Credit Cards

[Reef]

I've only had 1 credit card in my life for the sole purpose of building credit. But when I go onto buy.com or other similar merchants, they offer me $30 off my first purchase if I apply for their credit card. I'm thinking I can just get the card, use the $30, pay off the bill immediately, and then tear up the card.

Will this hurt my credit rating? Anything else I should be aware of?

[Al P]

You should have 2-3 credit cards, 1-2 store credit cards, and possibly 1-2 revolving loans for a great credit score. There are no exact numbers but if you had these accounts and used them properly you would have an insane score like my mom (845 out of 850).

Getting a card will help in a few ways. It will increase your credit available while decreasing the percentage of total available credit used. Plus having another positive tradeline on your reports is a good thing.

[RacersEdge]

Make sure there is no annual fee.

[TStoneMBD]

i once got a card like that from a clothing store (i think it was jcpenny). i really wasnt interested in the card but the gorgeous chick at the register convinced my penis that saving 10% on my purchase was a good idea. something ended up happening where i sort of got scammed and had to call the credit card number to resolve the issue. i was forced to pay late payments and APR after like a month of having the card. i decided that im never getting a card like that again unless the gorgeous woman guarantees sex before i apply which wasnt the case in this situation as she was just a cocktease.

[handsome]

Credit scores are based mostly on credit lines, so get a couple more cards and ask for a higher limit from your current credit card company.

[Jimbo]

Here is a rough guideline as to how a FICO score is calculated:

About 35% based on:
Late Payments
Judgements
Collections
Bankruptsies (in Last Ten Years)

About 30% based on:

Current Dabt

About 15% based on:

How long each account has been open and established

About 10% based on:
Type of credit (Credit cards vs Finance comapny, auto, home, revolving credit)

About 10% based on:

Number of new non-related inquiries

The remainder is a well kept secret but also is based on current and future potential earnings, time at your current residence, open checking account, savings accounts, total assets, if you have a home telephone number, whether you rent or own and your debt to income ratio.

The top end of two of the three credit scoring bureaus is 900. 715 is the median score in the USA. Anything over 800 will get you Platinum offers, 715 to 795 is typically good enough for any loan you are financially able to repay.

As to wheter or not you should get more credit cards that is up too you. Too few is bad too many is bad, just right is naturally good. Too much unpaid revolving (Store credit cards) credit is bad.

[Al P]

Suze says:

If you’ve got a low FICO score, don’t get all depressed. Snap into action; there’s plenty you can do to snag a higher score. And it’s not nearly as hard as you might think. Here are the five major factors that determine your FICO credit score:

Pay the Minimum Due on time each month. Notice I said MINIMUM. You don’t need to pay off your balance every month to get a good credit score. Just hand over the minimum on time every month and you’ll please the credit folks. Think about it for a sec: the thing lenders, landlords, and other businesses care most about when sizing you up is whether you will be diligent about paying your bills on time. Showing that you can pay your credit card minimums every month is considered a sign that you are indeed a good credit risk. Your ability to pay the minimum on time makes up 35 percent of your FICO score.


Reduce your debt-to-credit ratio. Another 30 percent of your score is determined by how much outstanding debt you have relative to the total available credit limit on all your cards. (Part of this calculation also includes whether you have other debts such as car loans and mortgages, and how much you have left to pay on those, compared to the original loan amount.) The lower your debt-to-credit ratio, the better. And there’s plenty you can do with your credit cards to improve your ratio. Let’s say you have two cards. One has a balance of $5,000 and a limit of $10,000, and the other has a balance of $2,000 and a limit of $8,000. That means you have total credit debt of $7,000 and a total credit limit of $18,000, which works out to a ratio of 38 percent. Now let’s say you manage to cut your balances in half, so you now have just $3,500 in debt and the same credit limit of $18,000; your ratio will fall to 19 percent.

The FICO brain trust says there is no specific number that qualifies as a “good” ratio, just that lower is always better.

Another tactic for lowering your ratio is to boost your credit limit. But please be very very careful before you call up a credit card issuer and ask for a bigger limit. I only want you to do this if you know you have the will power to not use that extra money. The whole idea is to lower your ratio by changing the denominator in the calculation, without touching the numerator. For example, you maintain a combined credit card balance of $7,000, but you get your limits raised so your new combined credit limit is $25,000. That means instead of a 38 percent ratio you now have a 28 percent ratio. Again, only attempt this if you have the resolve to never touch the extra credit line.

Save your credit history. About 15 percent of your credit score comes down to your credit history. The more history you have, the more evidence the FICO folks have to size up your credit habits. Therefore it’s a big mistake is to cancel a credit card you no longer use. When you cancel the card you wipe out all that history. Look at it this way: if you were trying to size up two people to entrust with your money, would you lean towards the person you’ve known for ages, or someone you’ve just known for a short time? That’s the way lenders think. Besides, when you cancel a card, you also lose the credit limit it carries, a move that hurts your debt-to-credit ratio we just discussed.

Now if you are concerned you won’t be able to leave an unused card unused, then just tuck it away someplace safe where you can’t easily get to it—or hit it with a pair of scissors if you have to. Without formally canceling your history you’ll have made sure there’s no way you can use it.


Avoid offers for new cards. Even though your mailbox is full of credit card offers, and you’re asked if you want to open a card at just about every check-out counter these days, I want you to just say no. Too many cards makes lenders nervous, and your card count is responsible for about 10 percent of your FICO score. The theory is that if you open up a bunch of new card accounts you are an accident waiting to happen: you have way too many opportunities to ring up big balances you won’t be able to pay.


Get the mix right. While you don’t need 10 cards, lenders nevertheless also like to see that you can handle multiple credit lines simultaneously. An example of what they would consider a responsible array of personal debt would be a credit card or two, one department store card, and an “installment” loan such as student loan debt or a car loan. The idea here is that you want to show ‘em you are responsible enough to juggle a few different types of debt. It‘s a bit ironic, but the one thing that makes lenders absolutely nuts is if you have no cards or loans; they then have no way of gauging whether you will be a good customer. So your mix of credit cards and loans constitutes the final 10 percent of your FICO score.


I just gave the short condensed version in my first post.

[Cubswin]

Pay the Minimum Due on time each month. Notice I said MINIMUM. You don’t need to pay off your balance every month to get a good credit score. Just hand over the minimum on time every month and you’ll please the credit folks.

This is bad advice. Yous should always pay at least $1 more then the minimum due. The FICO algorithm penalizes for minimum payments applied toward accounts. By just paying $1 over the minimum, your FICO score wont be effected.

[Al P]

Well she normally recommends you pay off as much as possible because she says you're getting raped on the interest rates however I think she was trying to say at least pay the minimum rather than getting a late payment.

[Reef]

So... anyway specific card recommendations?

one with a point/prize system would be cool.

[Reef]

Wow, that's a lot of info.

So do you think it makes a difference if I pay off my credit card bills in full like a day or two after I make the purchase? Or if I wait until it automatically deducts the full amount each month?

Would the few days of having 0 debt to credit ratio make any difference?

[fluff]

Doing what you propose (using the credit card once, then chucking it) doesn't harm your credit rating (provided that you don't open too many too fast).

I have about 6-7 cards, only 2 of which I use. I pay the balance off every month (who needs the stupid interest rate), and my credit score is over 800.

If you want more cards, shop around. Credit card companies are very competitive and offer incentives.

Always make sure that they don't charge an annual fee. You can damn near always find one that does the same thing without the fee. The best one I use is Citibank Dividend Select or some such, which gives me back 1% on all purchases and 5% for certain types (groceries, gas, etc), up to $300 a year. Other cards give back 0.25% to 1% (depending on how much you spend) in cash, certificates or airline miles. Still others give you a one time incentive ($50-$100 gift certificate, movie tickets, whatever). These are nice, and should probably be used just once, then go back to your percentage cards.