Keeping rebuilder cards "too long" - Part I

[Lauraist]

I started rebuilding my credit last time in 2013, and recently crashed and burned. I'm taking stock of the mistakes I made, and thought I'd share a piece of information (not advice) with the board. I noticed there is pretty much an expectation that readers will drop their rebuilder cards as soon as they can get a prime card. While I now agree that is the right strategy, I have to admit I didn't do that and it contributed to my downfall.

At the end of this roller coaster ride, I had 15 credit cards, 9 of which were subprime - the kind most of you have the sense to get rid of ASAP. I used to think "the more credit the merrier". I now know that is wrong. However, this post isn't about my laments about having and using too much credit. Rather, I'd like to explain what various subprime cards do if you hang on to them long-term, as I haven't seen this information anywhere and I have first hand experience. Some of the cards don't get any better, but some do. Not to the point of being equal to prime cards, but they do get better.

However, if you're smart, this information is "for entertainment purposes only". I will post about 5 cards in each Part of this series to keep it from getting long and boring.

Capital One secured

This is the card I started with, before they changed their policies on graduation. I put $200 down and got a $200 CL. Most people get this bumped up to $500 in six months but it took me nine because I was still paying bills by snail mail and one payment got in a day late. Even after they started offering graduation, I never graduated, probably due to high utilization. They also continued to charge me the $29 annual fee even though new cardholders don't pay a fee. This is one card I actually regret losing.

Credit One (2 cards)

About six months after getting my Capital One, I got a pre-approved solicitation for Credit One's Visa. I had a policy of accepting all pre-approved offers except thouse where I had to give relatives as references, so I accepted. My initial CL was $400, and I continued getting raises of $150-250 every six months like clockwork until my total debt was too high. After a couple of years, They offered me a MasterCard too and the CLIs were about the same. I now realize the "two card" trick is done for two reasons: 1) Double the minimum monthly payment, and 2) Double the fees. Very slick, Credit One! My ending CL was $1,850 on the Visa, $650 on the MC.

First Premier (2 cards)

I applied for this for two reasons: a friend of mine had one, and I liked the "camp value" of having "the worst credit card in America" (though I now disagree with that assessment - IMHO Verve is worse, but I digress). First Premier also does the "two card" trick. I started with one card with a $300 CL. The next year they offered me a second one with a $400 CL. A year later the first card was raised to $700 and the interest rate lowered from the original 39% to something in the 20s and the annual fee was lowered. A year after that the second card was also raised to $700. The interest and fees on the second card were slightly lower than orignially on the first card, but were not lowered when I got the CLI. It is possible they may have given me more CLIs in the future, but this is about when my score started to tank due to high util. I now have no regrets about losing First Premier. Their fees alone are dangerous. (I now think fees are more dangerous than interest.)

Well, that ends Part I of this post. Feedback welcome and encouraged.

[Medic981]

Welcome to the myFICO forums!

Your insight is much welcomed. I am sure others can learn from your experience. 

[marty56]

As long as they don't have any fees associcated with them, they are helping your Fico score.  My lowest CL card is my oldest by many years.

[Anonymous]

“Rebuilder” cards are certainly not great, but can’t really be blamed for overspending, high utilization and missed payments. Prime cards are just as easily mismanaged this way.

[Lauraist]

I'm in full agreement that rebuilders aren't at fault for overspending and high util. However, the fees and high interest rates can definitely turn a situation from "not so good" to "full-on disaster". Missed payments are usually a disaster no matter what card you have.

[Lauraist]

I am defining subprime/rebuilder cards primarily by fee structure. In retrospect, once I started qualifying for prime (no-fee) cards, I should have phased out the ones with fees. Fees are even more of a killer than high interest rates. I am not concerned with CLs as much because my income is too low to support five and six digit CLs - I am grateful for four digits on one card....

[Lauraist]

If you're not aware of the context of this post, please look up Part I.

Verve (Continental Finance, MidAmerica Bank and Trust Company)

This card has a reputation for being stingy with CLIs, and that reputation is pretty accurate IMHO. They start everyone at a $500 CL AFAIK, and only give you a CLI to $625 after a year if you ask for it. My personal policy is not to ask for CLIs, but to wait for them to be offered. In a way, this paid off with Verve. I got a CLI without asking for it after 3 1/2 years to $800. Unfortunately, I was already in a downward spiral on my credit journey so I'll never know if the situation would have gotten better with them.

However, I can honestly say that with the interest rate and fee structure, Verve blows First Premier out of the water for being the worst credit card in America! Monthly and annual fees together total $216 a year, and interest is 30.49% APR. CLIs are rare, and my interest and fees were never lowered even after four years of perfect payments - at least First Premier gets a little better if you're a "loyal, good customer".

Legacy/First Savings/Blaze (3 cards, 2 banks, 1 company)

These three cards are exactly alike, even down to their website. This isn't so surprising when you realise that Legacy is run by First National Bank, and the First Savings and Blaze cards are run by First Savings Bank, which is owned by the same people. Of course, there are many "First National Banks" in America - this one is mostly in small towns in South Dakota and Minnesota. It's clearly not a major player, but it has found a niche in the subprime credit card business.

I got my Legacy card about a year into my rebuild, and the First Savings card the next month. A year later I was offered and accepted the Blaze card. They all start you with a $350 CL, but they are very good about CLIs. Every year you will get a $250 or $500 CLI as long as they perecive you can handle it. They always ask your current income when offering a CLI, but I didn't mind that. When I finally crashed and burned, my CLI was $1,100 for each First National and First Savings, and $850 for Blaze. (My downturn was already beginning when I got my last Blaze CLI which is probably why I got $250 instead of $500.) I consider them to be moderate for a rebuilder card - the regular CLIs made up for the high interest and fees, which were at least not as abusive as Verve and First Premier.

Discover It

Two years after I started rebuilding, I got my first prime card offer: a Discover It card with a $1,200 CL. This is when I made my first big mistake. Even though my util on my subprime cards was in the 70-80% range, I would still have been better off phasing out the Premiers and the Blaze and charging up the equivalent on Discover than trying to lower my util by keeping all of them. I don't recall if Discover offered balance transfer, but if it did that would have been even better. I would have lowered my average APR and knocked out some fees.

I got a CLI to $1,700 nine months later, but never got another one after that. My credit was still in the ascending, so I think the cap was more income and DTI-based than score/behaviour based. In retrospect, perhaps if I had knocked out some of the subprimes, Discover might have increased my CL to make up for it.

I will admit that I overspent somewhat a few months after I got this card, exacerbating my util, but I was still in no danger of default. I took a trip that I really couldn't afford to go see a friend. Unfortunately, that friend is irresponsible and later on he would be a major part of my downfall, but I digress....