Be very careful when you read information like this. Credit is a very dangerous thing when you are using it as an income supplement. Given the current economic climate, it may be very tempting to try the approach described later. Just remember this, 2 years ago, the financial collapse was just beginning, the stock market was still rising, gas was $4 a gallon, and few knew about bank bailouts.

Secured Credit Cards.

Q:What exactly is a secured credit card? Do you just go to the bank, hand over 1000 dollars and say “I want a secured credit card for 1000 dollars?”

A: Exactly…but make it $500 and not $1000. Secured credit cards are for people who keep getting turned down for regular credit cards. If you can get a regular credit card to start just apply the same principles. Some people have problems controlling themselves. Folks who have cards in case of emergency see “AAAH! I am going on a date this weekend and I don’t have anything to wear! SWIPE.”

Banks do this because you are considered a risk. YOu haven’t shown you can be trusted, but, if you put up your own money as collateral then…you are no longer a risk. Ruining your credit is the #1 WAY TO NEVER EVER HAVING ANY CREDIT AND STAY BROKE FOREVER. You will pay double for things like a car or whatever. If something costs $20K, why pay $38K because you have bad credit?

Paying Your Monthly Bill.

Q:How does it work? Why not pay the entire bill every month and only pay 99% of it for a few months first?

A:You are proving that you can be trusted with credit. Paying only 99% of your bill shows that you can pay (it scares them if you aren’t being stupid with it).

Be stupid for a second. Don’t pay it all off. How much interest can they get off of $1? Not much. After a month to a few months of this…THEN start paying it off completely.

This is intended to not only increase your credit score. Paying off your credit card completely raises your credit score 20-30 points, so theoretically you can go from a 520 to a 600 in less than 6 months. This increases the amount they are willing to extend you in credit.

Once you get multiple credit cards in the mail, pick one without an annual fee and an interest rate in the teens. If one in the teens isn’t available, it is ok to pick one with a higher rate. Just remember to BE CAREFUL. You could pay $2000 when you only owed $700 if you are unable to pay the bill.

With them extending you more lines of credit, they are HOPING you are the typical SPEND SPEND type (let’s go to the mall!) that can allow them LEGALLY to make THOUSANDS off you paying the minimum payment on a maxed out card once you eventually get a REAL credit card. A maxed out $25,000 credit card with the person paying the minimum will get that company $13 THOUSAND off of that person. So, the person ended up paying $38,000 when they only owed $25.

Get it? It’s bad, isn’t it?

Credit Card Philosophy.

Credit cards are like Vegas. The house ALWAYS wins…unless you play smart. They expect you to put more on it than you can afford and then spend years and yeurs digging yourself out of debt.

Since Congress changed the bankruptcy laws, YOU STILL OWE WHAT YOU OWE WHEN YOU FILE BACKRUPTCY…or at least some of it.

It’s Not Free!

My wife’s cousin had $100,000 in credit card debt! Only a few people go in with a game plan and stick to it. Most people go in with a game plan…get offered a higher credit limit (“Hey, we’re increasing your limit to $2,500…now $15,000…now $25,000…SPEND IT SPEND IT SPEND IT.”) and the person uses it all.

What You Should Do.

What you are supposed to do is say, “That’s nice”. And keep doing what you are doing. Only put things on your card that you can pay off NOW. Just because your limit is $5000 doesn’t mean you spend $5000. Keep doing what you did before.

Don’t buy your girlfriend jewelry or even your mom. Do exactly what you did before. One gas fill up a month. Never charge more than you have in the bank to pay. One idea is to open a checking account and do online/automated telephone banking and move funds from your main account every time you use your credit card.

Remember, why pay $5,000 for something that costs $2000. It doesn’t make sense, does it?

Get A 700+ Score.

Stick to this. Pass it on. You will have a credit score of over 700+ in less than 2 years. Maybe about 6 months into it you will be offered a REAL credit card. Be careful of super high interest rates. It doesn’t make sense to pay $500 for something that costs $300, does it?

Watch out for yearly fees (don’t sign with a credit card company that makes you pay to have the card).

Paying Utilities with a Secured Credit Card.

Q:Should you have phone and internet bills paid by the secured credit card and then pay that every month too?

A: Those are small bills, so you could do that. As long as it is less than $100 and you can afford it, it’s fine. As I said, don’t put more on a credit card than you have in the bank. Don’t put stuff on a credit card because you don’t have any money and you want to keep your internet/phone. PUT NOTHING ON THE CARD THAT YOU DON’T HAVE IN THE BANK BY YOUR NEXT CHECK. If you lose your job, it is ok to let your phone, internet or TV/Cable get cut off rather than charging a bill you cannot pay to your credit card.

For instance, you can get your phone or cable or internet back when you get a new job. But if you just put those payments on your card and then stop paying your credit card because you can’t afford to pay it, your score can dip to what it was before you built credit. Plus, it will be harder to build back up. All the time you spent trying to build up your credit score will be wasted.

While it may have taken 2 months to get a new job, the year or so you wasted building up your credit is gone. You are back at a 520 score, or less!

Don’t Forget.

While this information may seem useful, remember that credit is a very fickle thing. It is true the time you spend building up a credit score and cleaning your credit reports has benefits today. But, developing a sustainable financial plan will last a lifetime. It will outlast any changes in credit or lending that the banks, financial institutions, and Federal government impose on so many borrowers.

If you choose to pursue the credit building strategy, use a good source for credit report information and credit monitoring.

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