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Gaining Credit When You Have None - Beating the Catch 22
Kotenk
Registered User regular
Registered User regular
Any tips? I have little to my name but a steady income with a very high household income. The only thing my bank can offer me is a credit card line where I essentially make the deposit ahead of time... which I guess makes sense for them but not really any sense for me.
In addition to building credit, I'd like a somewhat usable credit card (both 2 separate desires), so if I can knock both out at once - it would be sweet.
In addition to building credit, I'd like a somewhat usable credit card (both 2 separate desires), so if I can knock both out at once - it would be sweet.
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we also talk about other random shit and clown upon each other
I don't know what your store options would be in your area, but I would avoid any very large store chains; my experience with them (Sears) has been the same as with the banks 'May I have credit?', 'Do you have credit?'. Perhaps something statewide.
FFRK: 9rRG
Make sure you are aware of the annual fee if it has one.
I personally went with the best buy mastercard, $50 annual fee, but with how much I shop there, I usually get $50+ every month in reward certificates (being a premier silver member and gamer club helps too).
My wife went with the amazon visa card, no annual fee, she shops on amazon a lot, so makes sense for her.
Is there a reason why the secure credit card offer from your bank doesn't work for you? It's basically the same thing.
I just really don't feel like giving them $500 just to build credit.
That being said, if that's what I have to do, I'll surely do it. Just want some options.
I went a different route that isn't repeatable - my grandmother set up an inheritance/emergency account through her credit union. When I applied for a credit line with a $500 limit, they took a look at the amount of money in the account and practically begged me to consider upping the limit. Probably in the hopes that I'd act like a moron and max out the line and then miss a payment so they could recoup it from the account.
You make it sound like you'll never see that $500 again. It's just security on your line of credit. Once you build your credit to the point where you're able to get an unsecured card, you can close the secured line and get that deposit back along with any interest earned (usually similar to a saving's account, so not much) minus any fees. But of course you want to do your homework and make sure the secured credit isn't going to include lots of fees and that they're not going to treat you like shit. But if it's through your bank you should already have a pretty good feel for how they treat customers.
edit: Raekreu are you actually suggesting he can build his credit up enough in one billing cycle to get an unsecured card? Because that's definitely not the case.
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The only banks with secured credit cards (that I'm aware of) are Wells Fargo, HSBC, and Chase.
Store credit cards aren't as easy to get as they once were, but you may as well try a couple and see.
I would add this caveat: Cut up the store card and never use it again, but don't cancel it. The total amount of credit you have available to you is an important part of your credit score.
Having too many open lines of credit is a bad thing too though. That being said, I wouldn't close the store card until the new credit card was built up a little.
In six months you'll qualify for an unsecured card. What's the issue?
1. Not using a credit card that you have does not positively improve your credit score. In fact, it can actually make getting other forms of credit more difficult. Why? Because of a little thing called credit exposure.
See, your exposure is the total amount of possible debt you can get yourself into, given all the credit available to you from multiple sources. Bank lines of credit, credit cards, mortgages, student loans, etc. Whatever your current potential debt is, that's your exposure.
Credit bureaus (which are independent companies financed by the credit industry to monitor your credit) check and watch your credit exposure, and report that exposure to creditors when they do a credit check.
Having unused (but still existing) credit cards that you haven't cancelled but aren't utilizing adds extra exposure to your credit history, something that does not benefit you.
Why does high exposure make creditors nervous? Because the concern is that, suddenly, you could just rack up all your various credit, declare bankruptcy (a financial form of "NO TOUCHBACKS") and they get fucked. So, creditors prefer to limit your exposure to amounts you are reasonably capable of actually paying back in a reasonable timeframe.
2. The best way to build credit with a credit card is to use your credit card often, as often as possible, but always pay it in full before the due date. Always. Don't get charged interest. Contrary to popular belief, creditors do not make their primary money off of interest charges. Interest charges are a form of recovery that creditors utilize in order to stay in business while they patiently wait for you to pay them back. Remember that by the time an amount shows on your bill, the creditor has already payed that money to whoever you used your card with. That means the creditor is out that money until you pay them back, and collecting a sliver of interest off you each month doesn't really do all that much for them.
How, then, do credit card companies make money? A little somethin' somethin' called service fees. See, when you use your credit card at a merchant, it costs that merchant money. The merchant has to pay the service provider (the credit card company) a certain amount depending on the size of the purchase.
That is how credit card companies make profits. And, think about it, it's a pretty good racket! If you use your card a bunch, but pay the full balance before the due date, then the credit card company got pretty close to free money. They got massive profit with basically no real risk or loss to their company.
So credit card companies want you to use your card, as often as possible, and to pay it off in full before the due date. If you run up greater than 30% of your available credit limit per month, and pay it off in full before the due date, this will have a very large positive effect on your credit score over time.
Remember that every time you are charged interest, this is not helping your credit score at all.
3. Pay your bills with your credit card. I cannot stress this technique enough. We all got bills, bills, bills. Cell phone bills, internet bills, cable bills, WoW bills, whatever. If you have regular bills that you are paying every single month, and those bills tend to be fairly consistent? Put them on your credit card. Pay them online or automatically with your credit card, and then pay your credit card from your bank account. Paying your bills via direct payment from your bank account doesn't do anything to improve your credit score, whereas using your credit card as an intermediary on the transaction does, to no real difference in cost to you.
It's money that you are going to end up paying every month anyway, why not benefit from it more?
Actually it's not, as long as you aren't carrying a balance. In fact, having a mix of major credit cards is actually a positive on your credit score.
Actually it's not, as long as you aren't carrying a balance. In fact, having a mix of major credit cards is actually a positive on your credit score.
Edit: This is in the US, and applies to FICO scores. Pony I believe is Canadian.
That mix is only beneficial if you are using the card. If you have a card with Visa, a card with Mastercard, and a card with AmEx, that does benefit your FICO and other credit measurements if you are responsibly and regularly using them.
If you have a Visa you got three years ago that you cut up and don't use and has a balance of $0 and you never do anything with it, this will increase your exposure to no gain for you. Having multiple credit cards is only a good thing if you use those cards and don't revolve balances and use them responsibly.
"Arglbargl, I got my new AmEx card and the limit is only $2000, this is bullshit, I have a Mastercard with a limit of $15,000 my credit history is excellent what the shit!"
and I had to explain that it's because they have a $15k limit on their Mastercard that we won't offer them a higher limit on their AmEx. The exposure is too high, based on their income and suchforth, especially given that we saw that he generally doesn't even use his $15k Mastercard.
Remember, all creditors share all information, via the credit bureaus. Mastercard knows everything about you that Visa or AmEx does. They share information and warn each other about deadbeats and so on. Even though they are technically competitors, none of them want to see their competitors get buttfucked by bad credit, because it ends up buttfucking all of them.
The whole idea of a credit score is basically the credit industry's way of telling each other "Hey this guy is totally shit/awesome, watch out for him/give him handjobs".
If you fuck one of them over, all of them will fuck you back, and if you're good to one, the others assume you'll be good to them too.
i have this shitty credit card with no rewards that ive had since high school, but don't use anymore since i got a credit card with at least SOME rewards
the credit limit on it is prety darn huge too, they kept raising it on their own
last year they wanted to start charging an an annual fee and i called them and was like nuh uh, so they refunded it...
but i think i should get rid of that card right?
would cancelling it be bad for me in any way?
If you're not using it at all, then it's not doing you any good to keep it around (the bonus from the age of the account is offset by it's 0% utilization). Think about cancelling it and getting a higher limit on the card you do use to keep your total utilization low but higher than 0%.
I've changed to never using cash or checks for anything other than rent or at dive bars that only take cash.
We've been turned down by every major credit card, department store cards, and even our phone service (we had to go with a prepaid plan). The secured card was the only option that worked for us, and we just got them a couple days ago.
Pony's post would have been really nice to read a year or two sooner, as we weren't aware of any of this shit until we tried for a house. Apparently if you don't have a credit history by the time you leave college, everyone assumes there's something wrong with you. Our thinking at the time was pretty much "we're don't have debt, so there shouldn't be any problem", which I guess is how things worked in our parent's time but it's certainly not the case now.
You're looking at it from the wrong perspective. It's not so much that anyone's saying there's anything wrong with you, but you're asking an institution to loan you a considerable amount of money when you have no history of managing credit debt. Would you loan $200k to someone who has no history of managing credit debt?
But at least you're on the right track and building that credit history. I need to do the same myself.
Yes.
As long as you aren't revolving balances (ie you are paying the card in full every month), then it is to your benefit to use your card as much as reasonably possible
Cancel it. It's not hurting your credit rating by existing, but it's not helping it either, and it does raise your exposure level for no real reason.
Cancel it, and if you want a higher limit on the card you actually use, wait 6 months after you cancel the old card and then ask the company for a higher limit.
It generally takes six months for changes in your credit exposure to be evident to all creditors, so after that point your cancelled card's exposure will be removed from your exposure total by the bureaus.
They do? I've never heard this.
Yeah, a lot do.
Also, you know how nearly all credit cards have expiry dates? Yeah, if you haven't used your card for years when the expiry date comes up, most companies just let it expire and don't send you a new one.
I've heard that the only way to get into the 800s is to have excellent credit going back for more than 10 years. I have a card like this that I never use, but that I got when I was 17 or so. I've been holding on to it because it's my longest account.
Am I totally off base here? Is it doing absolutely nothing for me?
I believe the average age of your credit impacts your score, but someone else here will likely be able to let you know if it's a worthwhile amount. And, everything said in here previously about actually using your card instead of never using it will still apply.
I would think that having a very old credit line that you actually use from time to time would be good. Better than never using it, probably.
[Edit]
Also, I don't think your ten years figure specifically needs one credit line that's been open for those ten years, just that you have a history of having credit and whatnot dating back at least ten years.
I suppose i should clarify that I have two credit cards that I use constantly for bills, meals, groceries, even rent. They have huge limits and I pay them off completely each month. But I also have that third card that I don't use and keep around because of its age. If it's not doing anything for me, then it can definitely go.
So what should I do if I don't have many recurring bills to pay? My living situation is such that I don't have any utilities in my name. I've been using my credit card to pay for gasoline and groceries and have been paying them off in total each month. The thing is that these aren't huge purchases, it ends up being something to the tune of $200 or less per month. Is it more about consistency in paying on time or is the amount I'm charging a more important factor?
The amount you charge is more important than how often you use it. To use an extreme example to show the flaw in your reasoning, you're not going to boost your credit score by a meaningful amount making 50 $1 transactions a month. He just means use it as much as possible so that you're charging as high an amount to your card as you can afford to pay off each month without a revolving balance. Which is not to say that you should charge stuff to your card just to use it if you wouldn't have bought the item otherwise. The idea is to use the card as much as possible for expenses you're going to incur anyway. The total dollar amount you charge each month definitely matters.