Building Credit: PenFed Secured or Another Card?

[Anonymous]

Hi everyone,

I've been reading the forums here for a little over a week and have been seeing lots of good advice being given out.  I hope to get some of that advice here!  Here's the story (the short of it anyway)...

I'm 24 and a grad student in engineering, going for a phd or industry in a few months.  Currently have a job as a researcher clearing ~$24k/yr though that will end in a few months.  I have $2000 in savings.  Have ~$14k in student loans in grace for another 6-9 months or so if I don't go phd.  No credit history besides but I have no 'baddies' whether it be bills or rent or what have you.  I pulled my EX score last month and it sits at 724...

I need to start building credit so I was told to get a credit card, Visa or MC so I can use it everywhere, and to go for the lowest rate possible.  Keep the utilization below 10%.  So I became a member of PenFed and applied for the Promise Visa (haha...) after calling and being told applying would not be a problem, though I explained my situation and asked if I was being unreasonable.  Turned down of course, and for the recon, so I inquired about their secured cards since I don't want to have a cosigner.  They have the initiator and the rebuilder.

The initiator (sounds somewhat epic) is as follows:  Visa, 13.99% APR, 2% of balance is minimum payment per month.  Up to a $1000 credit limit, of which you can put forth between $500 and $1000 in $100 increments which goes into the share account at 0.35%.  The first card lasts for 6 months and each card after that for 12.  After you are in the program for 12 months (the 6 mo card plus a portion of the 12), you can be considered for an unsecured card if your history is good.  I spoke with a loan officer and he did not care what the usuage patterns were like, as long as payments are made.  The card does not 'graduate' so a new one must be applied for at that time.  They report to all three agencies.  No annual fee.

Questions:

-Is utilization how much I use each month or how much of a balance I carry from month to month?

-Should I go for the PenFed secured another secured or unsecured card, like a Capital One unsecured with a 16.99% rate for young adults?  My logic is, since PenFed is supposed to be the best, or close to it, it seems to make sense to build directly with them rather than a junk card/company.

-What is the best way to use this card if I get it?  Only go up to 1-9% of the limit and pay it off?  Use it like I use my debit card now, which is to say for everything, and pay it off in full?  Use it for everything and pay it down to a certain amount?  I have heard that one should pay a secured card off every month.

I think that's it, so thanks in advance for the help!

cheers,

-jim

[Anonymous]

I'd go with another company. After 4 years of student loans with 24k income and 724 credit score, there is no reason for them to deny a small unsecured card. I was in a similar situation with nearly no income in 2007 & my local Uni CU approved an unsecured $1000 CC @ 13.50%.

[FastMovingAquaticFowl]

Penfed takes the word "conservative" to entirely new levels. They make Amex/Discover look

like 2 dollar hookers. Personally, I'd open a secured at a local CU, other than Penfed.

Once you break into the high 700s, Penfed *might* extend you $50 in credit, but even then

thats debatable.

[Anonymous]

Thanks for the advice so far! 

@warthog1984:  I think the lack of repayment on my loans is what they're seeing as a poor mark on my record.

So I have one vote for getting a secured card and one vote for an unsecured card, both at a credit union.  Is PenFed a lost cause?  I think I have a crush on them...

As for the usage questions, what is the most favorable way to use the card?  Pay it off or keep a small balance?

[haulingthescoreup]

Always pay it off. Always, always, always. If a CCC "requires" you to maintain a balance and thereby fork over some interest payments every month, I say to heck with them.

I would guess that PenFed will be more ready to dance with you once you have a job beyond grad school. They really value stability in employment. Others who have a really tough time with them are the self-employed.

You mentioned your "EX" score. Did you mean Equifax or Experian? In almost every case, consumers can't find out their Experian FICO scores, only our Equifax (EQ) and TransUnion (TU) FICO scores.

[Anonymous]

haulingthescoreup,

Thank you for replying!  From what I understand your advice is highly regarded on this forum.

I would like to continue using any card I get like I do my debit card.  I have been told, however, that carrying a balance occasionally can build credit 'better' than by PIF.

For whatever reason, I decided to play one more hand with PenFed and try for their initiator.  If it doesn't pan out, I'll start looking for another lender.  Alliant seems to be a possibility, but they do not offer secured cards from what a CSR said.  Oh, and as an aside, is the Alliant mention here the one found at alliantcreditunion.org and not alliantcu.com?  Ultimately I would like to take the advice of those here who say that getting in the good graces of a prime lender would be best.

As for my score, I pulled it from Experian through protectmyID.com for $1, from which I have since cancelled my enrollment.  I don't have the print-out in front of me so I'm not sure on the details.  I pulled Equifax at the end of '08 (I believe) through annualcreditreport.com.  I have not pulled TransUnion yet, but would like to start rotating all three on a period of 1 year so that I get a different one every 4 months through ACR.

cheers,

-jim

[MarineVietVet]

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@Anonymous wrote:

haulingthescoreup,

Thank you for replying!  From what I understand your advice is highly regarded on this forum.

I would like to continue using any card I get like I do my debit card.  I have been told, however, that carrying a balance occasionally can build credit 'better' than by PIF. Whoever told you this is less than correct. They might be confusing carrying a balance and reporting a balance. Carrying a balance (to me at least) means not paying in full before the due date each month which results in finance charges. Reporting a balance means letting a small balance (1-9% of the credit limit) show on the monthly statement but then always paying in full before the due date.

For whatever reason, I decided to play one more hand with PenFed and try for their initiator.  If it doesn't pan out, I'll start looking for another lender.  Alliant seems to be a possibility, but they do not offer secured cards from what a CSR said.  Oh, and as an aside, is the Alliant mention here the one found at alliantcreditunion.org and not alliantcu.com?  Ultimately I would like to take the advice of those here who say that getting in the good graces of a prime lender would be best.

As for my score, I pulled it from Experian through protectmyID.com for $1, from which I have since cancelled my enrollment.  I don't have the print-out in front of me so I'm not sure on the details.  I pulled Equifax at the end of '08 (I believe) through annualcreditreport.com.  I have not pulled TransUnion yet, but would like to start rotating all three on a period of 1 year so that I get a different one every 4 months through ACR.

cheers,

-jim

---

Welcome to the forums by the way.

From a BK years ago to:
8/09 TU-765 EQ- 783
9/09 EX pulled by lender 802
3/10 EQ- 800

You can do the same thing with hard work

Credit Scoring 101
Common Abbreviations
Frequently Requested Threads
Credit Problems Which Is Worse?
Whats In Your FICO Score

[Anonymous]

marinevietvet,

Now that makes sense!  So paying in full every month is the best way to handle a card, whether secured or unsecured it sounds like.  I was under the impression before that it was only your statements that actually post to the agencies.  So from what you're saying, if I have a $1000 limit then I should only use about $90 of it and pay it off right away, every time.  Then go ahead and put more on it and pay it off again, not going above that magic util percentage.  This seems to preclude me from using it like a debit card.  I guess I'll have to get one or two more when the time is right.

Speaking of which, when should I go for my next card?  Six months?  A year?  More?

And thanks for the welcome!  I should have said that I was new.  Thanks for the help and clarification!

cheers,

-jim

[Anonymous]

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@Anonymous wrote:

marinevietvet,

Now that makes sense!  So paying in full every month is the best way to handle a card, whether secured or unsecured it sounds like.  I was under the impression before that it was only your statements that actually post to the agencies.  So from what you're saying, if I have a $1000 limit then I should only use about $90 of it and pay it off right away, every time.  Then go ahead and put more on it and pay it off again, not going above that magic util percentage.  This seems to preclude me from using it like a debit card.  I guess I'll have to get one or two more when the time is right.

Speaking of which, when should I go for my next card?  Six months?  A year?  More?

And thanks for the welcome!  I should have said that I was new.  Thanks for the help and clarification!.

cheers,

-jim

---

Yes, your statement balance is what posts and reports. This is usually the balance on 1 specific day. For example, if you have a $1000 CC that ends its billing cycle on the 25th of each month, use it like a debit card but split your payments- send the majority of your balance in on the 20th, leaving the balance at whatever % util you want reported (say 2%), wait for it to report, then PIF the remaining balance before the next due date to avoid finance charges.

My pattern:

$1000 CC, statement ending date of ~20th each month.

On the 1st-15th of each month, treat as debit card and run balance up to ~$850-$940

On the 16th of each month, I go online and pay all but $20.

On the 17-22nd, I stop using the card, verify payment posted & wait for e-statement to show up

Once the statement has posted, I PIF the $20 before the due date to avoid Finance charges

After PIFing, I run up the balance to $850 again.

This way, my bank reports a 2% util & I avoid finance charges.

Hope this helps!

[Anonymous]

warthog1984,

So it sounds like it would behoove me to know when exactly the statement will post.  I'm guessing that will be pretty apparent once things get rolling.  I'll start small and see what the pattern is.  Thanks for clueing me in on the trick that lets you have your cake and eat it too...

cheers,

-jim