.

MetroidZoid

Along the lines of a specific store card, my parents once told me the idea of having a gas card. Granted, it limits you to a specific gas station, but if you're already using the same one frequently, AND they have a credit card, it's an option. If the rates are good and yadda yadda.

zkt

I don't drive.

MushroomStick

Instead of writing out checks to pay your utilities, put them all on your credit card and then just pay it off every month. After a few months, they'll probably start raising your limit.

Esh

MushroomStick wrote: »

Instead of writing out checks to pay your utilities, put them all on your credit card and then just pay it off every month. After a few months, they'll probably start raising your limit.

Speaking of, will they just tell you when this happens? I'm rebuilding my credit and have a couple of low limit cards and I've been great about buying things on them and then paying it off immediately.

MushroomStick

Whenever they've raised my limit, they've sent out a letter to notify me a month or two after the fact. The credit card I've done this with is through Chase and started out with a $500 limit that's worked its way up into 5 figures over the years.

Edit: Also, paying the balance in full every month is not the fastest way to build credit. Credit card companies like it when you hold a balance and manage it well. That's why I think store credit cards a great way to build credit because you can buy a laptop or TV or something, get 18 months or so of 0% financing, and then pay it off slow the way the card companies like but not pay interest on anything.

Esh

MushroomStick wrote: »

Whenever they've raised my limit, they've sent out a letter to notify me a month or two after the fact. The credit card I've done this with is through Chase and started out with a $500 limit that's worked its way up into 5 figures over the years.

Edit: Also, paying the balance in full every month is not the fastest way to build credit. Credit card companies like it when you hold a balance and manage it well. That's why I think store credit cards a great way to build credit because you can buy a laptop or TV or something, get 18 months or so of 0% financing, and then pay it off slow the way the card companies like but not pay interest on anything.

I had a credit thread a couple months back and people in their were saying it didn't matter either way whether I held a balance or paid it off immediately. I verified this at my bank as well. I don't think they care as long as they get their money in a timely fashion.

MushroomStick

For me, I spent the first few years of credit card having paying the balance in full every month. This did raise my credit score and they did raise my credit limit every so often, but that was going very slowly and incrementally. Then I bought a laptop and spent a year paying off the balance and over that one year, Visa gradually raised my credit limit from about $1500 to up over $10,000. With that increased line of credit, my credit score jumped into the 700's. That's how it worked for me, maybe it'll work for other people too.

kuhlmeye

As long as you are paying things back, it doesn't make a huge difference either way. I've never received a notification for a credit limit increase, but mine has been raised from ~1500 to over 5k in the course of a year.

My main advice is to put things you are planning on buying anyways (food, utilities, rent) on your credit card, and then pay them off before your statement. I'm not saying buy things because you have a credit card, and then find the money to pay it back. I'm saying buy things you are already going to buy, but use your credit.

Be aware that you are entitled to a free credit report from each of the three credit reporting agencies per year. Go to Annual Credit Report and get a copy of your credit report from one of the three agencies, and start a rotating 4 month report cycle. This site is the ONLY site sponsored by the US Government and provides you with your free yearly credit report without you signing up for some bull crap like Freecreditreport.com.

Hope this helps some.

Deebaser

Esh wrote: »

MushroomStick wrote: »

Instead of writing out checks to pay your utilities, put them all on your credit card and then just pay it off every month. After a few months, they'll probably start raising your limit.

Speaking of, will they just tell you when this happens? I'm rebuilding my credit and have a couple of low limit cards and I've been great about buying things on them and then paying it off immediately.

They usually don't tell you shit. It appears on your statement and online though.

vch457

Deebaser wrote: »

They usually don't tell you shit. It appears on your statement and online though.

if you think your situation has improved, it can't hurt to ask for a credit increase up front. I asked for one before my wedding so we could pay for stuff without worrying about running over and they approved it in a couple days. worst case they deny you and I don't believe the request will show up in your credit report.

kuhlmeye

You know, I don't think I actually answered the question in the OP...

Store credit cards are not necessarily a bad thing. Just be sure they have a decent interest rate and always read the fine print. Also, make sure you get a card that can be used at other places. For example, Best Buy has a "Best Buy Card", and a "Best Buy Mastercard". The "Card" can only be used at BB, where as the "Mastercard" can be used everywhere, and you get reward points for stuff you buy elsewhere too.

Dr. Frenchenstein

Most of those store credit cards are through a bank, and i believe mine look identical on my credit report to the major credit cards (it doesn't say Best Buy i don't think). But regardless, unsecured credit is unsecured credit. One of the major things they look at is your debt to credit ratio.

using the card and paying it off is really only to keep them from canceling it on you out of nowhere. i don't think it matters if you pay it all off or keep a small balance (depending on your bank, not carrying a balance ever might be grounds to drop you as well... i dunno, credit is a shady industry)

MushroomStick

My understanding is that you get a higher credit score if you have a larger line of credit available to you (as long as its in good standing, of course). When you gradually pay off a largish debt, the credit card companies have a habit of raising your limit. Having too many separate lines of credit will lower your score, so I would assume that just having a few largish ones would be better for raising your credit.

toolbert

From what I've experienced (with myself, friends and family), specific store cards are a pretty big bust unless it's tied to a major credit card company (i.e., VISA, Mastercard, or AMEX). Those ones specific to stores can hurt the way some companies look at you.

MushroomStick

toolbert wrote: »

From what I've experienced (with myself, friends and family), specific store cards are a pretty big bust unless it's tied to a major credit card company (i.e., VISA, Mastercard, or AMEX). Those ones specific to stores can hurt the way some companies look at you.

I don't think its so much that they're store specific as much as it is people opening too many separate lines of credit to get there 10% or so off for applying for the credit card at the register. Too many open lines of credit will look bad and potentially lower your credit score.

FeatherBlade

It depends on what your financial goals are, long term.

Is your goal to have ALL THE COOL STUFF RIGHT NOW! ?
Is your goal to have extra money at the end of your month?
Is your goal to have the capability of being fired at any time without needing to worry how you're going to eat?

If it's the first, them sure, you go right ahead and get more credit cards.
The fact that you are not able to completely pay off your current card suggests that you may be living beyond your means, i.e. spending more than you make. If you are unable to pay off one credit card, having a second one will not improve your ability to pay them off.

If it's the second or third, credit cards are probably not a good idea. Timely payments to your student loans, as well as timely payments of your utility bills are probably sufficient. If you have not had any major financial screw ups, you probably have pretty good credit anyway.

Ask yourself this: what would I do if I didn't have to pay my student loans? If your credit card was paid off, and your student loans were paid off, how much money would you have available to spend on cool things (or food, or rent, or whatever).

That you only have a $300 limit on your one card is probably a good thing: it means that you are unlikely to bury yourself so deeply in debt that you declare bankruptcy.
That you have student loans is a not so good thing: you are in the hole already. You have a significant negative net worth.

Many people stay at jobs they hate because they have debts to pay. It never occurs to them that if they didn't have those debts, they wouldn't have to stay at the job they hate. If they paid off their debts, and had extra money saved up, they could afford to take time to find a job that they loved.

You might want to consider a written plan for how you are going to spend your paycheck each month. It might enable you to pay off your credit card completely, and help you not spend more than you make.



By the way: credit card companies (even store credit cards) are not your friends. They are there to make money off of you. If you pay your balance in full each month, and don't make large purchases or don't make frequent purchases, they will cancel your card because they aren't making enough money off the interest from your credit balances.

zkt

FeatherBlade wrote: »

It depends on what your financial goals are, long term.

Is your goal to have ALL THE COOL STUFF RIGHT NOW! ?
Is your goal to have extra money at the end of your month?
Is your goal to have the capability of being fired at any time without needing to worry how you're going to eat?

If it's the first, them sure, you go right ahead and get more credit cards.
The fact that you are not able to completely pay off your current card suggests that you may be living beyond your means, i.e. spending more than you make. If you are unable to pay off one credit card, having a second one will not improve your ability to pay them off.

If it's the second or third, credit cards are probably not a good idea. Timely payments to your student loans, as well as timely payments of your utility bills are probably sufficient. If you have not had any major financial screw ups, you probably have pretty good credit anyway.

Ask yourself this: what would I do if I didn't have to pay my student loans? If your credit card was paid off, and your student loans were paid off, how much money would you have available to spend on cool things (or food, or rent, or whatever).

That you only have a $300 limit on your one card is probably a good thing: it means that you are unlikely to bury yourself so deeply in debt that you declare bankruptcy.
That you have student loans is a not so good thing: you are in the hole already. You have a significant negative net worth.

Many people stay at jobs they hate because they have debts to pay. It never occurs to them that if they didn't have those debts, they wouldn't have to stay at the job they hate. If they paid off their debts, and had extra money saved up, they could afford to take time to find a job that they loved.

You might want to consider a written plan for how you are going to spend your paycheck each month. It might enable you to pay off your credit card completely, and help you not spend more than you make.



By the way: credit card companies (even store credit cards) are not your friends. They are there to make money off of you. If you pay your balance in full each month, and don't make large purchases or don't make frequent purchases, they will cancel your card because they aren't making enough money off the interest from your credit balances.

Uh,..thanks but I think you are way over analyzing my situation. Im not out on my own yet and my parents are taking care of my student loans (which isn't that much thanks to financial aid and working to significantly reduce tuition). I personally have no financial burdens until I can find a job, and when that happens Ill start paying my loans myself. I guess Im lucky because I have been able to hold out and look for a job I desire and have limited financial freedom. What I wanted to know is how to wisely invest my current finances so things are easier once I move out on my own. Since I read on another thread how desperate landlords are desperate for tenants this should work in my favor as a recent graduate with not much credit.

MushroomStick

Wait. You don't have a job? Don't get any more credit cards.

milkcartonjosh

I really wished I had talked to my parents about money before I went away to college and then moved out on my own. Money was never really talked about growing up. Talking about it was almost taboo. Ask your folks for "the money talk".

After moving out I got a credit card, and not thinking I maxed it out right away, made some bad decisions about money (bought a car I couldn't afford) and my credit score went through the floor.

It took me about 7 years to fix my credit score and now I'm married, own a house, have a kid on the way, and am financially stable. Here are some of things that helped me out/I did/learned along the way/

1) Two of my best friends ended up working for a bank. They taught me sooooo much about money. Make friends with someone who works at a bank and talk to them about money. They can set up accounts for you so you don't get dinged with all those little fees. They can tell you exactly how to improve your credit score the fastest since they talk to the guys who work in the sub prime mortgage department. The sub prime mortgage guys are experts at fixing peoples credit so they can get people loans for houses.

2) Learn what makes up your credit score. Your credit score is affected by thigs like, having a lot of available credit. Like having a card with a 10k limit but a very low balance. Use your cards, and pay them off. Using your card to pay for WOW and then paying it off every moth is perfect!!! 3 sources of credit is all you need. Of course pay on time!!!

3) Learn how long it will take you to pay stuff off if you buy it on credit and how much extra it will end up costing you. Figure out the math involved with your credit cards APR. It may be worth just saving for what you want. How much extra are you spending over time to have what you want now?

4) When you get a job and start paying bills: Set up multiple accounts. If you can get those fees waved by having a friend who works at the bank, set up 2 or more free checking accounts. Direct deposit is awesome! Your job should be able to send your paycheck directly to your bank and split it up any way you want. The best thing I ever did was add up the total ammount for all my monthly bills and have that total sent to one account. I use that account to pay bills (auto bill pay online is awesome) and the other account is left over for gas, video games, movies, eating out, other fun things. That way I always have enough for bills and I don't get that pissed off fealing seeing 1/2 my paycheck getting spent on bills.

5) Start a saving experiment. There is soooooooooooooo much emphasis on getting a credit cards/going into debt/credit scores. Think about this. You don't need credit if you have enough money to pay for everything up front. Understand why banks like you going into debt/want you to get comfortable with the idea. Say you want to buy a house some day (cause you got an awesome job with your college degree). Say you have exelent credit and buy a house for 300k with an average apr. The loan will take 30 years to pay off. Guess how much you will end up paying the bank over the 30 years? about double! Don't get me wrong, you get to live in a house, but the bank makes a lot of money off you. So what's the point. Save up and you can be like the bank. Then you can make money by lending out your money. Learn about stocks, cd's, bonds, 401k's etc.

I know this was way more than the op asked for but no one ever talks about this stuff. Seriously, why isn't there a class on this stuff in high school? Good luck, and hope this helps.

milkcartonjosh

What I wanted to know is how to wisely invest my current finances so things are easier once I move out on my own.

Ask yourself what will you need & what you will need to know when you move out on your own. A credit score is important. A landlord will run your credit score when you try to rent from them. The number 1 thing they are looking for is to see if you pay your bills on time, not so much your actual score. That way they can trust you will pay them on time. You will most likely need to come up with a deposit for your landlord. It can be as much as first and last months rent in advance pluss a security deposit. This can all be negotiated too. So start saving. If you get in the habit of not spending all of your money down to zero every pay cycle and you will be much better off. Or if you do want to do that, set up a separate account that you put $x in each month and don't touch it. Call it your future rent deposit account or something like that. Heck if you get an allowance from your folks ask them to send you $x less and save it for you if you don't trust yourself/or trust them more.

Shop around for a credit card with the lowest interest rate possible and no anual fees if you can. Some credit cards have an apr of like 30% and charge you $50 a year just to cary the card And if you miss a payment they jack it up even more. Read the fine print.

And understand why we are over analyzing your situation. If you start getting interested in learning about all of this stuff now, you will be way better off when it comes time to move out. You will less stressed about money and bills and paying rent. It is never to early to learn about money and how it works.