Get another credit card or hold off?

[Anonymous]

Ok, My wife and I have bad credit from a lot of 5-year-old baddies. I have no intention of going back and paying 5-year-old collection accounts when they will start falling off in 2 years and no longer be an issue. 

I currently have a Wells Fargo Secured($1000), Credit One unsecured($500), and Capital One Unsecured($300). Wife has a Wells Fargo Unsecured($1000) and Capital One Unsecured($300). She also has a just taken out car loan. On these cards and the loan, we have perfect payment history. Our scores are both sub 600 because we carry a balance and score right now isn't that important. 

I am wondering if this is enough to wait out the two years and have decent credit once everything has fallen off or should we each get an additional card each? I am looking at a Discover IT secured or a Citibank Secured. We could do a $1000 on each card. Just not sure if we need another card or not. 

[Anonymous]

No, you have enough to build solid profiles for now, adding another secure card would help little if any, you actually would probably see a scoring drop due to AoYA reset and drop in AAoA prolonging your rebuild time. Instead I would use the 2k to pay off the balances you're carrying so you're not paying interest, PIF every month before due date should be the strategy moving forward.

Keep in mind that you'll have to regain your grace period on cards you have been carrying balance, you must let the statement report a $0 balance (look out for residual interest) then call in to make sure grace period has been reset before making new purchases, without the reset you will continue to pay interest on purchases from the date it posts even if you PIF by due date.

[Medic981]

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@Anonymous wrote:

Ok, My wife and I have bad credit from a lot of 5-year-old baddies. I have no intention of going back and paying 5-year-old collection accounts when they will start falling off in 2 years and no longer be an issue. 

I currently have a Wells Fargo Secured($1000), Credit One unsecured($500), and Capital One Unsecured($300). Wife has a Wells Fargo Unsecured($1000) and Capital One Unsecured($300). She also has a just taken out car loan. On these cards and the loan, we have perfect payment history. Our scores are both sub 600 because we carry a balance and score right now isn't that important. 

I am wondering if this is enough to wait out the two years and have decent credit once everything has fallen off or should we each get an additional card each? I am looking at a Discover IT secured or a Citibank Secured. We could do a $1000 on each card. Just not sure if we need another card or not. 

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As I understand it, a person needs three trade lines and an installment loan to build a positive credit history and maximize FICO scores. I don't see how getting another secured card would help as it would lower your average age of accounts and possibly add a hard inquiry on your credit report. If anything, I would increase the deposit of an existing secured card which could lower credit utilization and let time take its course.

[NRB525]

I would replace the Credit One ( high fees ) with the Citi secured. Wide acceptability and you will save on vampire fees for two years.

[Anonymous]

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@Anonymous wrote:

Keep in mind that you'll have to regain your grace period on cards you have been carrying balance, you must let the statement report a $0 balance (look out for residual interest) then call in to make sure grace period has been reset before making new purchases, without the reset you will continue to pay interest on purchases from the date it posts even if you PIF by due date.

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Thanks. I hadn't know about this one. I had planned on zeroing out my credit cards before their next statement dates. Now I will make it a priority and that they have zero balances by the due date and that continues through their statement date.  

I'm also going to structure my use of my cards so that at statement time, they always have zero balances. I'm not in a fast race to improve my score. I know it will in time. 

[Anonymous]

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@Medic981 wrote:

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@Anonymous

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As I understand it, a person needs three trade lines and an installment loan to build a positive credit history and maximize FICO scores. I don't see how getting another secured card would help as it would lower your average age of accounts and possibly add a hard inquiry on your credit report. If anything, I would increase the deposit of an existing secured card which could lower credit utilization and let time take its course.

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Thanks, I had always thought that more was better, but I also realize that is what got me in a hole 5 years ago. My wife has only two cards and a car loan. Do you think she should add one or also stay put? I assume stay put. 

Now since I plan to pay down the balances to zero anyways, would it be worthwhile at all to increase the limits? The only secured card in the mix is the Wells Fargo. I had started it at 500 and after year increased it to $1000. Would it help to increase it to $2000? Assuming that I am zero balances on all of them?

[Anonymous]

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@NRB525 wrote:
I would replace the Credit One ( high fees ) with the Citi secured. Wide acceptability and you will save on vampire fees for two years.

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I hadn't thought really of that. I've had the Credit one for a year and half. I'm paying $9 a month for the fee. I don't like it but it feels like the cost of doing business with them. Thanks for the idea. 

[Anonymous]

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@Anonymous wrote:Thanks. I hadn't know about this one. I had planned on zeroing out my credit cards before their next statement dates. Now I will make it a priority and that they have zero balances by the due date and that continues through their statement date.  

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That won't do you any good because of residual interest, interest for the balance from last period (that you carried) and interest for new purchases you made this period, that you don't see yet which will post on the next statement. Therefore if you just pay off everything you see, your next statement will not post $0, it will post with the residual interest you accrued this period. There are 2 method to achieve $0 balance, the faster and slower method, both requires you to stop using the cards until the process is complete.

1. Call in on the day you plan to PIF, ask the CSR for the total accrued interest up to that day and add that amount to your PIF total, you must make that payment immediately on the same day, if you wait until next day the total amount would change again. This should result in $0 on the very next statement.

2. PIF and let residual interest post to statement, immediately pay off the residual interest on the same day the statement cuts, if you wait for the next day or more, more residual interest would have accrued on the residual interest, and depending on the amount owed, the next statement still won't be $0 if the 2nd round of residual interest is big enough to report. This is obviously the slower method because it will take 2 more cycles to complete.

Remember, you want to call in to make sure the grace period has been restored after reporting $0 statement balance, don't just assumed or you might have to start over again.

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@Anonymous wrote:I'm also going to structure my use of my cards so that at statement time, they always have zero balances. I'm not in a fast race to improve my score. I know it will in time. 

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If you report zero balance on all cards, you will lose about 15-20 points due to FICO scoring penalty, the logic is that your profile looks like you're not using your credit at all since other lenders will see only the reported balance and not the payments.

My suggestion (assuming your have reestablished your grace period for each card), especially if you're not applying for new credit for awhile, is to just let your charges post to statements, set your CC autopay to pay the full statement balance on or few days before due date, make interest on your money by keeping them in your deposit accounts through grace period, the only thing left to do is to make sure the payment account is funded before autopays come around.

Good luck.