Brent’s Credit and Debt blog

I talk to many people who are on a credit hunt.  They have decided that they are going to build a huge pile of credit cards, and have lines of credit approaching our national debt!

But when is more credit actually too much credit?  Creditors look at your credit, and start to wonder if you are doing what is called ‘debt pyramiding’.

When you apply for a LOT of credit, especially if you try to get it fast with a lot of applications in a short time, a big red flag is raised with a creditor.  While having a large line of credit available with a low balance might help your scores a very small amount, your creditors look at things in a slightly different light.

Creditors have noticed patterns of credit usage over time.  They know that a person that gets a lot of credit quickly may be tempted to SPEND a lot of credit quickly.  Or, you may be on the verge of financial trouble, and you are stocking up on credit lines so you can live off of credit.

When a person is trying to pyramid their debt, that can mean that they are going to by things on one card, and use a different card to make payments.  The interest starts to add up, and soon you can’t keep up with the minimum payments, much less the amount you actually owe.

If you have established credit, one of the best things you can do is manage that credit well, and let it age.  Trying to get additional credit may hurt your ability to get credit, and denials can hurt your score.

Apply for credit slowly.  Get a card, or a loan, and make sure you have no problems with it.  Use it wisely.  In 6 to 8 months, get another and go through the same process.

After my bankruptcy was filed, I made a huge mistake. I didn’t apply for any credit. In fact, I waited two long years before even attempting to get a credit card. My credit scores didn’t go up much, and I was in pretty bad shape from a personal credit standpoint. Then, I discovered the sub-prime credit market.

One of the little secrets about credit is you have to use credit in order to build your scores. If, after a bankruptcy, you don’t have any credit, your scores will stay very flat. In order to fix this, you have to get credit, and use it responsibly. Each month that you make an online payment, you will get a small boost in your scores. This small boost, over time, will give you a much better credit score. You will also have access to more credit as your scores build. You HAVE to make sure your report stays clean!

The first thing you can do is try to apply with a couple of different creditors. Orchard Bank, Household Bank, and Target will all give a person a chance on rebuilding their credit. However, they may want your bankruptcy to be discharged before they will talk to you. Orchard bank usually gives a starting credit limit of $300.00 to $500.00, and Household bank is at about the same level. Target starts most people with a $200.00 limit.

You can apply for all of these cards online. They are real credit cards, unsecured, and they all report to all three of your credit reports monthly.

If they turn you down, try for a secured card. In my next blog entry, I will give you more information about that.

Here are links for the banks I mentioned:

Orchard Bank: http://www.orchardbank.com

Household Bank: http://www.householdbank.com

Target Redcard: http://www.target.com

The important thing is to make sure you can handle the credit! If you get cards and use them irresponsibly, you will ruin your credit. Make your payments on time, and don’t go over your limits!

To learn more about how to fix your credit and keep it clean, get my e-book ‘Credit Cleanup’ by clicking the link. ‘Credit Cleanup’ will walk you through how to repair your credit, and tell you how to keep your credit clean.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

When you are going through a divorce, your finances can get a bit confusing.  ‘What money is mine’?  ‘What do I have to pay’?  ‘What do I do next’?

When I was getting divorced, I never really considered the ‘me’ part of the equation.  I was worried about the joint accounts, joint credit, and joint kids, but I didn’t take any time to consider what I was doing to myself financially.  I ended up making a BUNCH of mistakes, which I sincerely hope you can avoid.  Most of my mistakes revolved around the management of credit, but I also made mistakes regarding WHEN to get credit.

Let me give you a couple of key things to think about:

1)      A fairly hefty part of your credit scores, about 10%, revolves around HOW LONG you have had your accounts open.  A new account has less power than an older account.

2)      When you get divorced, you may not be able to keep some of your credit cards, and you may have to sell or give up your stake in cars, houses, or other assets.

Therein lies the dilemma.  If you end up getting rid of a credit card, as an example, that you have had for 5 years, you may take a hit on your credit scores.  Your house that you have been paying on for 10 years may go away.  In other words, the AGE of your credit may be reduced.

There are a few simple things you can do to fix that.  First, call your creditors and ask them if they will issue you a new card.  This will start the clock over before you have to give up your old cards.  You will still take a hit, but a six month head start can really help.

Second, go ahead and take care of yourself.  If you will be losing your car, get another one.  You can rent or buy a new house.  Just remember that you will be qualifying WITHOUT your spouses’ income, so make sure you overextend.

The simple point here is that you can open credit for yourself AT ANY TIME, as long as you qualify for it.  That can happen before your divorce, while happily married, or any time after the divorce.  You have to be able to make payments, but if you qualify the credit can be yours.

A final note:  If you have filed for divorce, or even separation, and you use your spouses’ information on the application as a co-borrower, you are likely to get in trouble with the courts.  You aren’t sharing that money any more, so use what you make and don’t risk the pusishment that may come your way.

If you are going through a divorce, you really need to read my FREE e-Book ‘The Top 10 Ways To Save Your Credit During Divorce’.  This book will guide you through some things you need to do to protect yourself as you go through this tough time.  Just click the link above to get your free copy.

If you are looking at establishing a credit history, you have an interesting challenge ahead of you. There is this dilemma, you see, that creditors want you to have credit before they wilol give you any. Why do they want this, you ask? Well, it is pretty simple, really. Creditors want to know that you can use credit responsibly.

If you are a young adult, and are going to college, credit is pretty easy to get. You will be getting applications in your books, in handouts as you walk past other students, and in the mail. All you have to do is sign, and you get a card. The credit card companies know that, as an average student, if you get in trouble mom or dad will bail you out. So you are a pretty safe bet.

After college, however, or if you choose not to go, you suddenly have to prove yourself. They want to know how much you make. How much you spend. Your waist size. The name of your neighbors cat. Where you were on June 16th, 1963 (I know, you probably weren’t born yet). They want to know how worthy you are of having one of their cards.

Here’s the deal: They want to know you understand the responsible use of credit. They WANT you to use their card, because then they earn interest. They DON’T want you to pay your card off all the time, because then they make less money. (They still make money on every transaction by charging a store to let you use your card.) So, economically, they are looking for 3 things:

1) You will have the ability to keep making payments.

2) You are unlikely to stop paying them.

3) You understand that credit is a tool, and not a way of life.

The majority of people who default on a credit card have several cards, and they are all maxed out. They originally got those cards as a way to extend their purchasing power instead of as a mechanism to keep from carrying cash. So, having too many cards, or having them maxed out, can make you look less desirable to a credit card company.

There seem to be a few key utilization limits that the credit card companies look for. Utilization is pretty easy to calculate. As an example, if you have a $1000.00 credit limit, and you have charged $600.00, you have a 60% utilization rate (600 / 1000 = .6, or 60%).

Utilization percentage break points are at around 60%, 40%, 30% and 10%. Your ‘best’ appearance to a creditor is under the 10% level, but under 30% is also a really good mark. Higher than 60% utilization is a key indicator that you aren’t managing you debt well.

Another thing they look for is if your debt is all in one card, with the rest at low balances. Creditors prefer to have your debt spread out across multiple cards rather than a single large amount. If you have taken advantage of a consolidation offer, prepare to have a lower credit score for a while.

Another thing to consider is how many cards you should get. Credit companies call having too many cards debt pyramiding, which is a condition in which you have so much credit if you maxed all the cards out you couldn’t pay them all off.

Let’s sum this up:

1) Keep low utilization amounts on all of your cards, preferably below 10% per card.

2) Spread debt across several cards, rather than running up a large amount on a single card.

3) Don’t get too many credit cards, as you will look like a bigger risk.

Regardless of your current situation, you have to have credit to build credit. So, consider taking out charge cards from retailers, or a secured card from a bank if you are having trouble getting credit.

Store cards, such as JC Penney, Macy’s and Target, are typically very expensive in terms of the interest rates. However, Target in particular has a reputation for giving people a chance to build credit. Their standard procedure seems to be to give a new customer a $200.00 limit, and then up the credit limit to $500.00 after 90 days.

Can’t get a store card? Go secured. For a secured card, you will give your bank a certain amount of money, say $500.00. They deposit that money into an account, and give you a credit card that is secured by that account. You can’t spend more than the $500.00, and the payments will come out automatically.

As your credit improves, a mix of credit can be helpful. You may want to look at a car loan, or a mortgage, to give you a nice rounded credit portfolio.  Creditors like to see this instead of just a bunch of credit cards.  Again, it is a responsible use of credit thing.

Remember, though, that taking on too much debt is dangerous to your financial health. No matter how tempting that cool new widget is, make sure you can afford the payments, especially if something like the loss of a job happens to you.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.