My parents made some poor choices with credit cards when they were younger, so my perception of credit cards through my youth was that they were only a financial trap and should be avoided no matter what. I've come to a point, however, where I could see the benefit of a card in emergencies and as a tool to raise my credit score when used responsibly. I've been considering applying for one, but am pretty uneducated as far what constitutes a "good" card or... anything really.
So, any advice on what would be a good card, or any types on what to look for, etc? Any help would be appreciated.
[ December 22, 2012, 05:23 PM: Message edited by: Ginol_Enam ]
Posted by Samprimary (Member # 8561) on :
as far as I have ever done it, I just use one that i can put some internet purchases on and pay off every month, and I try to have three or four active at any given time, purely for credit history.
Posted by Stephan (Member # 7549) on :
Nothing with a monthly free, obviously. unless you happen to fly a lot, and think frequent flier miles might be worth an annual fee.
Do you drive a lot? A credit card connected with a gas station would be a good start, they often give reward and/or discounts on your gas purchased.
Shop online a lot? Amazon.com has a great one through Chase.
My brother in law has never carried a balance, but just traded in 10 years of reward points for a $1000 gift card to best buy. I think he has a capital one card.
Posted by Lyrhawn (Member # 7039) on :
I have the Amazon card, and I love it. I rarely carry a balance because the interest rate is so high, but the rewards on it are fantastic.
One thing to check is if your local credit union offers a credit card. They often have incredibly low rates if you carry a balance since they aren't really interested in gouging you.
Posted by RivalOfTheRose (Member # 11535) on :
Always pay off your balance each month. Always, no exception.
My wife and I use mostly credit to pay everything, with the universal fundamental understanding that it will be paid off, no matter what. We treat it as cash, and monitor our spending each month. It is simply a matter of convenience, as we hardly ever go to an ATM.
Discover has a decent rewards program, and is usually accepted anywhere.
Always pay off your balance each month. Always, no exception.
Posted by Blayne Bradley (Member # 8565) on :
Only ever use it if you have the money to immediately pay it off before your charged interest.
Posted by Lyrhawn (Member # 7039) on :
For credit rating purposes, isn't it good to occasionally carry a small balance?
Posted by Stephan (Member # 7549) on :
quote:Originally posted by Lyrhawn: For credit rating purposes, isn't it good to occasionally carry a small balance?
No. False. Misleading information. I am in the high 700s and have never carried a balance. My dad has that near perfect over 800 score, and has also never carried a balance.
Having access, and not using it, is actually good for your credit score.
My score in college was so good without even a credit card that I was offered a great rate on a new car, my first purchase.
Posted by TomDavidson (Member # 124) on :
I carry three cards -- one that gives me excellent cash back rewards (Discover), one that accrues miles and is more commonly accepted (a Visa), and one that is specifically good for 5% discounts on all items at Target. None of them carry an annual fee.
I do not carry a balance on any of them, for obvious reasons. A few months ago, I calculated that in ten years of using my Discover card, I have received about $4,500 back. I have yet to cash in any of my airline miles, since I've realized that airline miles are really a sop to spoiled business travelers rather than a thing for normal people. Posted by scholarette (Member # 11540) on :
I agree with rival of the rose. If you can be responsible, there are benefits to it, such as security.
Posted by Orincoro (Member # 8854) on :
quote:Originally posted by Ginol_Enam: My parents made some poor choices with credit cards when they were younger, so my perception of credit cards through my youth was that they were only a financial trap and should be avoided no matter what. I've come to a point, however, where I could see the benefit of a card in emergencies and as a tool to raise my credit score when used responsibly. I've been considering applying for one, but am pretty uneducated as far what constitutes a "good" card or... anything really.
So, any advice on what would be a good card, or any types on what to look for, etc? Any help would be appreciated.
Look around for the benefits you want, if any. An easy way to do it if you have no existing credit (the way I did it), is to get a cash secured credit line, no more than $1000 dollars, from your bank- through whatever company they use. You put down a deposit on your card and you get that back at the end of a year or so. If you do ok with it, you get the money back.
Just, really, you can't go that wrong with a credit card if you just don't treat it like anything other than a convenience and emergency source of cash. Do not finance *anything* on a credit card, ever. That is a useful rule to follow, and it has seen me to 28 without a single interest payment on anything, ever. You do not buy what you cannot afford.
I'm endlessly amazed by friends and even siblings who carry credit balances- I have heard numbers as high as 50 grand. The interest on these things can take years to pay off. I don't have any shiny toys to show off, but I have zero debt.
Posted by Ginol_Enam (Member # 7070) on :
So, I guess they're not as complicated as I thought? Most of the advice (although really good and certainly appreciated) regarding a balance is stuff I already knew or assumed. My main worry was being surrounded by this or that offer and not knowing what the essential difference is or what. I guess so long as it doesn't have a fee it really just comes down to benefits?
I'll take a look at some options. I appreciate all the feedback Posted by Lyrhawn (Member # 7039) on :
quote:Originally posted by Ginol_Enam: So, I guess they're not as complicated as I thought? Most of the advice (although really good and certainly appreciated) regarding a balance is stuff I already knew or assumed. My main worry was being surrounded by this or that offer and not knowing what the essential difference is or what. I guess so long as it doesn't have a fee it really just comes down to benefits?
I'll take a look at some options. I appreciate all the feedback
I like to keep a low interest backup with no benefits simply in case there is an emergency that I might need to carry a balance on. Things come up that you sometimes can't afford to pay off all at once, and for those, you want a tiny interest rate. That's what I use my credit union VISA for.
For everything else, for the best benefits package that suits your spending habits and pay it off. Not complicated at all.
Posted by dkw (Member # 3264) on :
Here's a link for a comparison of different cards' rewards, interest rates, fees, etc.
Every once in a while the credit card company will send you things designed to help you put a whole bunch of credit on your card at once. Tear them up. Don't treat credit as free money. It most definitely isn't.
Buying a Christmas present or two on our Discover cash back balance is pretty cool. It's certainly nice that Discover gives that cash back even though we never carry a balance on the card.
We've been fortunate to never have to carry a balance on a card. My wife and I both enjoy near perfect credit scores. Like others, we don't have a lot of the shiny toys that others around us have. But the only interest we've paid for years has been on our mortgage. The more you can pay for things outright, even vehicles, the better off you'll be in the long run.
My only other suggestion is to be very careful about what cards you get. Every store and their brother will offer you a credit account in exchange for a few dollars off your current purchase. In my experience, it's usually not worth the trouble.
Posted by Orincoro (Member # 8854) on :
quote:Originally posted by Ginol_Enam: So, I guess they're not as complicated as I thought? Most of the advice (although really good and certainly appreciated) regarding a balance is stuff I already knew or assumed. My main worry was being surrounded by this or that offer and not knowing what the essential difference is or what. I guess so long as it doesn't have a fee it really just comes down to benefits?
I'll take a look at some options. I appreciate all the feedback
They make it pretty uncomplicated so that naive people with poor judgement can easily abuse it and get into trouble. That's the bread and butter of the credit industry. If everyone were like me and you, there probably wouldn't be no-fee credit cards available at all. In fact, where I live (Czech Republic), there aren't really many no-fee credit plans because so few people get into credit debt. There would be no point to them. You don't have to make any of the classic mistakes, people just do it because they don't know better. But it's really not dangerous if you've got a good head on your shoulders.
Posted by Geraine (Member # 9913) on :
My advice is to get a credit card, and as soon as you get it cut it up.
Save some money and put it away for emergencies, and live within your means. Save up for things and pay cash, and don't get in trouble with credit cards at all.
You may have to put off getting expensive things until you are able to save for them, but the time it takes to save will save you a lot of money in interest.
Posted by Kwea (Member # 2199) on :
Bad advice, unless you come from a rich family. Buying a new car, buying a home....these things take a credit score and the ability to get credit.
Carrying a balance IS a part of it, BTW. If you have a car loan or a home loan it's isn't important with a card though, because you are already carrying a balance on them. If you pay it off, and have no other loans, it's called "revolving credit" and doesn't help your score at all. It's not the most important factor, but it is a factor not a myth.
The biggest thing is that once you get to 50% of your "available credit", which is the TOTAL of all cards, you get a hefty hit against your credit. If you hit 75% of it, you get a second hit that is even worse. So don't spend more than 30-40% of it, and pay it all the way off in 2-3 installments before charging anything else.
I worked with a mortgage lender for about 6 months years ago, and learned that I really knew nothing about credit and credit scores. I wish someone had told me what I learned then earlier in my life.
Posted by advice for robots (Member # 2544) on :
Does anybody know anything about how credit scores are compiled? To me, it's sort of like the BCS of the credit industry. Mysterious "algorithms" and all the power centered in a few shadowy companies, with enormous influence on your financial wellbeing.
I don't know how I have a great credit score, other than having paid off the few loans I had in and after college, and then carefully not going into debt afterward. The handful of times I've carried a balance on a card, it's been because I forgot to send in the payment on time.
Posted by Lyrhawn (Member # 7039) on :
Available credit is by far the biggest part of it.
They also take into account how many late payments you have, how recent they are, and just how late they were. I think that's like 30% of your total score as well. It's one of the tougher things to get rid of because you simply have to wait it out. There isn't much you can do immediately to boost that part of your score, so paying things on time is really important.
Posted by Jon Boy (Member # 4284) on :
quote:Originally posted by Lyrhawn: For credit rating purposes, isn't it good to occasionally carry a small balance?
My understanding is that it's good to have some installment credit, like a car loan or mortgage, because it shows that you can commit to paying a fixed amount for a long time. I don't believe there's any advantage to carrying a balance with revolving credit. I never have, and last I checked my credit score was over 830.
Posted by Kwea (Member # 2199) on :
Big loans....school loans, mortgages. car loans....all weight more heavily than credit card debt. It shows that someone else trusted you, that you made those payments and fulfilled your financial obligations, and that you payed off (or are paying off) your debt.
Revolving credit is paying off your card every month, not carrying a balance. It doesn't help your score much.
History of credit is important too, something like 15%. You can LOWER your score if you close an account, because of two things. First....your total possible credit line is lowered, which might put you into the 50% or 75% margins. Also, if you close an account that you have had for 20 yeas, and your next oldest account is 3 years old, it affects the LENGTH of credit commitment, which is a minor ding against your score.
Posted by Ginol_Enam (Member # 7070) on :
quote:Originally posted by Geraine: My advice is to get a credit card, and as soon as you get it cut it up.
Save some money and put it away for emergencies, and live within your means. Save up for things and pay cash, and don't get in trouble with credit cards at all.
You may have to put off getting expensive things until you are able to save for them, but the time it takes to save will save you a lot of money in interest.
This was my thought process as well for a long while. And, certainly, if my reason for getting a card was so I could "buy" things I couldn't otherwise afford, I'd agree with you. That's not my intent, however. I have two reasons for wanting a credit card:
1) To raise my credit. I have already applied for a couple and been denied since I have zero history (which is frustrating since I've paid off a car and am always on time with my bills, but I guess that doesn't count), so I definitely want to make sure I improve it if/when I want to buy a house or something similar.
2) In case of emergencies. I have two babies now and subsequently worried of something happening that I wouldn't be able to cover with cash. It would just be relieving to have a back-up plan, I guess.
Posted by MattP (Member # 10495) on :
Be cautious about what you are applying for if you don't have good credit yet and have already been turned down a couple times. Multiple credit checks in a short period time can affect your credit rating.
Posted by ambyr (Member # 7616) on :
It can be tricky to get a credit card for the first time as an adult if you have no record of debt. (I say this from experience; the credit bureaus didn't believe I existed. It was fun times.) You may need to look into getting a secured credit card, which basically requires you to establish a deposit of X amount and then makes X your credit limit. Having one of those for a year or two can help you build up enough credit to get a "real" card.
Posted by Rawrain (Member # 12414) on :
quote:Originally posted by Geraine: My advice is to get a credit card, and as soon as you get it cut it up.
Save some money and put it away for emergencies, and live within your means. Save up for things and pay cash, and don't get in trouble with credit cards at all.
You may have to put off getting expensive things until you are able to save for them, but the time it takes to save will save you a lot of money in interest.
I agree My reasoning- these companies would not run unless they're making money off of you, in the end you're really just paying more for everything.
I know another way to raise your credit score is to simply pay bills on time, which is my route, though to be honest I am not interested in taking loans, not like the bank really has the money they are handing out anyways.
-Debt free. As far as medical emergencies go, the hospital will work with you in payments, the cost does not occur interest, and as long as minimum payments are being made will not affect your credit, however, if you were to pay that off with a credit card, you will be paying more due to interest.
Posted by Jon Boy (Member # 4284) on :
quote:Originally posted by Rawrain: I agree My reasoning- these companies would not run unless they're making money off of you, in the end you're really just paying more for everything.
They make a lot of money just off of transaction fees. If you use a credit card and pay in full every month, it doesn't cost you anything more, and you can get cash back.
Posted by Kwea (Member # 2199) on :
quote:Originally posted by Rawrain:
quote:Originally posted by Geraine: My advice is to get a credit card, and as soon as you get it cut it up.
Save some money and put it away for emergencies, and live within your means. Save up for things and pay cash, and don't get in trouble with credit cards at all.
You may have to put off getting expensive things until you are able to save for them, but the time it takes to save will save you a lot of money in interest.
I agree My reasoning- these companies would not run unless they're making money off of you, in the end you're really just paying more for everything.
I know another way to raise your credit score is to simply pay bills on time, which is my route, though to be honest I am not interested in taking loans, not like the bank really has the money they are handing out anyways.
-Debt free. As far as medical emergencies go, the hospital will work with you in payments, the cost does not occur interest, and as long as minimum payments are being made will not affect your credit, however, if you were to pay that off with a credit card, you will be paying more due to interest.
WRONG.
Most bills have nothing to do with your credit rating, UNLESS you fail to pay them. Even many landlord/management companies don't report your rent to them, unless you fall behind.
Posted by Stone_Wolf_ (Member # 8299) on :
quote:Originally posted by ambyr: It can be tricky to get a credit card for the first time as an adult if you have no record of debt. (I say this from experience; the credit bureaus didn't believe I existed. It was fun times.) You may need to look into getting a secured credit card, which basically requires you to establish a deposit of X amount and then makes X your credit limit. Having one of those for a year or two can help you build up enough credit to get a "real" card.
This is exactly what I had to do.
Posted by dabbler (Member # 6443) on :
If you have a rewards card, the store taking the card is who pays your extra 1% cash back. A regular visa might cost the vendor 2.5% in fees, but rewards would be 3.5% in fees. Discover and AmEx have higher fees than visa/MC which is why some stores don't accept them.
I autopay my cards every month so I don't have a balance and don't have to worry. I check them regularly to review the charges. They're also just plain credit cards from my bank. One is my personal credit, the other is my business credit.
Posted by MrSquicky (Member # 1802) on :
quote:Does anybody know anything about how credit scores are compiled?
This actually isn't that hard to find:
quote:How are credit scores compiled?
As we mentioned, there are dozens of different kinds of credit scores, each with a different purpose. Each has its own formula, and that formula is a trade secret.
But the credit bureaus have let us in on the general break-down of information that is used to determine a FICO score.
The most weight, 35%, is given to your past payment history. Lenders want to know if you pay your bills on time, and if you’ve had collections, bankruptcies, or foreclosures. If you do have negative items on your credit report, the most recent incidents do the most damage to your credit scores.
After 7 years, most negative information rotates off your report. Bankruptcies and foreclosures remain for 10 years.
Next, they want to see how much you already owe, so 30% of your score is based on how much credit you have available and how much of it you are using. If you have a pocket full of credit cards and most of them are at their limits, your scores will go down. If you keep that same pocket full of cards below 25% usage, your scores will go up.
Creditors like to know that you have a long history of being responsible with money, so the next 15% of your score is based on the length of time you’ve had credit. This is why we tell consumers not to cancel old credit cards, but to use them from time to time.
If you’re running around trying to get credit in numerous places, creditors see that as a bad sign, so 10% of your score is based on new credit and new credit inquiries. If you want to keep your scores high, don’t apply for several new credit cards within a short period of time, and don’t let a car dealer or mortgage lender access your credit report until you’ve made the decision to buy. Several inquiries from car dealers or lenders within just a few weeks will count as one inquiry, so it is safe to shop once you’re ready to buy.
Lenders also want to see that you can handle multiple credit accounts, and different kinds of credit. So the final 10% of your score is based on the types of credit you have. It’s best if your credit report shows experience with both installment loans and revolving credit accounts.
There are also services like Credit Karma that will let you monitor your credit score and see what various changes would do to it for free (or at least, I signed up when they were offering free lifetime membership).
Posted by MrSquicky (Member # 1802) on :
Ginol, Most of the complicated things about credit cards are the rate of interest you'll be charged if you don't pay it off in full. If you're committed to pay it off, that is less important. There are a few other things to look at:
1) Monthly/yearly fees: There are plenty of cards that don't have those, so, in your situation, there really isn't any reason to get one that does.
2) Rewards: This is probably going to be the main determiner. There are a wide range of rewards and it's a good idea to find one that will give you the most back. Amazon's Visa card through Chase gives me 3% on Amazon purchases, 2% on gas, restaurants, drug stores, and office supply stores, and 1% back on everything else, which works really well for me.
3) The credit limit: As you are just starting out, this is likely going to be pretty low. You can get it raised later, if you want.
You may have problems getting a card at first. One path to try would be to get one through your credit union (if you don't belong to a credit union, you probably should). This is unlikely to have the better rewards (or maybe any at all), but it should be easier to get and to get information about. Also, it likely will have a lower APR, in case you really do need it for an emergency. My credit union card has an APR of 1.99% for the first nine months if I carry a balance.
Posted by Xavier (Member # 405) on :
In our family, credit cards primarily exist to get free stuff. Niki tracks which (of a limited number) give us the best rewards at the time, and then we make all of our purchases through it. We pay it off in full each month, so have no interest and just get the 'points' or whatever.
We used them partly to get three round-trip tickets to Cancun, business class even for some of the legs. So that's been working out well so far.
Posted by ambyr (Member # 7616) on :
quote:Originally posted by Xavier: business class even for some of the legs.
...I am now picturing your legs flying business class while the rest of you languishes back in coach.
Posted by Ginol_Enam (Member # 7070) on :
So, here's a pickle that hopefully someone's got advice for, because don't really know how to proceed from here.
I applied for the Amazon card and was told that they needed more time to check my credit and that I should expect a response in the mail soon. I received that response and, no real surprise, was turned down. What was surprising was the rest of the information it had.
It stated the reasons I was turned down was because of a lack id credit history (of course), but also due to the number/longevity of revolving accounts. I have two accounts. One I've had for over 6 years and the other for over 4. I was recently added to my wife's account at her credit union, but that was after I applied for the card. It also said I was turned down due to delinquency and/or bankruptcy. I'm assuming delinquency is late payments, which I don't do. I've never filed for bankruptcy.
Near the bottom it gave me my credit score (in the 500s; obviously bad, but does it match up for someone who should have little to no history?). It also gave a few items that impacted my credit score (not could impact, but did impact, is how I'm reading it). They include the items noted above in addition to increasing credit card balances (lol).
I thought this was all very odd and I wanted to see what my credit apparently has on it in detail (I've never gotten a full credit report; how much detail does it have on it?) I did a very brief session of Google and found Annual Credit Report.com. I verified that it was legitimate and requested my credit report from all three reporting companies.
I put in my information and, in all three, they asked me some verification questions to make sure I'm me. Some of the questions, though, had to do with recent mortgages or loans from the '90s that I've never had (I was just a kid!). It also seemed to think I've had phone numbers I've never used before. Unfortunately, this meant I couldn't get my score since I apparently answered some questions "wrong."
This sparked a memory from several years ago when I was moving into an apartment for the first time. While trying to get approved for that, they said I had a poor credit score and didn't want to approve me. They said specifically the main issue was something from 2003. Fortunately, I was able to explain to them that I was only 15 in 2003 and couldn't have had whatever issue it was. They accepted that just fine.
The problem, as far as my parents could figure at the time, was my name. I mostly share the same name as my father and grandfather; just my middle name is different (so I don't have a suffix or anything; "First Different Last" instead of "First Same Last III"). We assumed the thing was from my grandfather's credit since it also didn't match my dad. If this is still the case (whether its the same item or later items as well), how can I confirm and then get it sorted?
On another note I've also been receviing e-mails for a while (long while) for a "Tony" from Oregon. My e-mail address is "myname@gmail.com." The e-mails addressed to Tony are being sent to "my.name@gmail.com." I thought it was a glitch or something due to the period, but Google assures me that the Gmail system doesn't recognize periods, so "my.name@gmail.com" is technically the same address as "myname@gmail.com." I think Tony has the same last name as me (one of the e-mails I've received had him addressed as "Tony [mylastname]," but I can't find one now to confirm). I thought maybe my first name was his middle name or Tony was his middle name and we shared first names or something.
Anyway, the e-mails were all just spam type e-mails. I figured Tony from Oregon had a similar e-mail to me and he accidentally put in the wrong one some time or something. I don't know. I wasn't too worried about it until just now. All these spam e-mails for Tony are regarding mortgages and such.
Anyway, I'm pretty sure its the thing regarding my grandfather mentioned above, but I thought I'd bring that up anyway. I really don't know how to proceed here, so any further advice would be greatly appreciated Posted by ambyr (Member # 7616) on :
Call the credit bureau (any of them, really, it doesn't matter which). They should be able to use different verification questions over the phone, which should let you get your hands on your report, which should give you what you need to start calling around and fixing things. Because no, a score in the 500s is not normal for someone with limited credit history; it's indicative of a bad credit history, which does imply that somewhere in there your identity got crossed with someone else's.
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