Tips on Adding Credit Card Accounts

In order to prove to the scoring system that you know how to manage revolving debt, experts say that you MUST have active credit card accounts.

There are many financial experts who say that not using credit cards is better for your budget, and they are right. Especially for those who do not have discipline when it comes to spending, however, Fair Isaac & Co., the creator of our credit scoring system says that without revolving accounts, consumers cannot maximize their credit scores. There is no getting around it.

So some good advice is to look at credit cards as tools, not luxuries. Unless you must have access to a credit card for business, you should try to use the card for gas and groceries only. In addition, the dollar amount of the limit does not influence the credit score one way or the other—it is the balance-to-limit ratio that matters. Point: When adding a new credit card account, apply for a low limit—one that doesn’t leave room for overspending.

If you do not have a credit card, here are some tips on how to get one:

Go To Your Bank or Credit Union First

Whether you have an established relationship with a representative or not, it is wise to go into the bank directly. Do not try to inquire or apply over the telephone. In most instances, bank and lender customer service representatives are located in different states and sometimes different countries. It’s very likely they don’t have a clue about the products offered by individual branches.

Ask what type of accounts they offer for clients who are trying to build or re-establish credit. Be direct. Tell them what your credit scores are so they can tell you if you qualify BEFORE they pull your report. You do not want to incur a hard inquiry if you can avoid it.

If your bank does offer a credit card program, make sure they report to all three credit bureaus every 30 days. This is very important. You’ll find that most major banks and credit unions do.

A Secured Credit Card Is A Great Option!

If your bank does not have such a program, or does not report to all three credit bureaus every 30 days, then it is time for you to apply for secured credit card. For new credit users, or consumers who have filed for bankruptcy, or have closed all of their credit card accounts, a secured credit card is a very good option.

A secured credit card means that you put up your own money as collateral. It looks and works just like a regular credit card, and is considered a major credit card by the scoring system.

The amount of the limit does not matter to the scoring system. A $ 500 limit is rated the same as a $ 5,000 limit. It’s the percentage ratio between the balance and limit that is considered. Point: It is not necessary to deposit more than the minimum amount required—usually $ 300.

There are hundreds of secured credit card companies on the web so you should be very careful in making your selection when applying, because each application will be considered as hard inquiry on your credit reports. You want to make sure that you apply for a major credit card only (i.e. Visa or MasterCard); that the creditor reports to all three credit bureaus; and that the APR and annual fees are reasonable. A good place to start is with www.orchardbank.com. The Orchard Bank Secured MasterCard is an excellent card for establishing or rebuilding credit in your name. It comes with a low variable purchase APR, and the first year’s annual fee free. Another place to do your research is www.cardoffers.com.

Credit scores can increase by as much as 50-60 points in the first two months of using a secured account. And after managing your credit card account and paying it on time, you can ask for your initial deposit back, at which time that account becomes a regular unsecured account.

WARNING: Stay away from department store cards and pre-approved offers that you receive in the mail. When trying to rebuild or establish credit, you should apply for a major credit card ONLY.

Become An Authorized User On A Family Member’s or Spouse’s Account

With the new guidelines from FICO as outlined in the new Fair and Accurate Credit Transaction Act, there is a lot of controversy about whether or not authorized user accounts still help establish credit, and our experience proves that they do if you carry the same last name as the credit card owner.

You should always build your own credit if possible because that gives you power and control, but as a last resort, this option will help to get you started. To maximize the benefit of this option, make sure that the account you are being added to belongs to someone you trust, has NO negative history at all, has and keeps a balance under 30% of the limit and is at least 2-3 years old.