Credit card.

Some time ago I opened up a bank account and I happened to have gotten a debit AND credit card. My mom told me to simply not activate the credit card for risk of big spending. I may have purchased a few items in the $100+ range but I saved up at least twice the amount beforehand. So my credit card is sitting in an envelope untouched. The thing is, I want to build good credit and I can't really do that if I'm not using a credit card at all. I've read that not using one at all can actually lower your credit, no idea the reality in that though.

I'm planning on activating the credit card and use it strictly for small purchase like a drink or a meal at some fast food place. Nothing over $10. My monthly limit is around $500 and my idea is to float near the 10%($50) range and max at the 20%($100) range if need be. Is this a good idea to build credit now or should I wait longer for a reason I'm unaware of?

Thanks.

don't listen to your mom. don't be afraid to use the card, just make sure that you have, or will soon have the money to pay it off. I didn't build my credit until i was damn near 30 listening to the **** advice my mom gave me which was similar to your mom's.


Those are the same moms that wonder why you aren't buying a house when you are 25.

edit- never pay it COMPLETELY OFF. banks want to see that you can carry a balance.

backbreaker said:

don't listen to your mom. don't be afraid to use the card, just make sure that you have, or will soon have the money to pay it off. I didn't build my credit until i was damn near 30 listening to the **** advice my mom gave me which was similar to your mom's.


Those are the same moms that wonder why you aren't buying a house when you are 25.

edit- never pay it COMPLETELY OFF. banks want to see that you can carry a balance.

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Alright.

How would I not "completely pay it off?" I thought it withdraw the funds from the main debit card after each month in parallel to the credit that you've spent that same month?

Frayzer said:

I'm planning on activating the credit card and use it strictly for small purchase like a drink or a meal at some fast food place. Nothing over $10.

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Haha, yeah sure. That's what I said when I got mine. Then I needed something that was around $100 and I didn't have the cash to pay for it. Onto the credit card it went. Then other 5hit went onto the credit card.

I got my first credit card when I was 20. It's a good age to get one, but I think nearly everyone fvcks up at least once when they get one. They get in over their head and need to figure out a way to pay it off.

Building my credit allowed me to buy a house all on my own. If you don't build credit, you won't be able to use it for vehicle loans or mortgages.

The only piece of advice I can give you is DO NOT get more than one credit card. One is all you need to start building your credit. The more credit cards you get, the more in debt you get, and the more bills you'll have trouble paying off.

Let Me Provide A Breakdown

Okay well guys, here's the thing about Credit Cards and Credit (in the US) in general.

Credit Cards are just like Guns, put a gun in the hands of a solider, police officer, hunter, or a responsible home owner, and you get a host of protection related benefits that preserve society/community/human life. However, put a Gun in the hands of Lil Ray Ray in Chicago and you get crime, homicide, etc.

Credit Cards provide a HOST of financial related benefits including:

- Building positive personal credit history. In terms of your credit scoring, it's 35% payment history, 30% amounts owed, 20% new credit/types of credit used and 15% length of credit history. So in order to establish "good credit" you want a balance of revolving lines of credit (credit cars) and installment loans (student loans, mortgage, lease, car loan, etc) and you want to make sure you NEVER MISS A PAYMENT and always PAY AT LEAST THE MINIMUM on time. In terms of your available revolving credit line, give or take you don't draw down more than 30% - 40% but if you are looking to apply for something and you have drawn down let's say 55%, just pay them down to the 30% level.

- Establishing emergency monies for personal needs. Never close a credit card once you open it, find a reason to use the credit card and just pay it off IN FULL before the grace period expires in 23 days, this way you pay no interest. I would rather have the emergency credit line available and not need it, then to need it and can't get it, which if you actually are in a bad situation and NEED IT there's no bank that will approve you for a new line of credit.

- Establishing capital that can be used to start a business. Start-ups usually have to depend upon their own savings, home equity, personal loans or personal credit lines to finance the business for 2-4 years before a bank provides any official business loans.

- Payment Protection. So Credit Cards are the ONLY vehicle that has the Chargeback feature, Debit Cards don't have it, Checks don't and of course Cash doesn't. So let's say you order something from a business and you don't get your order, or it doesn't come the way you ordered it, and the business owner is basically telling you to "eat shyt and die." All you have to do is log into your account and hit "Chargeback/Dispute" and the amount of the transaction is frozen from your balance and you aren't responsible for paying for it until the dispute is done. If the merchant can't "win the dispute" (which most cases they don't), you are not responsible for paying for that portion of the your balance. With Debit Cards and Checks, you have to fill out a dispute form and wait up to 90 days to get information back from your Bank but while you are waiting, the money is GONE from your account and you are hoping your Bank gets it back. This also applies to if your wallet is stolen, if the theft goes and starts buying up crap with the Credit Card, hit that Chargeback button!

- Most Credit Cards come with Rewards, if you play this right you can end up "beating" the credit card company by obtaining an additional cashflow. So let's say you have a Card with 1.5% cashback everywhere (like on my QuikSilver Capital One Card) and you spend $15,000 a year on the card but PAY IT OFF before the 23 day grace period. Well, that's $225 in tax free income a year from that card because the cashback on Credit Cards are not taxed as they are categorized as "Credit Card Rebates". Just make sure to get a card with no monthly statement fees, no application fees, and no annual fees.

- Plus (I could go all day lol), with my cards we get these Balance Transfer Promo specials. Where you can draw money off the card and pay NO INTEREST for 12-15 months, but you usually pay about 2% upfront for the transaction. So let's say I want to do a business deal that will require an investment for $5,000 and I can recoup in 9 months $10,000 making at $5,000 profit. I can would go to my card and take advantage of the special deal here in September, take out $5,000 and pay the 2% fee of $100 on it. It would be due let's say 12 months from now in September 2015 or I would pay the regular APR on the outstanding balance if I don't pay the promo balance off in full. I do my investment for $5,000 and get my $10,000 collected in 9 months around June 2015. I pay off the remaining balance on the $5,000 that I took out and keep the remaining $5,000 profits minus the $100 fee I had to pay, for a total profit of $4,900. With this however, I would be required to make minimum payments on the $5,000 balance each month which might be around $75 - $80 give or take.

Listen, I'm a DAVE RAMSEY fan but when he starts bashing Debt like he does, just because he went bankrupt over poorly using debt, I have to turn him off lol. You want to play the game and use the Credit Reporting, Scoring and Debt Leverage efficiently to get ahead in this country or it will take you LONGER to get where you are looking to go (if you ever get to where you are looking to go).

If you have tons of equity sitting in a bank or you are like Mark Zuckerberg and have a best friend that can pour $300k into your startup, then maybe you don't need Debt. If you don't have those sources, then Debt is going to be your best friend but you have to USE IT EFFICIENTLY.

Max it out, when you already have the cash on hand to pay the bill, and carry the balance for one month. Then pay it off in full and call the credit card company to ask for a higher limit. Repeat the process. When the card is maxed out, they will never approve a limit increase. But as soon as it is paid off, they will fall all over themselves to give you one.

Your credit report shows three numbers - current balance, current limit, and highest balance ever carried for a month. What you're doing by following the advice above is working those numbers.

Never be 30 days late on a payment. It kills your score. Each account entry on your credit report will show the number of times you have been 30, 60, or 90 days late. That is for revolving credit accounts, and not utility bills like your cel phone. It's better to pay the power company bill a week or two late and eat the small fee if you can use the money to keep a credit card payment from being thirty days late.

And don't get into pissing matches over small amounts of money with anyone who will report you to collections. It goes on your report, and someday if you want a mortgage or a good loan, you're going to have to pay it off anyway.

The issue though BB is that Utility companies show up on the credit report as well (at least that's how it is here in Michigan with DTE). I believe in never paying anything late, pay everything on time, keep a mixture of credit types (revolving and installment), and over time you will have a solid credit report and 3-bureau score.

Also, sign up for something like identity Guard, I have their Platinum program which is $190 a year. I get updated credit reports each month, updated 3 bureau credit scores each month, every quarter I get the public reports update, I get Identity Theft Insurance, monitoring on all of my credit cards and bank accounts, and monitoring on my SSN so anytime a new inquiry is made using my SSN I get an email on it. If someone has STOLEN my SSN and opening up loans in my name, I will know it immediately to call the lender and STOP the situation and begin the Identity Theft reporting procedures.

Would it be a good or bad idea to get a car from a private dealer and put down $3k and have a certain percent of monthly down payments? Would that help my credit score or would the payments be too much? Let's say the car is worth $7k

I wouldn't buy NOR finance a car from a private dealer, but that's just my personal choice. With what you are looking to do, you should go to an actual dealership to do that. Not sure if you will be approved for a car loan at this point in your life, at 18, the only loan you might get is a Stafford Student loan. Let's say you got your tuition covered through the Pell Grant, you could take out the Student Loan and get your car so that you can have transportation back and forth to work, school, gym, etc. I wouldn't go for a $7,000 car at your age and I assume with your low income level. I would go around $2,500 - $3,500. Something that works, doesn't require a lot of gas, a lot of work and could last you another 4-5 years.

The first time you carry a credit card balance, shut it down.

But you shouldn't ever get to that in the first place.

Tenacity said:

I wouldn't buy NOR finance a car from a private dealer, but that's just my personal choice. With what you are looking to do, you should go to an actual dealership to do that. Not sure if you will be approved for a car loan at this point in your life, at 18, the only loan you might get is a Stafford Student loan. Let's say you got your tuition covered through the Pell Grant, you could take out the Student Loan and get your car so that you can have transportation back and forth to work, school, gym, etc. I wouldn't go for a $7,000 car at your age and I assume with your low income level. I would go around $2,500 - $3,500. Something that works, doesn't require a lot of gas, a lot of work and could last you another 4-5 years.

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My friend recommended I do that and I got a bit curious, I personally didn't think it was a good idea. I don't need a car at this second so I think I should just buy it all myself.

Anyway, yeah I think I'm gonna just buy it.

I have a credit score of 763 and the reason it's that low is because I carry debt all the time with my business. By debt I mean I have revolving accounts that are mostly for supplies and equipment. You build credit by being in debt but making payments and NOT MISSING ANY. Where people get screwed is their debt to income ratio. In other words they get themselves in more debt then they have money coming in to pay that debt off. I have two credit cards, one is a personal card and one is a business card only. My limit for my personal card is $7,000 and my bank has tried MANY times to get me to up my limit and has even approved me for up to $50,000 but I never take it. My business card has no limit but the balance on it is only around $4500.

Where people get screwed is their debt to income ratio.

Yes. That is a very important point. Everyone thinks of credit score as defining credit, but debt to income is just as important. You can have a perfect score, but if you lose your job and have no income, no one will loan you anything.

I used to sell mortgage loans. To get a home loan, you want your total debt to income ratio (including the proposed mortgage), to be below 50%. Sometimes we had to merge a lot of small credit card balances onto one card to lower the debt to income. The other ratio was the mortgage payment to income, and they wanted that to be 30% or less. They use your gross monthly income before taxes. And it helps if you have been paying a rent payment that is similar to the proposed mortgage payment.

The exact formula that each of the credit reporting agencies uses to calculate scores is a trade secret, so no one knows exactly how they work. I had a boss with thirty years of credit experience who thought that department store credit cards lowered scores. The thinking was that they are for poor people who have to charge basic necessities. The more you look like you need credit, the more of a risk you are to lend to, and the lower your score.

As long as it's your only credit card, it's ok to use. Most people don't have a big problem with ONE card. It's when you juggle multiple cards that you may be setting yourself up for a world of hurt.

It's not just an issue of having the money to pay them. When you juggle too many accounts, it's harder to stay on top of them and ensure everything is paid on time.

So use the card responsibly and resist the many "pre-approved" offers you will receive in the mail.

Bible_Belt said:

Max it out, when you already have the cash on hand to pay the bill, and carry the balance for one month. Then pay it off in full and call the credit card company to ask for a higher limit. Repeat the process. When the card is maxed out, they will never approve a limit increase. But as soon as it is paid off, they will fall all over themselves to give you one.

Your credit report shows three numbers - current balance, current limit, and highest balance ever carried for a month. What you're doing by following the advice above is working those numbers.

Never be 30 days late on a payment. It kills your score. Each account entry on your credit report will show the number of times you have been 30, 60, or 90 days late. That is for revolving credit accounts, and not utility bills like your cel phone. It's better to pay the power company bill a week or two late and eat the small fee if you can use the money to keep a credit card payment from being thirty days late.

And don't get into pissing matches over small amounts of money with anyone who will report you to collections. It goes on your report, and someday if you want a mortgage or a good loan, you're going to have to pay it off anyway.

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Not really sure if I'm gonna spend $500 on something within a month, especially since I'm saving up for a car. But what I'll do is spend a little money on my card, like for food etc., and then pay off about 40% of it a month. So let's say I spend $50 a month and then I will pay $20 of it and then my total balance will gradually get lower and lower every month. Then when it reaches a really low amount I'll basically pay it all off with the remaining money I have left over from only paying around 40%- I'm basically just holding onto their half of their money. This way I'll be carrying a balance, reaching my highest limit, and potentially raising my limit. And thus getting a good credit score!

You're really knowledgeable about, not only this, but life things. Thanks a ton!

Mike32ct said:

As long as it's your only credit card, it's ok to use. Most people don't have a big problem with ONE card. It's when you juggle multiple cards that you may be setting yourself up for a world of hurt.

It's not just an issue of having the money to pay them. When you juggle too many accounts, it's harder to stay on top of them and ensure everything is paid on time.

So use the card responsibly and resist the many "pre-approved" offers you will receive in the mail.

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Yeah, I plan on only using one card and one account for my own safety- at least for now. I'm gonna at least listen to half of what my mom tells me.

And Tenacity thanks for that lesson on credit cards, debt, and all that. That information really does help!

Mauser96 said:

Credit cards can be good, and are a necessary evil to rent a Motel room, order online, rent a car, etc.

HOWEVER, they can also be deadly and get you in a lot of trouble, when you get in the habit of spending money you don't have.

Your MOM knows your personality - we don't.

Tread carefully.

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Don't worry, I've learned a lot of responsibility and discipline from this forum to be honest. This isn't some women were talking about, it's my life and money- the stuff that's actually important!

Oh yes, DTI is another one I didn't cover. DTI is a double edged sword when you are a business owner or are paid on 1099.

When you are paid on 1099 or are self employed, you write off EVERYTHING to reduce your taxes down to as close to zero as you can, it's another benefit of being paid in that format. However, for DTI calculations, they will take the AGI and not the Gross income that you made for the determination. So it would look like to them that you can't afford your debts and should have filed bankruptcy YEARS ago, even though you have Hundreds of Thousands in the bank compared to only the tens of thousands you have in total debt!

Some people are debt haters and believe in paying debt off as soon as possible (Dave Ramsey), I'm not one of those people. I believe in always having a sufficient stash of cash available should I not just have an emergency but if I were to lose my job and EVEN with the mountain of degrees and network I have, if my income coming in significantly reduced. Plus when the interest rate on your loans are 2% - 4% after tax write-offs, it makes sense to not rush to pay them off but keep as much cash on hand as possible.

I must state though, A LOT of the things I state should mainly be used for experienced individuals who are both savers and efficient in saving. If you can't handle debt, budgets, manage your income, and if you are the type to get a $2,000 line of credit and run to the STRIP CLUB....then please do not follow my advice and instead listen to more of a Dave Ramsey by taking out as little debt as possible and paying it off as soon as possible, because technically you aren't responsible with debt.

Frayzer

My friend recommended I do that and I got a bit curious, I personally didn't think it was a good idea. I don't need a car at this second so I think I should just buy it all myself.

Anyway, yeah I think I'm gonna just buy it.

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What were some of the reasons you didn't think it was a good idea? At 18 with I presumed no income, I wouldn't buy any car that's useful more than just getting from work, to school, to the gym, to back home or a dorm (I prefer you stay home and attend undergrad, it would save you a significant amount of money).

Go on AutoTrader and look up some solid cars from Dealerships that will range from $2,500 - $3,500. If you want to buy out of pocket go ahead, or you could just take out a small student loan to pay it off and you can start making payments on it now while you are in school. I DO think you should get a small car because you want to be WORKING while you are finishing undergrad, it's hard to do that while waiting on bus stops/other people to drop you off where and there.

I don't know what your major is, but for most majors you need 2-3 years of experience ALONG with the bachelor's degree to qualify for the entry level position you apply for after you graduate. So you probably will have a "income producing job" like being a waiter or something to pay your bills, then a 2nd job that gives you the 2-3 years of experience you need for your career job, while going to classes on a full schedule. Incorporate online classes with some of the courses as well so you can spend most of your time working and not in a classroom for certain courses.

Dude, all I have to say is you're asking for advice in the wrong forum. Go to myFico or somewhere else. There's some good as well as bad advice in this thread.

But how the heck did you get a credit card without applying for one?

sageproductReturns said:

Dude, all I have to say is you're asking for advice in the wrong forum. Go to myFico or somewhere else. There's some good as well as bad advice in this thread.

But how the heck did you get a credit card without applying for one?

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He "borrowed" it from his moms purse.

Tenacity said:

What were some of the reasons you didn't think it was a good idea? At 18 with I presumed no income, I wouldn't buy any car that's useful more than just getting from work, to school, to the gym, to back home or a dorm (I prefer you stay home and attend undergrad, it would save you a significant amount of money).

Go on AutoTrader and look up some solid cars from Dealerships that will range from $2,500 - $3,500. If you want to buy out of pocket go ahead, or you could just take out a small student loan to pay it off and you can start making payments on it now while you are in school. I DO think you should get a small car because you want to be WORKING while you are finishing undergrad, it's hard to do that while waiting on bus stops/other people to drop you off where and there.

I don't know what your major is, but for most majors you need 2-3 years of experience ALONG with the bachelor's degree to qualify for the entry level position you apply for after you graduate. So you probably will have a "income producing job" like being a waiter or something to pay your bills, then a 2nd job that gives you the 2-3 years of experience you need for your career job, while going to classes on a full schedule. Incorporate online classes with some of the courses as well so you can spend most of your time working and not in a classroom for certain coursesattenti

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I currently have 2 jobs and my monthly income is now over $1k+. I want to do a lot of things but the first is to be a police officer- which driving experience is needed. I want an associates in that field so I qualify for about $10k+ more a year, but I could just go in at 21 without any degree so long as I pass the academy and no hard drugs etc... Thats like my last desperate move though, which isn't bad to be honest. I can easily attend part time on the weekends and get an associates while living alone especially with an actual income.

I didn't think it was a good idea because of the added responsibility of taking care of a car that isn't even all mine yet. And if something were to happen to my income, to the point that I can't afford the monthly down payments, I might have to give it back or something. I guess you could say job stability, even though my current ones seem pretty stable- but I don't want stuff to happen and me not prepared before it you know?