We went out there and researched the best credit cards on the market, consider things like interest rates, rewards points, fees, and the like. You can see our recommended list of credit cards for people with strong credit here.
And keep the following in mind:
1. In our program, we recommend that you have three to five credit cards. If you are going to apply for more than one credit card to reach this goal, apply for them all at once. Part of your credit score is based on the age of your accounts. If you open one now, and then wait six months to open another, you will lower the average age of your accounts.
2. If you are married, do not apply for credit jointly with your spouse. You and your spouse should each apply for three cards.
3. If you have more than five cards, do not close them. This will hurt your score, and it will never help your score.
4. Don’t put this off! The longer you wait to start building your credit score, the longer your credit score will suffer.
Category: Credit Cards
Did You Hear How Tony Raised His Credit Score in Three Months?
Every other week, I hold a question-and-answer session for the students in my credit-education program. Usually, I help people with their specific credit situations, give advice, and answer questions about the program.
The other week, though, I was fortunate to have Anthony join the call.
When Anthony started my program three months ago, his credit report was peppered with collection accounts and a judgment, so his score was about 580. To give you an idea of how that fares, anything below 620 is considered bad credit. So Anthony was considered the highest-risk borrower.
But today, just three months later, his score has jumped 60 points.
I tell my students that they should usually expect to wait about six months before they start seeing a significant jump in their credit score. But Anthony has followed all of my advice to the letter. And his score is on its way up, and fast.
Here’s how he did it:
First, he got a secured installment loan from a credit union. He was denied a few times, but Anthony was persistent. Finally, he found a credit union (Cal Coast) to give him a $600 secured installment loan. He put this $600 into an account at Cal Coast, deposited another $6 to cover the fees on the loan, and he uses the account to pay off the loan–$101 a month for six months.
This is a great tactic because it means the credit unions have no risk—after all, he’s keeping the money in the bank. And it helps you, the borrower, increase your credit score by paying the installment loan on time.
Anthony has made just three payments, and his score is already on its way up.
He also opened three new secured credit cards. He keeps a balance on these cards, but only so that they remain active, and he pays his bills on time.
“It’s amazing how simple it is once you know the rules,” I said to Anthony. “If you don’t know the rules, though, it’s just unfair.”
And that’s when Anthony said something that was my favorite part of the call. He said, “If you take the emotion out of it and you take it for what it is—a numbers game—then you see that there are tactics to it. I appreciate that. We can attack our credit scores more strategically rather than getting tied up in the negative emotions of it.”
Anthony said this perfectly. We get so scared about finances. We get this awful, pit-of-the-stomach, all-consuming feeling.
But if we are strategic and rational, rather than panicked and reactive, we get results.
Sixty points in the first three months! I can’t wait to see what happens to Anthony’s score in the next few months.
If you are feeling scared about your credit score, leave a comment below. Get your fears out of your mind. When you put the fear aside, you can start working on the solution.
The other week, though, I was fortunate to have Anthony join the call.
When Anthony started my program three months ago, his credit report was peppered with collection accounts and a judgment, so his score was about 580. To give you an idea of how that fares, anything below 620 is considered bad credit. So Anthony was considered the highest-risk borrower.
But today, just three months later, his score has jumped 60 points.
I tell my students that they should usually expect to wait about six months before they start seeing a significant jump in their credit score. But Anthony has followed all of my advice to the letter. And his score is on its way up, and fast.
Here’s how he did it:
First, he got a secured installment loan from a credit union. He was denied a few times, but Anthony was persistent. Finally, he found a credit union (Cal Coast) to give him a $600 secured installment loan. He put this $600 into an account at Cal Coast, deposited another $6 to cover the fees on the loan, and he uses the account to pay off the loan–$101 a month for six months.
This is a great tactic because it means the credit unions have no risk—after all, he’s keeping the money in the bank. And it helps you, the borrower, increase your credit score by paying the installment loan on time.
Anthony has made just three payments, and his score is already on its way up.
He also opened three new secured credit cards. He keeps a balance on these cards, but only so that they remain active, and he pays his bills on time.
“It’s amazing how simple it is once you know the rules,” I said to Anthony. “If you don’t know the rules, though, it’s just unfair.”
And that’s when Anthony said something that was my favorite part of the call. He said, “If you take the emotion out of it and you take it for what it is—a numbers game—then you see that there are tactics to it. I appreciate that. We can attack our credit scores more strategically rather than getting tied up in the negative emotions of it.”
Anthony said this perfectly. We get so scared about finances. We get this awful, pit-of-the-stomach, all-consuming feeling.
But if we are strategic and rational, rather than panicked and reactive, we get results.
Sixty points in the first three months! I can’t wait to see what happens to Anthony’s score in the next few months.
If you are feeling scared about your credit score, leave a comment below. Get your fears out of your mind. When you put the fear aside, you can start working on the solution.
How Can I Get Credit Cards If My Credit Score Is Terrible?
If you have bad credit, it’s critical that you have and use three to five credit cards. The only way credit bureaus will reward you with a high credit score is if you prove that you can responsibly manage debt. This means: Having at least three credit cards, keeping them active, keeping a low balance (below 30 percent of the limit), and paying your bills on time every single month.
But how can you get credit if you have bad credit?
If you need credit cards, we have researched the best secured and subprime credit cards out there. One of these cards is specifically for people with credit scores that fall below 580. And here are a list of cards for people with scores below 550. That said, I encourage you to keep reading so you can learn about the different types of credit cards we offer on our site.
Secured Credit Cards
There are several ways you can get a credit card, even if your score is low. The first is through secured credit cards. Secured credit cards work like this: Before the card is activated, you will pay a deposit that is usually equal to (but sometimes greater than) your limit. Then, you use the account as you would any other credit card. But here’s the catch: You will also pay the bill, just like you would any other credit card. These aren’t prepaid credit cards. The credit card company will keep your deposit and you will pay your bill.
So imagine that you have a secured credit card with a $1,000 limit. Just to open the account, you will make a $1,000 deposit (at least). Now imagine that you charge $300 to the card. The secured credit card company will not apply the balance to your deposit. You will need to pay the bill, just as you would any other credit card. If you don’t pay the bill in full, you will incur interest, and if you miss payments, your credit card will suffer. If you eventually default, the credit card company will keep your deposit, but only after they have attempted to collect on the debt, and turned you over for collections. If you always pay your bill on time, the deposit will be refunded when you close the account, or when the credit card transitions from a secured to a traditional card.
In short, secured credit cards require you to pay now, buy later, and then pay again, whereas traditional credit cards allow you to buy now, pay later. If you make payments on time and learn how to build credit, you can eventually request that the secured credit card be transferred to a traditional credit card, at which point the bank will refund your deposit. The deposit will also be refunded if you close the credit card account, so long as you have no balance at the time.
Though secured credit cards might not seem like that great of a deal, they are a lifesaver for people who desperately want to increase their credit scores. People with bad credit often cannot qualify for traditional credit cards, so secured credit cards allow them to build their credit scores. Second, many businesses require that their customers have credit cards. For instance, most cell phone companies won’t give you a phone without a credit card—secured or otherwise.
As I mentioned, if you pay the bill on time and keep your utilization rate (the percentage of the balance held against the limit) under 30 percent, then a secured credit card will help your credit score just like any other credit card would. And as your credit card score begins to improve, you can contact the credit card company and ask if it can switch the card to unsecured. While secured credit cards have high interest rates and force you to set aside a sizable amount of money as a deposit, they are an attractive way to rebuild your credit. Use them in the right way—with careful purchases and repaying your debt on time—and you’ll soon be back in the good graces of your credit card company.
This takes us to subprime credit cards.
Subprime Credit Cards
We used to discourage people from getting subprime credit cards. And honestly, we still think that you should try to get a secured credit card before you get a subprime credit card. (We’ll explain why in just a minute.) But we currently recommend a subprime credit card, so we’ve obviously changed our tune. And here’s why …
If you are in financial distress, you might be unable to come up with the requisite deposit to qualify for a secured card. And the truth is: You need credit cards. You need credit cards if you want your credit score to increase, and you probably need credit cards to qualify for some utilities. So by all means, apply for secured credit cards if you have no other options. But keep in mind: Secured credit cards usually come with high fees and high interest rates. Sometimes, the limit is so low on subprime credit cards that you have reached (or exceeded) a 30 percent utilization rate in the first month, just because of the fees.
So if you apply for subprime credit cards, I want you to think of them as tools for reaching a 720 credit score. Keep them active by charging a tiny, tiny bit each month—like a $3 snack at the gas station. The interest rates will be sky high, and I don’t want you to find yourself in a scenario where you are stacking more and more interest on top of a growing pile of debt.
Okay, one more way to get credit cards is by having a family member add you as an authorized user to an existing credit card.
Authorized User Accounts
I encourage you to read our article about authorized user accounts, but I have one additional thing to add. Authorized user accounts are a great way to increase your credit score—and fast. But they should never—never, never, never—be used as a source of credit. Never.
Did we make it clear? Using a family member’s credit card could hurt your relationship with your family. So protect yourself and your family member by getting yourself added in name only. If your family member abuses the account, you can have your name removed, and your score will be no worse off. But if you abuse the account, your family member’s score could drop permanently, and your relationship could be irreparable.
How Many Credit Cards Should I Have?
Question: “How many credit cards should I have if I want to earn the best possible credit score? I receive a lot of credit card offers in the mail. Should I apply for them?”
Answer: Having the right number of credit cards is a big part of your credit score. Ideally, you should not have any retail store credit cards, but you should have between three and five revolving credit card account. This includes Visa, American Express, MasterCard, or Discover.
One of the biggest factors in determining your credit score is the number of credit cards you have. If you do not have enough credit cards, the credit-scoring bureaus will not know enough about your payment history to feel comfortable that you will pay your bills on time and in full. As a result, they will lower your credit score.
In fact, we always say that no credit is just as bad as poor credit. If the credit-scoring bureaus do not have enough information about you, they give you a lower credit score. Better safe than sorry, they figure!
On the other hand, if you have too many credit cards, the bureaus worry that you might be overextended. People with lots of credit cards can more easily dig themselves a big hole of debt. The credit-scoring bureaus respond to this threat by lowering your credit score.
To answer your question—How many credit cards should I have?—the ideal number of three to five gives the bureaus enough information about you to evaluate your credit card payment history, but it also tells them you are conservative about opening new credit cards.
If you do not have three credit cards, you should open some!
Here are credit cards for people whose scores are below 550.
Here are credit card offers for people whose credit scores fall between 550 and 719.
And here are offers for people with credit scores about 719.
If you have more than five, do not close the extra accounts! Doing so will not help your score as it might lower the average age of credit cards. Instead, stop opening new accounts and be sure to keep the proper credit card balances so you can show the credit-scoring bureaus that you are responsible with all your credit cards.
The Credit Card Companies’ Dirty Little Secret
People already know that bankruptcies, foreclosures, repossessions, and collections will hurt their credit scores. And it’s no big secret that late payments are one of the causes of bad credit. But I bet you don’t know about some of the things that hurt credit! Today’s blog is about the the dirty little secret that will hurt your credit score. Here is is …
Credit card companies often omit or inaccurately report credit card limits, and this causes your score to drop. About half of all consumers are missing at least one credit limit on their credit reports. And in other instances, credit card companies intentionally report a lower limit than you have. Why does this hurt your credit score? Well, the credit-scoring system places a lot of weight on something called a utilization rate. The utilization rate represents your credit card balance as a percentage of your limit. If your limit is $1000 and your balance is $300, you have a 30 percent utilization rate. If your balance increases to $500, your utilization rate would increase to 50 percent. In other words, you would be utilizing 50 percent of your available limit.
The credit-scoring formula responds more favorably to people who have a utilization rate that is no higher than 30 percent.
Now let’s imagine that you have a $300 balance on a credit card with a limit of $1000. Your utilization rate is 30 percent. Good news for your credit score, right? Not so fast. If the credit card company is only reporting a $500 limit, you will appear to be carrying a 60 percent utilization rate because the credit-scoring bureaus will think you are using $300 of a $500 limit. And this hurts your credit score.
There are a lot of theories as to why the credit card companies do this. One is that credit card companies buy lists of borrowers whose limits are, for example, more than $10,000. The companies then send credit card offers with enticing interest rates to the people on these lists. Their goal is to encourage borrowers to switch cards. Your credit card company does not want your name on that list. They want to make sure that you remain a loyal customer. In an effort to keep you as a client, some experts say credit card companies report a lower credit limit than you actually have, or they do not report your limit at all. This makes you less appealing to other credit card companies. This might be good news for their client list, but it is bad news for your credit score.
Are you a victim of this scam? If so, take the following steps:
1. Pull your credit report from www.my720ficoscore.com.
2. If the credit card companies are inaccurately reporting any credit limit of yours, immediately begin the process of correcting this mistake. Remember, if you cannot get this mistake fixed, you can and should fight back!
Teaching Children About Credit Cards
With the past 18 months reminding us to be thrifty, many parents are realizing the importance of teaching children about credit cards. In particular, we need to teach children how to build credit by using credit cards wisely and, perhaps more importantly, how to protect their finances from misuse of credit cards.
Though the Credit Card Act of 2009 intended to protect consumers from the credit card industry, the truth is that we should be equally concerned about protecting consumers from themselves! Without proper education, our children risk repeating our mistakes. Indeed, “just charge it” seemed a mantra in the 1990s and early 2000s. Middle-class families ended up paying tens of thousands in interest rate debt.
Leveraging the lessons we learned from the recession, we should all begin teaching children about credit cards so that future generations make wiser choices when it comes to charging debt.
Teaching children about credit cards starts at home by allowing your children to make small, approved purchases with your existing credit cards. I know this sounds crazy, so let me clarify: I do not think you should give your child unlimited access to a credit card with a $20,000 limit. That would be a recipe for disaster.
But how about handing your seven-year-old daughter your credit card when she wants to purchase an $11 toy? Allow her to participate in the process by handing the credit cards to the cashier. Tell her to hold onto a copy of the receipt showing you how much money she owes you. Then have her repay the debt by handing you cash she earns from household chores or an allowance.
And how about older children? Teaching children about credit cards can continue when your children enter their teen years. Hold monthly finance and credit meetings where you review credit card statements, discuss interest rates, and explain how the credit scoring systems works. Consider your own “credit card score,” a term I coined to describe how helpful a person’s use of credit cards is in building his or her credit score.
If your finances (and your utilization rate) can handle it, allow your teenager to make a larger purchase. Then charge interest. If your child fails to make a payment on time, charge a late fee.
Do not, however, get angry or ground your child. When teaching children about credit cards, try to establish a scenario that would happen in real life. The credit card companies would never ground a customer for failing to pay a bill on time. They would, however, call their customers at 8 a.m. to remind them that the bill is due. Feel free to call your teenager’s cell phone at the crack of dawn to remind her that her payment is past due.
In fact, you should embrace a mistake that your child makes while at home. Learning lessons early, when the repercussions are minor, is far better than learning them when the stakes are high.
