New to Credit Cards

[tooyoungforbadcredit]

Hi, I'm 22, and I'm trying to rebuild my credit. My credit plummeted when I got sick during my first attempt of college. I have 4 negatives on my account. One for a cell phone bill I couldn't pay when I became homeless. Two of them are medical, and one (and this is silly) a library collection. (Long story.) I was late several times on my first student loan, but  I got it current months ago. I paid one of the student loans that had a small limit completely off.  I am now back in college. There are a couple more student loans on my account, but those and the one I made current are all deffered. I don't have the finances to start making any impact in paying off the interest in those loans, so I decided for the first time in my life to do something I was always told was a bad idea: apply for credit cards. I was approved for a secured capital one master card with a minimum deposit of 49 which surpised me because I had such a low credit score. I also was able to get an unsecured subprime card, which I only plan on using when I already have the money to pay off the purchase myself. I put the money aside, and then I pay the full balance just before the due date. My score has jumped up 40 points even though these accounts are very recent. My problem is that capital one pulled my reports twice. I'm new to all this and one card I got turned down for, and another one I turned down after rereading the fine print. So now I have five inquiries on equifax even though the rest of credit bureaus count only two. So I don't know how to handle this fiasco, and I was wondering if I can expect my credit score to keep jumping at this pace with what I am doing with my credit cards.

[lithium78]

You are starting off well in your rebuilding process.  Use your credit cards the way you used to use your debit cards.  They are much better than debit cards for protecting you from fraud and can really help in other ways.  Many credit cards offer free insurance when you rent a car and most hotels will only accept a credit card.

The next step for you is to try and take care of your baddies.  Are you in a rehab program for your student loan default?  That's the best way to get the black mark removed from your CRs.  Otherwise, it will take you seven years to get rid of the default, as it did for me.  (Ouch.)

Also, you can try to GW the utility bill and library late;  Many creditors will be understanding and help you that way.  I was able to get a 30 day late and a 90 day late removed from my reports by sending out GW letters.  Here's the link to some sample letters you can try: http://ficoforums.myfico.com/t5/General-Credit-Topics/GW-Example-Letters/m-p/4521

Good luck!  I know it all seems very daunting right now, but I was once in your shoes and it definitely gets better in time with effort.  It is all worth it in the end!

[tooyoungforbadcredit]

It never went into default. It was just late.

[lithium78]

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@tooyoungforbadcredit wrote:

It never went into default. It was just late.

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Ok, then that late will have to stay on your CRs for seven years, unless it's a private loan and you get lucky with a GW letter.  Direct loans never GWs anything.

[tooyoungforbadcredit]

Ah okay.  I'm just wondering with one card with a limit of 200 and one with 300 what's the percentage of credit on those should I use.

[lithium78]

To maximize your FICO, you want to keep your utilization at 9% or less.  What I do is PIF on everything, except for one card and leave a very small balance on it.  That shows you are using your credit, but that you pay all your debts and that helps your scores over time.  Plus, it reduces the interest you pay as much as possible, which is really important, since builder cards have ridiculously high interest.  Check which (if any) of your cards don't have a minimum interest charge and leave the balance on that card.

[tooyoungforbadcredit]

I see, so yeah I guess I'll keep doing what I'm doing but maybe leave a little balance.

[OptimalFICO]

TooYoung,

It is true that you need to periodically use your open revolving accounts to receive credit for your FICO scores. It is a wise strategy to use at least one revolving line of credit each month and pay the balance before the interest accrues. It does not need to be a certain amount of borrowing activity. For example, $10 or $1,000 will both do the trick. This strategy meets three Account Activity FICO scoring equirements of having a revolving account open and with a reported balance, and having a non-mortgage balance in your credit report, all of which should result in higher credit scores.

This requirement does NOT mean you have to maintain a balance and not pay it off every month! So there is no reason to do this intentionally and pay finance charges! A revolving line of credit has a period when you charge against the account. A grace period then follows. A bill is sent to you for charges made against the account. Finally, a payment date is set to pay on charges made against the account from a previous biling cycle. The account shows a balance even when you pay the entire month's prior charges by the due date.

For example, you charge on the account from May 1 to May 31, say the credit card company reports a balance of $75 to the CRAs. A bill is sent June 1 with a payment due of June 25 to make at least a minimum payment or to pay the entire balance owed. Your June 1 to June 30 billing starts and the payment on those charges is due on July 25 (say the credit card company reports a balance of $25 to the CRAs). Even though you make a payment or even may pay the entire balance each month before the the 25th, you will always show a balance on the account for each day of the month as long as you charge against the line of credit.In this scenario, your credit reports will show a balance of $75 for June and $25 for July even though you paid the account in full both months.

So let's be clear - you do NOT need to "leave a little balance" on your card(s) each month for the balance to be reported. There is no reason to pay finance charges if you don't abosolutely have to.

[OptimalFICO]

TooYoung wrote:  "I'm just wondering with one card with a limit of 200 and one with 300 what's the percentage of credit on those should I use."

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For all your cards it is best to keep your balances under 10% of the CL, absolutely under 30% (never ever let them report at 50% or above).

Under the scenario you inquired about:

$200 CL:  Try to keep your balance at or below $18 (9%) or $58 (29%) - never let it report at $100 or more.

$300 CL:  Try to keep your balance at or below $27 (9%) or $87 (29%) - never let it report at $150 or more.

[tooyoungforbadcredit]

Last two post were very helpful.