You got Approved for the Credit Card — but the Initial Limit is too low. Now What?

This is not a question that I get very often, but my friends and acquaintances love the advice I give them regarding this subject.You’ve applied for a credit card. After two weeks or so, you finally get an approval notification. The credit card, the card company tells you, should be in your mailbox in seven to ten days. All is well. At least it’s well until the credit card arrives in the mail and you realize that the limit is too small for your needs. Now what? Most people do nothing. They simply get the card in their hands and live with the limit they’ve been given. End of story. If you’re like me, though, you treat the initial credit limit as a starting place; it’s a place from which to negotiate. The real number gets hammered out when I call to activate the credit card.Here’s how it works. Instead of using the activation phone number that’s provided on the sticker, you use the 1-800 number that’s provided on the back of the card it’s the customer service number. Call that one. Once you’ve reached an operator, let the operator know that your call regards two things. One, you need to get the card activated. And two, you also need to speak with someone about your initial credit limit. The operator will handle the activation. After that, he or she will likely send you to someone else — someone who can handle your credit limit issue.Once you have a decision maker on the line, you make your case for a higher limit. You’ll come up with your own reasons for wanting a higher limit, but here are some of the ones I have used in the past:Limits on my other cards are significantly higher assuming that’s, in fact, true. I’d like to bring this card’s limit in line with the rest of my cards.I’d like to make this my primary card, but the initial limit won’t allow me to do that. The limit just doesn’t allow me to put a lot of purchases on it — at least not without getting me into trouble with my utilization ratio.Because I care about my credit scores which is what helped me get this card in the first place, I put a lot of emphasis on not maxing out my cards. This initial limit makes it difficult for me to keep my utilization in check making it more difficult to keep my scores high.I have some fairly large expenditures coming up in the near future. I was hoping to put those expenditures on this card. With the low initial limit on this card, it will be difficult, if not impossible, to put those purchases on this card. I’ll be forced to use another card.And on and on it goes. You’ll come up with your own reasons, but you get the idea. I treat the initial credit limit on my cards as an opening offer. The real limit, I figure, will be reached during my spiel right after activation.One of my friends recently implemented my advice. She had been approved for a Visa card but the initial limit was just $3,700. Not satisfied, she called the credit card company — armed with the information that I had given her — and requested a higher limit. This card, she told the card company, would be the primary card in her arsenal. As such, the card would be much more useful if it had a higher limit. She was merely hoping to bump the limit up to $7,500. The decision maker, after considering her pitch, came back with an offer of $10,000. My friend was elated. Of course she accepted the offer and went on her merry way.To be sure, not every credit card company allows for limit increases at activation. Washington Mutual and Juniper, for example, don’t allow credit-line increases at activation. Chase, meanwhile, will allow it, but they’ll want to pull a new credit report, which I’m against. As a result, I don’t ask for a credit increase at activation from Chase. Still, if your limit is just too low and you absolutely need a higher limit, feel free. Just realize, though, that Chase will very likely pull a new credit report, resulting in an inquiry that will drop your FICO score a bit.On the other hand, Citibank, Bank of America and its FIA Card Services unit, which handles Merrill Lynch and Charles Schwab cards, HSBC, and Nordstrom have been receptive to my requests in the past. Nordstrom, though, will often say that they’d like to see some use and payment history on the card before they’ll grant an increase. Fair enough. Still, it’s worth a try.As my mom used to say: a closed mouth doesn’t get fed. If you don’t ask, you’ll never know. The worst thing that can happen is that you’ll be told no. But, as my friend can attest, there’s also a very good chance that your request will be approved.Next time you get approved for a new card, give my advice a whirl.Be well. Credit Matters BlogRelated Articles:Got Approved For The Card But Don’t Want To Activate It?

Yes, You Can Live With Less Plastic

And if you don’t have the discipline to handle credit cards, maybe it’s not a bad idea. I’ve been blogging here for about seven months. I’ve heard from a lot of readers see my email inbox. Generally generally!, people get in trouble with plastic because they can’t handle the temptations that come with using it. It’s easy to spend more than you earn when you use a credit card. The trick, then, is to use the credit card as a tool. Establish some rules. Pay it off each month. Used intelligently, it’s tough to go wrong with a credit card. From the Wall Street Journal:’It seems that people spend less when they don’t have a credit card available,’ says Paula Peter, an assistant professor of consumer behavior at San Diego State University. ‘With cash, your spending ability is limited.’According to eBillme, the cash-based payment alternative, its fourth-quarter online spending index found that 46% of customers said they would step up their use of such methods to finance purchases. The first-quarter index released this past week reported that 42% of consumers have used their credit cards less in the last 90 days in favor of noncredit payment options.’The shift from credit toward cashlike options is the desire for consumers to control their financing,’ says Marwan Forzley, chief executive of eBillme. He sees ‘a clear shift in attitude’ to pay as you go.As you can see, some of the people in the article may not agree with me. Of course, Forzley has every reason to encourage cash use, since his company benefits from that shift. At the very end of the article, there are things listed that you can do in regard to your plastic. One of them is trash your plastic get rid of it. The last one says to keep the plastic but pay for purchases in full every month. Trash plastic at your own peril, I say. And pay in full is the way to go.Read the rest of the article here link.

Yahoo! I Have Found The Mother Lode of Credit Misinformation

I’ve often wondered where some of the credit misinformation I hear comes from. Seriously. So many people believe so much of the same garbage. I figured there must be some school where they teach this crud. I always ask people where they hear this stuff. Most of the time it comes from the parents. Other times the person doesn’t know where they got the misinformation. Regardless, they’re out there parroting it like it’s the truth, though. Anyhow, the mystery is finally solved. I’ve figured out where this pathetic and uninformed information comes from: Yahoo! Incorrect Answers.During the past week, I’ve spent a good amount of time over there. What I’ve found is very sad. People with genuine issues ask questions about credit. Some of the answers that follow are insane and inane. Some are flat-out reckless. Other times I imagine that the person answering the question is just an ill-informed person who has never done a lick of homework. I’d venture to guess that 95% of the answers have a mistake in them. For the most part, the people answering the questions have no expertise. None at all. And yet, there they are giving answers to people who will eventually walk away thinking that they’ve received good information. Nothing could be further from the truth. Here’s an example of what I am talking about. The following question and answer is real. I couldn’t make this stuff up if I tried. QUESTION: ‘Three credit cards for an 18 year old — too much?I’m almost 19, and current [sic] have 2 credit cards – A Visa student card $250 limit, and a Discover card $500 limit. I make sure to pay my bills in full every single month. My credit score is fantastic, and I was recently offered a 13.9% APR on a Capital One Master Card [sic] if I applied and was approved. My questions are:1 Is 3 credit cards for someone my age too much?2 Does it help or hurt my credit?Keep in mind I work two jobs and make decent money for someone my age, and have never had problems paying credit card [sic], cell phone or other bills.Any advice would be extremely helpful. Thanks in advance!’The ANSWER comes from a person who goes by ‘Michelle S.’: ‘Yes pay them off now, please. Save yourself.At this rate when you are 23 you will be several thousand dollars in debt, even 10k or 15k in dept [sic] by the time you are 30.Pay them off now, and start saving money and only buy things when you can afford them. Otherwise you are looking at a life long debt.’—-Her source? She says her answer comes from ‘experience.’ Never mind that the person asking the question pays in full every month. The person doesn’t even have credit card debt. I have a message for Michelle. You are reckless. Put the keyboard down now. Get some education; then give the Yahoo! forum a try again. What’s so scary is that some people will actually listen to her drivel. Michelle is actually called a ‘top contributor’ on the forum. Heaven help that forum. Then there is this question from someone who wanted to know whether it was necessary to get a credit card in general.QUESTION: ‘Do you really need a credit card?I know that apartment complexes will ask for your credit score, and if you don’t have one you have to make like 5x the monthly rent. Or you need a score to apply for loans. But I’ve seen so many anti-credit card movies and articles. Is having a credit card really necessary?’ANSWER from ‘Patty Ann’: ‘No, I don’t think they are necessary. Your credit rating isn’t based on your credit card use, but on how you pay off all bills.’—-Uh, wrong, Patty Ann. Patty Ann clearly has no business answering this kind of question. She was wrong from the get-go. Credit card usage is extremely important to credit scores. Utilization is worth 30% of the FICO score. Still haven’t had enough of this lousy information? There’s a ton of it on Yahoo! It’s actually sickening.But here’s another one for you.QUESTION: ‘I’m 16 and want to start getting credit is there any way?I’m 16 and want to start gaining credit so I don’t have problems ahead in life.’ANSWER from some schmoe named ‘Lady Shmoe’: ‘STOP! Whatever you do, check out Financial Peace University or Dave Ramsey’s books first!It seems to take credit to make credit and that sucks because credit cards are evil. Please be very careful before getting a credit card.’—-There was more to her answer, but it was gut-wrenchingly pathetic. The answer, of course, is that you must be 18 years old in the United States to get a credit card or secured credit card. You can be made an authorized user if you’re younger than 18, but you cannot get your own card until you’re 18. Period. End of story. Lady Shmoe decided to rant on about Dave Ramsey instead of addressing the question at hand. Lady Shmoe your name is apropos. Nice choice.Wait, there’s more. Here is another one by ‘Lady Shmoe.’ QUESTION: ‘I currently have my first credit card, and I’m still a bit confused. I have $1,000 of available credit. After I pay my first months payment, or minimum payment does my credit get renewed and go back to 1,000? Or must I first completely pay off my existing balance?’ANSWER from the Shmoester: ‘It is like simple math:$1,000 balanceminus $100 dollar shirt= $900 dollar balance on card$900 balance+ $50 payment= $950 balanceBe oober careful with a CC. Interest will eat you alive. Don’t go overboard either. I recommend calling the CC company and asking them to lower the balance to $200 or $300. You will still beef up your credit standing that way. Always pay more than the minimum payment each month – pay the whole amount owed if humanly possible.’Disgusting.Is this what Dave Ramsey the all-cash guru is teaching his disciples? Yo, Dave, you might want to put this Lady Shmoe at the head of your class. She could be one of your brighter students. What a joke. Is that Lady Shmoe a hoot or what? Seriously, this is the kind of information being passed off at Yahoo! Answers. How can you not feel sorry for the poor souls in need of some real answers? Yo, Shmoe: stop answering questions. You are wrecking lives over there. Pathetic and sad. All I can do is shake my head. Oh, and by the way, Shmoe, the correct word is “limit” — not balance. You wanted the person asking the question to lower her limit — not her balance. Bawaahaaahaha. These people slay me. A user that goes by the name of ‘Emma F’ was just as moronic — but, because this is my blog, I’m not going to highlight her garbage on my site. Instead of answering questions about credit, she should stick to what she knows best. And whatever that is, it certainly isn’t credit. It seems that Yahoo! Answers has been overrun by a bunch of ignorant fools who have no education. Seriously, some 90% of the people I saw answering questions flat-out scared me. The answers were flimsy, wrong, half-wrong, totally wrong, or misinformed. The commonality, though, was that credit is evil. Scary. Ooooh. Give me a break. It’s obvious that most of these people have never done any real thinking in their lives. They wouldn’t know what rigor meant if it was staring them in the face. Therefore, instead of educating themselves, they parrot what they’ve heard others say. As I said earlier, I hit the mother lode of credit misinformation on this one. Now, all of that said, I was able to find a few people a guy who goes by ‘slimick,’ for example who knew what they were talking about. In fact, I found one woman who goes by the screen name of ‘latebreakfast.’ I checked out several of her answers. She’s on top of her game and it’s obvious that she has done her homework. She has answered some 1,103 questions. Nearly one-third of her answers were voted ‘best answer.’ It’s no wonder, really. She’s good. She’s sharp. She’s thoughtful. And she addresses the questions that she knows the answers to. You don’t see her winging it. She leaves that to other nut jobs on the site. Latebreakfast, if you’re out there, I just wanted to give you a tip of the cap. You’re educating people on that forum one day at a time. Nice job.As for the rest of the clowns at Yahoo! Answers, don’t quit your day jobs. If I had it my way you’d all be banished from that site. You’re wreaking havoc on people who truly need answers. The Internet is a wonderful place for information. But it can also be a dangerous place as well. It’s especially dangerous when you get thousands of uninformed, uneducated people trying to pass themselves off as people who are qualified to give credit advice. To my readers: please do me a favor. At CreditMattersBlog.com we’re pretty well informed here. If you’re a daily reader, you know more than 99% of the world when it comes to credit matters. It’s now your job to teach what you have learned. I invite you to visit the Yahoo! Answers area. Go to the credit section and educate these people. People are starving over there for the kind of quality information that you can provide them. Latebreakfast and Slimick, bless their hearts, cannot do it alone. You can find the site by going to Yahoo! Answers>Business & Finance>Credit. Here’s the direct link: Yahoo Answers CreditMattersBlog.comRelated Articles:From the Misinformation FilesLowering Your Credit Limit is Stupid plain and simple

The Worst Credit Card Offers You’ll Ever See

Some of you will have to forgive me for posting this story. Why? Many of my readers will no doubt be acquainted with what is known as ‘fee harvesting.’ However, I get a lot of new readers each day — and I have no way of knowing if they’re already acquainted with the term. Many years ago, my sister got one of these cards. I was mortified when I saw the terms of the deal. After all of the fees were applied before the card was used for the first time, the amount of available credit left over was almost nonexistent. From the Red Tape Chronicles:When Mike Templeton looked at the credit card application his college-aged son received in the mail, his blood started to boil. The card promised an attractive 9.9 percent interest rate, but there was a catch. Buried in the fine print was a list of fees that seemed almost comical.• Account set-up fee: $29.00• Program fee: $95.00• Annual fee: $48.00• Monthly servicing Fee: $84.00 annually• Additional card Fee: $20.00 annuallyAnd then, at the bottom, was a sentence that it’s hard to imagine someone could write with a straight face:’If you are assigned the minimum credit limit of $250.00 your initial available credit will be $71.00 $51.00 if you select the additional card option.’I’d like to think there has to be an alternative for folks who apply for cards like this. No one needs access to credit this badly. Indeed, the initial limits on these cards are typically sub-$300 anyhow. There isn’t much you can do with the card to begin with. My guess is that these fee-harvester cards rack up a ton of over-the-limit fees too. These kinds of cards seem great for the companies peddling them and terrible for those who use them.Read the rest of the story here.

The World Won’t Buy Unlimited U.S. Debt

Peter Schiff, writing in the Wall Street Journal’s op-ed pages, says that we’re asking other countries to sacrifice for our stimulus. But, argues Schiff, these countries won’t — won’t they? — fund our country’s debt binge indefinitely. Indeed, when these countries finally say that they’ve had enough, our situation in the United States will end badly. As absurd as this may appear on the surface, it seems inconceivable to President Obama, or any respected economist for that matter, that our creditors may decline to sign on. Their confidence is derived from the fact that the arrangement has gone on for some time, and that our creditors would be unwilling to face the economic turbulence that would result from an interruption of the status quo.But just because the game has lasted thus far does not mean that they will continue playing it indefinitely. Thanks to projected huge deficits, the U.S. government is severely raising the stakes. At the same time, the global economic contraction will make larger Treasury purchases by foreign central banks both economically and politically more difficult.Peter Schiff is well known for being a doom-and-gloom kind of guy but he’s been right a lot over the past couple of years. He’s made more than a few skeptics look foolish. I enjoy his contrarian leanings. Read the rest of the opinion piece here link.

Why You Need a Credit Union Relationship

If you aren’t doing business with a credit union, you’re missing out.Everybody should be doing business with a credit union. They’re easy to join, they’re easy to deal with, and they’re needed — for diversity purposes — in today’s era of big banks. Consolidation in the banking industry has left consumers with fewer and fewer options. I’m constantly surprised when friends and acquaintances tell me that they’ve only got one banking relationship and it’s with one of the huge bank conglomerates such as Wells Fargo, Bank of America, Chase, Citibank, etc.. I’m not suggesting that you dump your banking relationship. Instead, I am suggesting that you open a credit union account in addition to your mainstream bank account. Credit unions often have awesome deals on loan products. Because credit unions primarily exist to serve their members and not to turn huge profits, they’re able to offer lower interest rates on loan products, lower fees, and higher interest paid on deposits. Take Pentagon Federal Credit Union, for instance. It was recently offering 4.25% on auto loans which included both used and new autos. Though the rate was recently upped to 4.5%, the deal is still solid. Penfed, which is what many people call Pentagon Federal, also has some great credit cards. My favorite, of which I recently opined, is the Pentagon Cash Rewards card. The card offers 5% back on gasoline purchases at the pump, 2% on supermarket purchases, and 1.25% on everything else. Getting 5% back on gas purchases makes this card a no-brainer. For more information, read about the card here.To be sure, credit unions aren’t always conveniently located. Penfed, for example, does not have a branch where I live, which means that I can’t drop by to visit my money. But that’s OK. I use my Penfed relationship for credit cards and other loan products. It’s not my main source for deposit accounts. Same goes with my NASA credit union account. I don’t have much in the way of deposits with the credit union, but I do have a credit card. Both credit unions offer credit limits that go as high as $50,000. That’s the kind of limit I am looking for. It’s the kind of card that can grow with you over time. Do note that most credit unions will request two recent pay stubs if you apply for a credit card. According to one of my readers, Awedio, NASA, as of August 1, 2008, was pulling Equifax when you joined the credit union. What’s more, if you applied for a credit card or loan shortly thereafter, NASA pulls another Equifax report. That second credit inquiry is good for up to 30 days meaning you could apply for several products during that 30-day period without incurring another hard inquiry. As for Penfed, it pulls Equifax when you join the credit union. Penfed will use that same Equifax pull for up to 60 days. Thus, unlike NASA, Penfed will only pull one Equifax report — and you’ll be able to use that pull for multiple products during the first 60 days. Thanks, Awedio.Credit unions also offer excellent customer service. Most don’t offshore their calls — even after hours. During the day, you’ll deal directly with the credit union staff. After hours, you’ll be dealing with a company that has been outsourced to handle the credit union’s customer base. Best of all, outsourcing is done with U.S.-based representatives. If your credit union is off-shoring its customer service, please leave a comment at the end of this blog entry. I’d like to know which credit unions are moving their customer-service operations offshore. Thanks.What’s more, your share deposits are just as safe as they’d be if they were sitting in an FDIC bank. Credit unions are insured by the National Credit Union Share Insurance Fund NCUSIF, which is part of the National Credit Union Administration NCUA. The insurance coverages are in line with the FDIC limits. An individual with several non-retirement accounts will be insured up to $250,000 total. With the government bailout, the limit is now $250,000 until December 31, 2009. See NCUA press release here. In other words, if you have in your name alone a regular share account, a certificate of deposit, and a share draft account, they’ll be calculated in the aggregate — meaning that you shouldn’t allow all three of those financial instruments to be worth more than $250,000 combined. With the government bailout, the limit is now $250,000 until December 31, 2009. See NCUA press release here. If they are, you’ll need to take the excess and move it elsewhere to another credit union or bank, for example. That same individual will also — separately — be able to have an IRA that’s insured up to $250,000. For more information, here is a link to NCUA’s Web site.Finally, doing business with a credit union also provides diversification. Just as having several credit cards — with different lenders — is important, having a relationship with several banks and credit unions is likewise important. In today’s ever-shrinking banking world, it just makes a lot of sense to do business with credit unions as well. My friend Trevor, a guy who is a real genius when it comes to credit strategies, also makes this point: when a bank sees a credit union on your credit report, it knows that you have options. Diversity, Trevor says, is power. Amen, Trevor. Having options is imperative. That’s why I always recommend that people have more than one credit card from one creditor. You never know when a creditor will get an itchy trigger finger. Now that you know about the importance of doing business with credit unions, it’s time for you to start doing some homework. Indeed, you don’t want to join just any credit union willy-nilly. Always do your homework. I’d start with the big ones first but don’t ignore your local credit union, either. I’d look into Pentagon Federal doesn’t pull ChexSystems to qualify you for membership, Patelco does use ChexSystems for checking accounts; not for savings, and the Navy Federal Credit Union does not use ChexSystems, but there are other eligibility requirements that must be met; bankruptcy friendly. These are all solid institutions that treat their members well. By the way, I also like NASA it does use ChexSystems. Even though it’s not one of the ‘big ones,’ it’s a credit union that I would look into. They’ve always treated me extremely well and customer service is very good. Credit Matters BlogNASA eligibility rulesPenfed eligibility rulesNavy Federal eligibility rulesPatelco eligibility rulesA list of the top 50 credit unions by total assets and members

Why it Makes Sense for Small Businesses to get a Business Credit Card

Last week I was talking with someone that I consider both intelligent and business savvy. We got to talking about her small business, which, despite a tough economy, is doing well. After a while, I started asking her about her business expenses — and about the business credit cards that she uses to fund those expenses. She said that she doesn’t have any business credit cards. Instead, she funds many of her expenses with personal cards. Say what?!? Yeah, that’s what I was thinking, too. Given her background, and given her business acumen, I figured that others might be doing the same thing. Curious, I called another friend who runs a small law office. He said that he doesn’t have any business cards, either. The day-to-day expenses, he said, are purchased with personal cards. I was surprised. When I was thinking about starting my own small business last year, the first thing I did was look into a credit card that I could use exclusively for my business. I never thought about using a personal card for those purchases. Indeed, why would I want to run my business expenses through one or several of my personal credit cards? I wouldn’t. And neither should my friends.Here’s why it makes more sense to get a business credit card for your business. First, it’s always smart to keep your business expenses separate from your personal expenses. Don’t commingle the two. A business card — that’s only used for business expenses — makes it easy to segregate business expenses from personal expenses.Second, those business expenses and the monthly balances could be having a negative impact on your credit score if they’re being paid for with a personal credit card. Think about it. If you’re using a personal credit card with a $20,000 limit, and you’re running $15,000 a month in business expenses through the card, that’s a lot of utilization — utilization that’s being reported to your personal credit report. That kind of utilization is likely dragging your FICO score down. Read about utilization and its impact here. Worse, if you apply for a new personal credit card, while you have this kind of utilization on one of your personal cards, you could get denied. It won’t matter that the utilization problem stems from your business. Try explaining that to the underwriter that just denied you. The underwriter will see that your personal cards are being over utilized and conclude that you’re a credit risk. Still, you’re probably scratching your head trying to figure out how a business card would change your plight. After all, expenses are expenses. And credit cards are credit cards, right? Wrong. As it turns out, most business credit cards and those huge balances are not reported to your personal credit report. As a result, your scores won’t suffer because of your business expenses. Which means that you won’t have to worry about utilization ratios that have nothing to do with your personal life. It all seems so logical. And yet I have two small business owners telling me that they’ve always used personal credit cards to pay for things that are clearly business related. Go figure. Both of these people are now going to apply for business cards. But before doing so, here’s what they need to know. The credit card company will pull their personal credit reports to see if they’re creditworthy. The applicants will also have to agree to be personally liable for the debt that’s accumulated on the business card. In other words, the card applicant will agree to be the personal guarantor of the purchases. The legal significance is that the applicant wouldn’t be able to shift the expenses onto the business if the business went under. Instead, the applicant would be responsible for those expenses. Given that reality, it’s easy to see why the credit card company would pull the applicant’s personal credit report. The creditor simply wants to make sure that the personal guarantor isn’t a deadbeat. Assuming they’re not, they’d likely get approved for the card. After that, the only time that the personal credit report could come back into play is if the borrower defaults on the credit card obligation. Only then would the credit card company report the bad debt to the person’s credit report. Barring that scenario, the business card will never be reported to the small business owner’s personal credit report. In the meantime, your business card could get reported to a business credit report that’s maintained by Experian or Equifax. This would be good news for your business. Many creditors not credit card companies pull your business credit reports when they’re deciding whether to extend credit to your business.There are several business cards available. I’d stick with the major players. Bank of America business cards here, Citibank business cards here, American Express business cards here, and Chase business cards here all have several business offerings. Also make sure that you get a true business card. Citibank, for example, peddles a card called the Citibank Professional card. It’s a hybrid card that serves both as a personal and business card. Unfortunately, it also gets reported to personal credit reports. If one of your goals is to keep your business expenses from harming your personal credit score, then stay away from the Citibank Professional card. Instead, check into one of Citibank’s true business-card offerings, such as the CitiBusiness card. The same goes for the Chase Quicken business card. It, too, reports to personal credit reports. Note that many of these business cards also offer some excellent balance transfer deals. If you’re not paying your business expenses in full each month and they’re accruing interest on your personal cards, you should take advantage of these 0% offers. Chase, for example, has a card called the Chase Business Rebate Card application here. It offers a 0% balance transfer deal that lasts 15 months. The only caveat is that your transferred balances must consist of business-related expenses. I assume your balances do. If you’re running a small business — and using personal credit cards to fund expenses — do yourself a favor and look into getting a business credit card. Not only will it be easier to track your business expenses many business cards provide online tools that make it easy to manage expenses, but your credit score will appreciate the move as well. CreditMattersBlog.com

Who Needs FICO 800? Scores of 760 to 799 Work Just as Well

Editor’s note: this interview was the fifth of six installments that ran during the week of August 18-22, 2008. To get the most from it, be sure to read my introduction article, which can be found here. CM: Trevor, feel free to tell my readers a little something about yourself.My name is Trevor. I’m a 27-year-old male residing in the Twin Cities, MN. Along with family, I own and manage an established marketing company. Although I enjoy traveling for business and pleasure, I look forward to coming back home to enjoy everything Minnesota and its seasons have to offer. In the summer you’ll find me with friends on the lakes boating/sailing, waterskiing and swimming. During the winter I’ll be snowboarding and downhill skiing. Other favorite hobbies include painting, drawing, tennis and biking.CM: Trevor, what are your FICO scores?My scores range from 768 to 799.CM: When did you get your first credit card?While I was still in high school, my parents added me as an authorized user on a few of their cards – American Express, MasterCard and Visa. I continued use those cards exclusively through the first couple years of college. Then one day while in a Barnes & Noble, I spotted a credit application for the store’s MasterCard offered by MBNA. I decided to apply and was approved. It was the beginning of my credit independence.CM: How many credit cards do you have all types?I currently have 43 open cards, both personal and business. This includes a mix of Visa, MasterCard, American Express and Discover.CM: How did you learn about credit? Who taught you about credit?Before I was given the authorized user status by my parents, they drilled financial responsibility into my head. They taught me how to make money work to my best advantage. But they also warned me that if I don’t make wise decisions, I could lose money and give someone else that advantage.My real “credit” education began in early ’04, when I stumbled upon Creditboards. There I began reading and absorbing valuable information. It didn’t take me long to discover I had been a victim of believing popular myths such as “too much credit is bad” and “it’s ok to close old accounts” to avoid keeping too many cards.CM: What advice would you give to someone just starting out in credit?Don’t make the mistake of applying for several store cards before obtaining a solid base of bank cards. Store-only cards often do not pay you back in terms of rewards and benefits given by major bank cards. You should plan long term for your credit profile. Obtain at least one of each first – Visa, MasterCard, AMEX and Discover, and then build up from there. Potential lenders will appreciate the diversity and regard you as a consumer with a handle on your credit rather than viewing you as an impulsive credit applicant.Don’t carry a balance unless you have no other resources to pay in full. Even the enticing 0% offers are often risky to your credit when current lenders are reviewing your account. Many people are often misled into thinking carrying a balance and paying interest to a lender will bring credit line increases faster and more prolifically. This is not true. Lenders will grant credit line increases to customers they view as responsible and those they deem having the resources to pay back the loans. Carrying a balance is a red flag that the customer may not have the means to meet their obligations. Using the card frequently and paying back in full is the best recipe for increasesCM: If you knew then what you know now, what would you have done differently in your credit life — if anything?I would not have closed my Target Visa and a couple other cards that I obtained early on and thought I had outgrown. As I previously indicated, I believed the old credit myths before finding CreditBoards. Fortunately, I quickly learned that I was on the wrong path with my credit and didn’t close more cards. So, I began my plan of obtaining additional cards with rewards best suited for my needs.CM: What habits have allowed you to maintain such high scores? What do you think the most important thing you do is?I use my cards heavily for both personal and some business expenses. And although my utilization room includes a nice cushion, FICO does not like to see many accounts reporting at one time. So, I never allow more than 6 cards to report a balance each month. I’ve compiled my card activity into an Excel workbook. Each card has its own page, and they are all linked with highlighted due dates for each in a summary. I transfer payments early to the lender for several cards to avoid having too many balances at the cutoff dates. This way I can ensure that 6 or fewer cards will report to the bureaus at all times.I’ve never engaged in the infamous “app-o-ramas.” This involves applying for many cards in one day to eliminate any of these new accounts reporting before other lenders take notice of this activity. The problem is that eventually the new accounts do start reporting and cause FICO scores to take a sudden tumble. Many lenders now have a system in place that flags a customer’s reports for suspicious activity. And, this sudden ramp up of cards does not go unnoticed during a routine account review. So, I apply for cards gradually, which prevents scores from dropping too many points at once. This method allows the scores to recover before within a couple months and before I apply again. My goal is to eliminate as many red flags as possible, and at the same time build my card profile at a slow, cautious pace.CM: If you have a lot of credit cards, tell us why you feel the need for all of them. If you have relatively few cards, why haven’t you decided to get more?Each card serves a purpose in my profile. Basically, I keep them working for me. They grant me rewards on various categories of purchases, and perks such as lounge access, concierge service and buyer protections. No one card gives the bonus rewards in every category, and each program has a limit to how many points may be earned within a time period. I often surpass these limits quickly. In order to continue earning the bonuses on purchases, I need additional cards with similar reward structures. This does involve tracking of spending and revolving cards within the wallet. But the effort is well worth it for me. Due to my heavy charge usage, I also need high credit limits and vast utilization room, so FICO will not punish my scores.CM: What is your favorite credit card? Why?I always find this question a tough one because my favored card depends on my charge needs for the day. However, there are two cards that for the most part that never leave my wallet — American Express Platinum and Merrill + Visa.The American Express Platinum grants me membership rewards on every purchase. The more points I earn, the more valuable the rewards and perks. I also receive complimentary airline lounge access and concierge/event perks. Of course there is an annual fee for this card, however my usage throughout the year overrides that expense. My Merrill+ Visa is accepted everywhere. It’s also my highest limit and lowest annual percentage rate card to date. The purchase points transfer into excellent rewards, and extra benefits are granted as the point total rolls over into a higher tier levelCM: Have you ever been late on a credit card payment? If not, how do you stay on top of your bills?I’ve never been late on a payment. I use an Excel workbook to record card activity and it is set up to track due dates. I pay either before the statement cuts or shortly after. That gives plenty of time before the actual due date.CM: Why do you think people run into trouble with credit cards?I believe most people don’t understand the importance of good credit and how it affects them directly. Many people are surprised when I tell them FICO is watching them and credit carelessness such as late payments are lethal to a good score. Late or slow payment plans have the potential to damage your credit; paying on time and in full will keep your credit on top.CM: When did you first become aware of FICO scoring? Did you ever think that you wanted to reach a certain goal with your scores? In other words, did you always want to have an 800+ score?I first pulled my credit reports after obtaining a few cards. It was pure curiosity at the time. To date, I’ve not been motivated enough to pursue an 800+ score. My overall profile is young in age and the desire to apply for additional cards is stronger than seeing the 800 on my reports. I’ll get there, eventually.CM: What does having a high score represent to you? What does it do for you? Would you be just as happy if your score was 720? How about 680?I like to keep my score at 760 and above. This is high enough to be approved for any type of credit I desire and still have room to allow for score dips due to inquiries and/or new accounts. When my Equifax score dropped to 750 this spring, I got nervous and put a halt on applications for a longer time period than my usual pattern.CM: Any parting words for my readers? Some words of wisdom that you care to share?I can’t stress enough the importance of diversity in a credit card profile. One should have a card with at least one credit union and a healthy mix of several banks. The recent bank mergers, buyouts and closures will likely have at least some effect on card profiles and these activities are rarely good for the customer. It is also beneficial that current and potential lenders see their competition on a report. A growing bank will attempt to lure their good customers’ business away from this competition with higher limits and incentive offers for card usage. Simply put, diversity is power for the consumer.It is up to the consumer to build and maintain an excellent profile. This does take some time and effort but once established it becomes routine. The satisfaction and rewards are immeasurable.CM: Thanks, Trevor, for taking time out of your schedule to answer these questions. Credit Matters BlogRelated Articles:Want to be a FICO High Achiever? Do What They doFICO Scorecards: Where do you Rank?How Closed Credit Cards Impact Your FICO ScoreSee How Lenders See Your FICO Score

White House: Housing Plan Could Help Up to 9 Million People

On Wednesday, the White House laid out plans to help up to nine million people refinance or modify their mortgages. The plan is designed to ‘give millions of families resigned to financial ruin a chance to rebuild,’ President Obama said. From the Wall Street Journal:The Obama administration’s plan has three main elements: an effort to help homeowners refinance; another effort to help stabilize the housing market through a $75 billion initiative aimed at reaching up to four million at-risk homeowners; and a third element that aims to drive down mortgage rates.’The effects of this crisis have also reverberated across the financial markets,’ President Obama said. ‘When the housing market collapsed, so did the availability of credit on which our economy depends.’The administration pledges government money to separately entice homeowners, mortgage companies, and mortgage investors to rework loans. It would help a variety of homeowners, including those whose mortgage is more than the value of their home.Read the rest of the story here link.

White House Explores Aid for Auto Deal — Another Bailout

This is getting pretty amazing. The plan that allows the government to bail out banks and financial institutions gives our government wide latitude. Almost anything goes. Indeed, last week the government rolled the insurance industry into the bailout plan as well. So we’ve got banks, financial institutions, insurance companies, and now — if the New York Times story has it right — the automobile industry. The government is trying to encourage a merger between General Motors and Chrysler. Heck, I know some friends who are struggling in their marriage. Think there might be a chance the government steps in and provides a rescue package? Sheesh. Where and when will all of this end? From the New York Times story hat tip to Sean: White House Explores Aid for Auto Deal link hereA bailout for carmakers would be the latest in a series of government-financed rescue efforts for banks, Wall Street firms and an insurance conglomerate. While few experts dispute the car industry’s troubles, rescuing them would also increase political pressure to help ailing industries like airlines and steel producers.The automobile industry and lawmakers from Michigan are now arguing that the car companies should be included, because their financing subsidiaries, which have been starved for credit, represent an important channel for consumers to obtain loans to buy cars.See what I mean? Where will it end? Who can’t make an argument that they’re too important to fail?If the funding doesn’t come from the $700 billion set aside earlier this month by Congress, the government has other options. Another option under consideration is to tap a $25 billion loan program that Congress just created to help the auto companies modernize their plants. A third option would involve going back to Congress, immediately after the Nov. 4 election, for authority to spend funds aimed specifically at the auto industry. But officials have not yet decided how much assistance to provide or how to structure any aid program.After you’ve read the New York Times story, read this Wall Street Journal essay from this past weekend: How Detroit Drove Into a Ditch link here.Paul Ingrassia argues that it makes little sense for GM and Chrysler to merge:What now? Cerberus is trying to sell Chrysler. The most logical buyer would be Nissan, India’s Tata or some other profitable foreign car company seeking to expand in the U.S. But desperation doesn’t breed logic, which is why General Motors might become the buyer. It’s difficult to see how this deal would make any sense for GM, which already has too many brands eight and must cut billions from its cost base. Adding more brands Chrysler has three and more costs would be charging headlong in the wrong direction, and distract GM’s management from putting its own house in order.Personally, I’d let the free market take care of this one. Chrysler should be allowed to fail — if that’s its fate. Finally, what’s Chrysler worth? According to a story last week link here in the Detroit Free Press: $0.