Finance Q&A

Unsecured Credit Card For People With Bad Credit, information?

Q. I'm 28 years old, and have no credit history, since I didn't go to college after highschool and didnt get the plethora of "student" creditcard offers that all my friends did. Obviously, it sucks to be 28 years old with no credit, so I want to do anything I can to remedy this as soon as possible. I was wondering if there would be any benefit for me to apply for several "secured" creditcards at once? Since most cards that I have found offer base $500 credit limits with the minimum security deposit, would it be more beneficial to hold 2 or 3 of these secured cards from different companies so I can use thier cumulative credit from day to day? Will this in any way expedite the establishment of my credit rating? I dont lead an extravagant lifestyle, and my job pays enough so keeping up on the payments is not an issue. I am worried about this because in about 6-8 months I will probably have to move out of the rented apartment i share now with my friend and his gf (since they may be moving to another state), and will have to find another place to live that is less expensive. I dont want to be screwed because I dont pass the credit checks (I was lucky enough that our current landlord didnt do a credit check on everyone on the lease). If anyone has any other suggestions (besides applying for secured cards) for someone in my position to establish thier credit rating, I would be most appreciative!

A. (1) Will a secured card, paid on time each month, benefit your credit rating? The answer here when that question was asked before was Yes, the on-time payments are reported to the credit bureau(s) and the fact that the card was secured is not reported. So potential lenders see this as "regular" credit. Whether that's actually true, I don't know. Or it might have been true when it was said, but may no longer be true. Credit bureaus are always trying to upgrade their offerings to lenders. My suggestion is to ask a bank (see below). (2) Are several cards better or worse than one card if the total limit is the same? I don't know that this question has ever been answered here explicitly. My hunch is that it doesn't matter. Part of your credit score is the total credit available to you -- and a higher line of credit may not be favorable because of the possibility you could one day max out all your cards and disappear. Don't rely on my hunch, by any means. Again, I advise asking a bank (see below). (3) Are secured card(s) right for you at all? You didn't ask this question, but I'm going to suggest you at least explore the possibility of an unsecured card (see bottom of this post). With a secured card, obviously you have some money tied up, often earning no interest or not a competitive rate. The cards also often have application fees, annual fees, and the like; so their real cost can be quite high. Consider the overall cost of any card before you apply. Now, about asking a bank. If at all possible, go to your bank in person for this visit. Don't telephone; if no branch of your bank is close enough then go to another bank, but it's best if you go where you can truthfully say you are already a customer. Tellers will not know the answers to these questions, so don't go to the tellers. You want a "platform officer", someone behind the railing who makes decisions about loans. Your opening gambit should be something like, "I have a (checking, savings) account here, and I need some advice about establishing credit so that in a couple of years I will be in a position to get a home mortgage. Can you direct me to a person who makes credit decisions, or who knows about what is best on a credit report?" Obviously you don't say that if the first sentence is completely false, but if it's true or at least possible then you have just handed the bank a financial incentive to talk to you and help you along. It also helps if you are nicely dressed and groomed in a businesslike way when you go in -- this is not the time for ripped T-shirt, nose ring, and purple hair even if that's normal attire at your job. Once you're sitting down with someone, be candid about your situation. The fact that you are trying to plan ahead weighs in your favor. Banks really like solid citizen because those are the ones who pay back their loans. The bank person will not pull up your credit report on the spot, so don't bother asking. Explain briefly that you have no history of debts either paid or unpaid, and that you're looking to establish credit. Don't talk about moving soon: moving frequently is itself a bad thing on your credit report, so you could make the bank nervous over something that might not even happen. By the end of the "interview" you should have a sense -- not legally binding, but fairly clear -- of how _that_ bank would look at your credit history if you had one secured card with a limit of X or several with an aggregate limit of X. That bank is probably representative of all banks. You can also explore, informally and without legal commitment, the possibility of a secured or unsecured card with that bank (see below). >I dont lead an extravagant lifestyle, and my job pays enough >so keeping up on the payments is not an issue. You could ask the bank officer, informally, what your chances are of getting a _regular_ credit card _if_ your credit check reveals what you say it will. It may be true that you have no credit history, but that is very different from having a bad credit history. If you have a good-paying job and have been paying cash all along, I would expect you should have little difficulty getting an unsecured card, not with a $10K limit obviously. If the officer is discouraging on an unsecured card, ask if the bank offers a secured card with a CD at competitive interest rates. If you have to tie up your money for a while anyway, a 12-month CD at 5% or 6% is a lot better than no interest. And there may be the possibility of converting the same card to an unsecured card in the future. But ask that bank officer: you don't want to make an application that will likely be turned down, because then on future apps you'll have to disclose that you were once denied credit.

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