I Need to get Approved for Credit Card! Help! (1 Viewer)

[AjayM]

I'd agree most of the time. Ideally (and this out of reach for most people on big ticket items) you should never borrow money unless it's cheaper to borrow than to pull out of whatever your savings plan is (this includes any issues with having the amount of money in a "hard to access" place). For instance if you want that shiny new $20k car, if you can get a 0% APR loan that would be better than taking $20k out of savings (even if you are only making 2% on the account). Same as having a credit card and paying it off every month, no balance no interest payments, and you get to enjoy other "perks" (such as airline miles, cashback, etc). Basically leveraging other people's money can be a good way to save money.

Andrew

 

[Matt Gordon]

AjayM --

For the most part, I totally agree with your post. But the way I operate is that if I have to make payments on that shiny new $20k car, then the reality is that I can't afford that car. Here's why:

According to the NADA, the average car payment in the United States is about $385. If that money was put in a mutual fund averaging 12% from age 25 to 65, it would end up at around 4 million dollars. I don't like that shiny new car that much! The reason paying in cash (where you can get great discounts flashing Benjamin Franklins!) is out of reach for most people is that they're making so many payments. All the money comes in, all the money goes out, and only the names are changed to protect the innocent.

In the case of 0% car loans, they restrict that loan to 36 months, so it's a huge payment compared to most car loans. In the case of Best Buy or Circuit City "0%" deals, I can get a discount paying in cash, which costs less in the end. Six months of payments is not the "same as cash!"


See my post about the snakes. I don't want to get bit, so I don't play with them. 80% of the airline miles earned on credit cards never get redeemed. I've met a number of millionaires in my life, and not one of them could look me in the eye and tell me they did it with cashback bonuses.

But this is my philosophy, and the way I run my life. Others' experiences will vary.

Why I'm like this: I made a lot of stupid decisions with money back in my young and single days. No bankruptcies or anything like that, not even a late payment. But nonetheless stupid. So I wised up... just in time to get laid off from my job earlier this year. I now make $24,000 a year less than I did a year ago. I now know where every penny goes, because I have to be very careful with money just to make ends meet. So I'm a bit fanatical about doing the money thing right.

 

[Drew Bethel]

From BankRate:

Do's and don'ts for establishing credit
By Bankrate.com

Everyone needs credit. It's a necessary part of daily life.
Whether you're renting an apartment, buying a car, renting a car, want to get a cell phone or are ready to buy at an online auction, having credit in your name is part of the approval process.

So, how does one go about establishing credit? Here's what Steve Bucci, the president of Consumer Credit Counseling Services of Southern New England suggests.

Open a bank account. This will not appear on your credit report, but bank account numbers are often requested on credit applications.

Apply for a credit card. To avoid being denied credit, apply only for those cards whose requirements you are likely to meet. Department store or gas credit cards are usually easier to obtain than a bank-issued card with a Visa or MasterCard logo because the balances do not generally revolve.

Before applying, make sure the creditor reports account activity to the credit bureaus. As the purpose of obtaining the card is to establish credit, you want to choose a card that will help you do that. If you want to get a Visa or MasterCard, ask at the bank or credit union at which you have your account.

Charge purchases and make payments on time. Use your credit card for purchases and make sure to pay the balance on time. Once you have used the card responsibly for three months, you may want to apply for a Visa, MasterCard, American Express or Discover. These cards will allow you more flexibility in charging purchases, but will also give you more opportunity to get in trouble.

Remember a $5,000 credit limit is not $5,000 in additional income. It is only a different way to spend the money you already have.

Create a spending plan. Before you use your credit card, you will want to make sure that you are able to pay off the balance on the items you plan to purchase. Write down all of your expenses and your income and adjust your spending accordingly.

A secured card is an option. If you have trouble qualifying for a credit card, you may opt to apply for a secured card. These cards have credit limits based on a required deposit made by you into a savings account. You use the card just as you would any other credit card.

If denied credit, ask why. Ask any creditor that denies you credit to give you the reasons you were denied. Reasons may include income, employment or credit history. It is important to find out why you are denied because frequent inquiries (applying for credit) on your credit report can be viewed as a negative to a potential creditor. If you are denied credit, you can request a free copy of your credit report to see if there is erroneous data on it, and have corrections made.

Just as important as a blueprint for establishing credit are the things you don't want to do to jeopardize your credit rating.

Don't overdraw your bank account. You will be charged fees and you could damage a good reference.

Avoid missed or late payments to any creditor. That is a sure way to damage your credit rating.

Don't let anyone else borrow your credit card, debit card or in any way have access to your bank account. You are responsible for any authorized use of your accounts.

Don't give your card number to anyone over the phone or Internet unless you have initiated the transaction.

Avoid cash advances at all costs. They're expensive. You'll pay an upfront fee of 2 to 4 percent on the amount you withdraw and you'll be stuck paying a high interest rate, often in the high teens or higher. And because there's no grace period on a cash advance, the interest charges will begin to mount as soon as the money comes outs of the ATM.

 

[AjayM]

Of course nobody get's rich with cashback bonuses and if people get a "perks" card and don't bother with using the perks than that's their own fault. But go ask any of those millionaires if they have ever leveraged money and I will guarantee you that 99% of them have.

The question is not whether you should buy a $20k car or a $5k VERY used car because of what you can afford. The assumption is that yes you can afford the car because you already have the money sitting in a savings account. The question is should you use the banks money to pay for the car or your own. Basically can you do something better with the money you have in savings if you have it in your hand (buy a house, put it in your 12% mutual fund, buy a kick ass HT...errr), or is the money better off paying for the car outright?

You are much better off having a $20k car loan (at 0% APR) and going out to buy a house, then to spend your $20k savings and having to pay rent. Or in your case, you would be better off swinging a large car payment (yet never being in a negative equity situation) every month while you had a higher paying job and keeping $20k in savings than to have a depreciating asset that is paid for. Even if you put that $550/month away in savings for the 3 years of the loan you'd be about $5k behind at the end of those 3 years.

Andrew

 

[Leila Dougan]

Ajay, I agree with you very much. However, I think most people are not disciplined enough to follow through. Instead of using the bank's money to buy the car and invest their own money in something else, I think most people would get the loan and then piss away their money (extra income, right?). Of course if you're going to do that, it's still better to just pay for whatever it is outright just to avoid interest.

 

[AjayM]

Perhaps, but if somebody has enough dicipline to save up $20k, they probably have learned enough financial sense to not just blow the money and use it for something "smart".

And I'm not saying Matt's way/advice is bad either, that's FAR better than what most people do with their money. It is VERY good advice and I agree with it 100%. Basically I'm saying the same thing, but adding an option to the mix. Don't buy something unless you can afford to pay cash for it (well accept for cars and houses), but make sure that using somebody else's money for free doesn't give you a benefit in some way.

And it doesn't have to be extreme examples like above, I earn enough reward cash every year that it gives me a significant portion of a long weekend "vacation" in Orlando every year (granted living 200 miles away saves a lot of money in travel expenses), it pays for hotel, meals, maybe a trip to the parks, etc. And it doesn't cost me a dime. Ditto for airline miles, every year or two I have enough miles to go somewhere, or get a couple of upgraded tickets. The best part is that it doesn't cost me a dime for any of it as I rarely carry a balance.

Andrew

 

[Drew Bethel]

Anyway Joshua, to get us back on topic. Clearly a credit card is a great way to establish credit and can be handy in the event of an emergency. However, if you don't have the financial discipline, it can be a recipe for disaster.

 

[Gary->dee]

Say what? I've never filled out an application for a card and had to supply my bank account number. That's just shady in my book. If someone asks you for your bank account number I wouldn't give it to them. Be wary of giving out your social security number too, although it's standard practice to supply that on credit card applications.

 

[Joe D]

There are people in this world that can have a credit card and pay off the balance at the end of each and every month, and there are people that can't.

Which type of person are you?

Intelligence, education, income, etc have nothing to do with meeting the above criteria. It's all about disipline.

I buy everything with my credit card, and at the end of the month I pay it all off. I'm building pretty good credit this way and I don't have to write out a lot of checks.

 

[Gary->dee]

I don't know if anyone has mentioned this or not, but another good way to build up your credit history is to transfer balances from an old card to a new card you may be applying for. Generally it's been my experience that credit card companies are more accepting of someone if they're transfering a balance to them from another card.

 

[Chris Lockwood]

I'm surprised to read this, since I thought credit card companies loved to issue cards to college students to train them young.

When I was that age I went the store credit card route. That's a good one if you can't get a major card.

I'm amazed nobody here at HTF suggested a Best Buy store card. They usually have the 90 days same as cash deal, which involves getting a store credit card. So if there's some item there you're planning to get anyway... go that route. I'm not saying go buy a $500 TV you don't need just to get some credit. But say you had a family member or friend who was going to buy an item like that- if you could get the credit, you could buy the item, then have your friend pay you in cash or check. Put that right in the bank so you'll be able to pay the bill by the deadline.

I bought an $1800 PC from CompUSA going this route- didn't have to pay for it for 18 months. No payments, no interest. I had the cash in the bank to buy it at the time, but if someone is going to let me pay 18 months later at no extra cost, it would be STUPID of me to pass on that deal.

I have to disagree with these people saying don't get a credit card. Try renting a car without one, for just one example. This advice is like saying don't have knives in the kitchen since you might cut yourself. No, just be careful when you use the knife!

Avoid the secured card route if possible. That's just borrowing your own money back. Anyone who thinks those cards are a good idea can send me $500, then I'll send some of it back to you.

I put everything possible on credit cards- I get points I can redeem for stuff, I get to pay 30-60 days after buying, don't pay interest since I pay the bill every month, and don't have to carry much cash. There's no reward for paying cash. I can get at least one free DVD a month this way just from putting stuff I was buying anyway on a card.

 

[Ricardo C]

I treat my CC as if it were a check: I use it when cash won't do (online purchases and such) but I make sure I'm good for it before I use it.

 

[Malcolm R]

Just make sure you're using a card that doesn't charge balance transfer fees or you could end up paying a significant charge.

 

[Gary->dee]

Right, well the best case scenario in a balance transfer situation is no balance transfer fee and 0% interest for a year. That way you can knock out the majority if not all of the balance without any added interest for a while. As far as I know it's the best and fatest way to build credit and have companies constantly mail you for more cards. At least that way you get to pick and choose rather than be forced to accept a bad deal.