Product of the System

Now that we have gotten (or at least tried to get) our bank accounts open, we are ready to move on to the next step… obtaining secured credit cards. One card is enough, but if you have CASH and just want to rebuild your credit as quickly as possible, then open multiple cards (one per month). Within 15 months, you should have AT LEAST a 750 credit score just from those -if you have no credit whatsoever now. If you have horrible credit and numerous negative marks and/or a bankruptcy, your results may vary but you can expect at least 100 point boost -provided that you NEVER miss a payment or pay late.

Once you’ve paid on time and above the minimum for 12 months, call in and ask for a higher limit. If they ask, “how much?,” then ask them to double it. Sound confident when you ask and tell them you expect to be (or are) making more money. If you had a raise since you opened the account, they may expect proof.

You can hopefully go to your local bank and get a secured credit card based on your history with them and secured by an amount you specify. Typically, banks will accept as little as $100 to open a secured line of credit. I know that -as of the time of this writing- Washington Mutual accepts $100 to start and allows you to go up to $10,000 in increments of $100. Bank of America accepts $100 to start and allows you to go up to $2,000.

The key here is to remember that whatever you want your credit limit to be is the amount you will have to hand over. You CAN NOT use that amount to pay your bills, so you will have to have that amount PLUS enough to pay the bill each month. So, some of you may have to save up a little bit first.

If you have more than the minimum, I recommend that you do not -unless you really need to- open the credit card with the full amount that you can afford. I suggest to start off slowly and then add to it over the next several months (starting after the 3rd month).

The reason for this is that you typically cannot “withdraw” any of the money securing the card -even in emergencies- unless you close the account. So, starting small and adding will give you more of an idea of whether you can really part with the money. And, more importantly, credit bureaus give more weight to “increasing credit limits” versus “high credit limits.”

What I mean by that is that if you have a $2,500 credit limit with a $500 balance, you are viewed as a “potential risk” because you could max that out at any time. However, if you start with $500 and max it out in 3 months and then add another $500, you are viewed as being”trustworthy” because someone trusted you enough to double your line of credit. Make sense? Good!

Now, the next to last point I will make about secured credit cards is that some of us are not even able to get a secured card from a bank. I was actually in this boat myself when I first started rebuilding my credit. In this case, I had to go with a very high interest rate lender who I knew would be “financially raping me” but would give me the card. The best example is the one I went with and that is the secured credit card from Premier Credit (by the way, that is not an affiliate link!).

Now, I will tell you straight up that this is a rip-off and the worst card ever, but sometimes we gotta do what we gotta do! You will be allowed to open an account with them in the amount up to $499 to start. I suggest $250 or $300. However, you will have very little available credit because right off the bat, you will get slammed with about $250 in fees and costs and that will probably be at about 21%-25% interest! You will then have to pay that down before you can truly use the card. So, budget in to pay at least TWICE the amount you actually want as your limit. The key here is that they will give just about ANYONE a credit card -no questions asked (well a few questions asked… haha). They report timely and if you never miss a payment, this will kick-start your credit.

There is a bit of good news for you once you get enough credit to get a secured card through your bank, and that is that most banks will give you back your secured deposit and make your card unsecured after 12 months of timely payments. They won’t tell you that, but I know Bank of America does it, and I believe WaMu does also. I will know in about 6 more months on my WaMu account.

The key thing to remember is to buy everything you normally buy but use your credit card whenever possible. That includes buying gas! When you do use your credit card, set aside that amount of money to pay at the end of the month. You always want to spend ONLY what you have in CASH at the moment. If you start spending money you don’t have, that’s when you can wind up worse off than you might already be.

Another key factor is to pay MORE than the minimum each month but do NOT pay off the card entirely. Keep a little balance so that they can make something off of you. That is viewed as twice as good as just making on-time payments. For instance, if you have a $300 limit and you have $250 on it with a $15 minimum, pay $240 of it and let the other $10 ride. That won’t cost you more than a few pennies but is viewed as an “earning account” in the eyes of creditors. That’s a good thing!

In the upcoming parts to this series, I will cover how to obtain loans with bad credit. Stay tuned!

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