Friday, August 29, 2008

If It's Been A While, Call For a New Credit Card Agreement

I'm a real animal when it comes to devouring the credit card agreement that arrives with my new credit cards. It's so important to know the ins and outs of the agreement. Unfortunately, a lot of people never read it. Instead, many people toss the card agreement in a drawer, throw it in the circular file, or simply shred it. That's a mistake. As a cardholder, you should know exactly what you're getting yourself into. You can only do that by reading the credit card agreement.

Here's a question for you: do you have an obligation to report a change in your financial condition to the credit card company? In other words, if you take a major pay cut at work (or get a big raise), what obligation do you have to update the credit card company? That's something that could be spelled out in your credit-card agreement. At Washington Mutual, for example, the card agreement says that "your income may be a factor, so you should be sure to keep us informed of any increase or decrease in your income." At USAA, the company only says that "you will provide updated financial information upon our request." It doesn't say whether you should call sua sponte if your condition changes. Citibank doesn't address the issue at all. I wouldn't even know the answer to this question if I hadn't read the credit-card agreement.

I look at the credit-card agreement as a road map. A legal road map. All of your rights and responsibilities are spelled out in the document. I still remember a television show a couple years ago (I want to say that it was 60 Minutes). Credit-card users were being interviewed about credit-card practices. When the subject of "universal default" came up, not a single person realized that a card company could raise the interest rate on their card because of a late payment that gets reported to the credit bureaus by another credit-card company. Had they read their card agreements, they would have known. Alas, most card agreements go unread.

Still, if you're anything like me, you received some of your cards long ago. Even though I still have some of those old credit card agreements (I file them), I imagine that some of them are too ancient to rely on. In fact, I know for a fact that some of the new card agreements have dropped the universal-default clause. They've changed other parts of the agreement, too. I know I've received letters in the mail during the years -- updating me on changes to the card agreement -- but it's a hassle to have a bunch of supplemental letters sitting in a file. Plus, did I actually file them? Or did I shred them? I can't remember.

Which gets me to the main point of today's story. If it's been a while since you got your card (a year or longer), I recommend that you call your card company and request a new card agreement. I recently requested a new card agreement from a half-dozen card companies. Most of them were more than happy to send me a new agreement. Only BMW gave me a problem. Initially, it said that it doesn't send out new agreements to existing cardholders. Oh, really? After a couple of questions from me (I wasn't taking no for an answer), the customer-service representative said that I could get the agreement from BMW's Web site. Not true. I quickly informed the representative that no such agreement was available (I checked before I called). After being put on hold for a minute or two, the representative said that a new agreement would be at my house within seven to ten business days. Don't allow a reluctant or lazy customer-service representative to deny your request for a new card agreement.

I can't emphasize enough how important it is to get comfortable with the credit-card agreement. This is where you'll find the terms and conditions that govern your credit-card relationship. So, read it. I suspect that most people hate the card agreement because they think it's tough to understand (in some places it certainly is; after all, it's written by lawyers). Still, that's not a good enough excuse for chucking the agreement in the garbage. Although some of the agreement can be tough to understand, most of it really isn't. Just read it carefully, one clause at a time.

In the near future, after I get my hands on some of my new card agreements, I will likely do a series of stories -- nuts & bolts style -- demystifying the card agreement. I'll likely go through a card agreement, step by step, right here at I figure that a lot of my readers have never even read a card agreement. My stories will be of particular use to them.

In the meantime, I'd recommend that you call the number on the back of your credit card. Get a customer-service representative on the phone and then request a new card agreement. If you don't like the phone, feel free to email your request to customer service. Most card companies are happy to entertain your request through email (though you'll still have to wait seven to ten days before it arrives in your mailbox). You should be able to find an email address on your card company's Web site.

Regardless of how you do it, though, be sure to do it. Indeed, just as you wouldn't use an outdated playbook in football, you shouldn't be working from an old credit-card agreement that relates to your credit card.

Call today.


Thursday, August 28, 2008

Credit Plan Stalemate: She Wants to be Fiscally Responsible. He Doesn't. Now What?

I'm an avid chess player. When I got an email from a reader about a week-and-a-half ago, I immediately thought of chess. Here's the situation. She wants to live by a budget. She wants to have good credit. She wants to keep her scores solid. She, in a nutshell, wants to be financially responsible. He, however, wants none of that. He's not interested in making sure that the finances are all buttoned up. He's simply not willing to do whatever it takes to make the family unit stronger when it comes to all things financial. Which leads her to this question: "How can I convince him to clean up his act and do things right?"

In chess, we call this a stalemate. No one is going to win here. You've got one person who is trying to keep the ship on course and you've got another person trying to capsize it at every turn. Progress is not being made. If one of the parties simply can't be convinced that being responsible with money and credit is the way to go, then it seems to me that you not only have money problems, you could also have a communication problem within the marriage. Given that I don't do marriage counseling, I'll have to leave that to someone else. But I do write about credit.

If this was my situation, I would begin to separate my credit life from my spouse. Sad as that sounds, the spouse is leaving you no choice when he or she is determined to undermine your best efforts. I'd make sure that I had credit cards in my own name. I'd be very worried about having joint accounts. I'd also explain, to the spouse, why I am making these independent moves. Eventually, I'd say, we're going to need a bigger house. We're going to need another car. We may need to get a PLUS loan for little Johnny's education (which will require that a parent have good credit). In sum, the moves we make now will impact us down the road. If, dear spouse, you're not willing to get on board with a sound financial strategy, then I'm forced to take these matters into my own hands.

Really. Let's face it. What else can someone do here? My reader relayed a specific example of what she's dealing with. She recently noticed a bunch gadgets popping up around the house. She normally wouldn't ask about the things that were being accumulated, but there were quite a few of them. Curious, she asked him how he was buying all of this stuff. Turns out that he recently applied for a new credit card, without her knowledge. Worse, the card was nearly maxed out. The kicker? The interest rate on the card is nearly 25 percent. Yikes.

I can see why my reader is frustrated. Need another anecdote? My reader, after acquiring a load of credit knowledge (a few years ago), tried to explain the virtues of having good credit to her spouse. She explained the power of having a strong FICO score. She talked about carrying balances, and how expensive that can be. Eager to help her husband, she told him that he could transfer his high-interest balances to her cards (where the interest rates were significantly lower). All he had to do was promise to keep the balances on his cards low from then on. He wasn't interested. She explained that they would need to keep their scores up if they ever planned on getting a new house or car. Sorry. No thanks.

As you can see, my reader is being sandbagged at every turn. What should she do? What can she do? Short of getting a divorce, these two people are hitched financially. His moves impact her. His irresponsibility makes it difficult for the couple to move ahead. His behavior has turned her into a firefighter. Just when she gets one fire put out, another one gets started. At some point, is she financially doomed?

I'd love to hear from my readers on this one. If you have experience with this kind of situation, feel free to shoot me a note. You can either comment (at the end of the blog) or you can email . I'll do a follow-up story if I get enough responses.

In the meantime, reader of mine, I can only wish you well. Do what you can to keep your own credit strong. And continue to work on your husband. Hopefully he'll see the light and turn things around.


Wednesday, August 27, 2008

Your Credit is Already Shot. The Question now is: Where do you go From Here?

This is a different kind of story for me. My usual story assumes that you're already on an upward trajectory. Today's story, though, assumes that your credit is thrashed, scraping the bottom of the barrel. Still, sinking to the bottom is easy. Working your way back is where the tough work is. Which brings us to today's story.

What do you do if your credit report is littered with a bevy of negative accounts? Do you try and dig your way out by grabbing a host of tradelines (accounts) that will overwhelm the amount of negative accounts that you have? Do you just try and grab a few accounts that you can nurture while the negative accounts age? In a lot of ways, these are philosophical questions. For those at the bottom right now, I think it makes a lot of sense to sit back and think about the path you want to take.

To be sure, prime lenders aren't going to be knocking your door down with new credit offers. With a host of bad accounts spread about your credit reports, you're not in a position to be picky when it comes to new credit. But you do control how many new accounts you're going to ultimately add to your credit report. Fact is, there are a lot of options out there for people with bad credit. Indeed, there is no shortage of creditors out there that will give you a new card -- equipped with usurious interest rates and pathetically low credit limits. It may not be the kind of credit you want, but it's something.

Considering how important new tradelines are to the credit-repair process, deciding how many to add is an important question that must be asked -- and answered. I think there are three ways that you can play this.

One, you can get a plethora of new accounts, thereby overwhelming the negative accounts. Two, you can get a handful or less, and nurture them as the negative history ages away from the credit report. Or, finally, you can do nothing. I don't think option three is a very realistic option, so I'll discard that from my choices. Option three, just for the record, is a bad choice because you'll be left with nothing when those bad accounts finally age off your reports. You'll be left looking like a credit beginner when that happens. So option three is a bad choice.

Option one, adding a bunch of accounts, whether you need them or not, is tempting. It's tempting because you'll want to add new credit limits that will help your utilization ratio. The more limits you get, the easier it will be to keep utilization low when you do use the credit cards. Given that 30% of the FICO calculation consists of utilization, getting a lot of additional credit seems appealing.

Adding a lot of accounts also makes sense because, as I have preached many times, having options is a good thing. If one of your creditors does something to irritate you, you can always sock drawer the card and put it in time out. So, having options is a good thing. And it's another reason why getting more than a handful of cards could make sense. Moreover, there's a chance that adding a lot of new credit limits could result in a short-term approval, an approval that could hinge on a higher credit score. Of course, there's no guarantee that a bunch of new accounts would actually result in a score increase. Those new accounts could end up costing you points instead -- as inquiries and new accounts drive your credit score down. It's a crap shoot at best.

Sub-prime accounts strewn about the credit report may haunt you later

However, there is also a downside to grabbing a bunch of new cards. Because your credit sucks, you're going to be offered a lot of low-limit cards. What's more, you're going to be offered cards -- by sub-prime lenders -- that aren't likely to grow with you over time. Additionally, you're likely going to apply for cards that you'll never use (especially if you're applying solely for utilization purposes). The risk in all of this is that you'll end up (way down the road) with a bunch of cards that scream sub-prime. And I mean scream. Even when the bad accounts age off, you'll be left with a slew of cards that you'll probably regret having. In a nutshell, your credit report will look like credit road kill.

Surely, though, this person's credit score will be significantly higher when those bad accounts finally age off the credit report. It's at this point that I worry most about the choice -- made long ago -- of adding a bunch of lackluster tradelines to the credit reports. Now that the scores are up, and the bad accounts are gone, you're in the market for some prime accounts. But will the prime lenders want to play ball with you? Is Chase, Bank of America, Citibank, or American Express really going to be enamored of your clean credit portfolio?

What's more, even if creditors are willing to give you an approval, what kinds of credit limits will you get? If higher limits beget higher limits, then I imagine lower limits beget lower limits. Indeed, why should American Express hand out a nice credit limit when so many of my other creditors only trusted you with $300 and $500 limits?

I'm also worried about creditors wondering why the credit report is littered with all of these sub-prime accounts that were acquired years ago. If your credit history is subjected to a manual credit review, I don't think there's any question that an analyst will wonder if something extremely negative occurred during your past life. Quite frankly, that's not the kind of scrutiny that you should welcome. I'd be worried that an approval (assuming you got one) would result in a credit limit that doesn't work very well.

I have a saying about higher credit limits begetting higher limits. I can extend that thinking to quality as well. Quality tradelines beget quality tradelines. Credit card companies aren't difficult to understand. They're like lemmings in a lot of ways. If your card portfolio is full of high-limit, quality names, there's an excellent chance that you'll get a high-limit approval from the credit card company that is evaluating your application. Creditors follow the leader. Because other lenders have showed you love, new lenders feel more comfortable showing you love. My own portfolio is living proof of that.

Fewer accounts at the beginning create less stress at the end

So what about option two? Would getting fewer accounts, that you use on a regular basis, be more beneficial once all of the negative accounts age off the credit report? There is no definitive answer here. And I can't, with an assurance, argue that this is definitely the correct way to proceed. Still, you read this blog because I take positions. You'd be unhappy if I waffled and vacillated on tough issues. Therefore, I'm going to take a stand and argue that option two makes the most sense to me.

At the outset of the credit-repair process, nothing comes easy. I'll acknowledge that right up front. Quality approvals will be difficult to come by. Still, I'd rather be selective when it comes to the sub-prime lenders that I choose to do business with. Although I'd be pigeon-holed into the same kind of approvals that our option-one friend is saddled with, I'd still try to be as methodical as possible when applying for cards. I'd be looking for creditors that have both a sub-prime arm and a prime-lending arm.

Consider HSBC, for example. HSBC offers the Orchard card, a sub-prime card that plenty of people grab when they're rebuilding. It's not the kind of card that people with good credit would want, but it has its place when the borrower is not in a position to be choosy. The good thing about the Orchard card, though, is that it's underwritten by a lender that also offers a host of prime offerings as well. HSBC underwrites the Saks Fifth Avenue World Elite MasterCard, for example. That's a great rewards card that prime borrowers would be extremely interested in. Indeed, I have the Saks MasterCard in my own credit portfolio. Thus, if a borrower manages to get an Orchard card, and shows a history of using the card responsibly, there's a better chance that a prime offering from HSBC will be extended to this person when the credit reports finally look better.

There are other lenders out there that cater to sub-prime borrowers as well. Juniper and Washington Mutual, for example, are both known to be bankruptcy friendly. They're both willing to overlook blemishes and bad marks that might be on the credit report. The good thing about these particular lenders is that they're also appealing to prime borrowers. Indeed, just as I have the Saks Fifth Avenue World Elite card, I also have the Washington Mutual Platinum MasterCard and the Juniper US Airways credit card. In other words, these two lenders offer cards that appeal to sub-prime and prime borrowers alike. Sub-prime borrowers may not receive initial limits that are hefty, but I know people who have grown their limits over time with both of these card companies. Again, because you're not in the best position to dictate terms, you'd probably be content to add these kinds of tradelines to your credit history.

In addition to working with lenders that play to both crowds, potential lenders won't be able to tell -- by looking at your credit report -- if you have a subprime or prime offering from the previously-mentioned credit-card companies. They all look the same when HSBC shows up on your credit report. Ditto Washington Mutual. Potential lenders simply won't be able to tell if you were a subprime customer once upon a time -- or if you were always prime.

In addition to adding credit cards, there is also the option of adding a secured card -- provided that you can find a bank that's willing to give you one. If you've got some cash handy, you can always look for a secured credit-card option. There are plenty out there; you'll have to do your homework to find one that's willing to work with you. Not every sub-prime borrower will have a lot of loose cash laying around (if they did, they likely would have paid their bills), but not every sub-prime borrower is broke, either. I know plenty of people who have high incomes but have terrible payment histories. When they get serious about credit repair, getting a secured card is a wise option for these kinds of borrowers. Anyhow, don't forget about secured cards when you're beginning credit repair. There is no guarantee that a lender will work with you, but it's a great option if someone is willing to give you a chance.

As you can see, there is no "right" way to rebuild your credit history. There are several ways you can do it. Given the choice, though, I'd likely opt to pick up fewer accounts at the beginning. They're easier to manage (which is something that should appeal to people who've had a tough time managing their credit in the past). They'll be less conspicuous when all of your bad accounts fall away from your credit report. And you'll be more likely to use the cards even after you've graduated to cards that were only a dream to you many years back.

I can understand why people want to bury their past with a bunch of positive tradelines. What worries me is that you won't be able to hide all of these sub-prime accounts when your bad accounts fall off the report. I think it's going to be an uphill climb trying to overcome not just the bad history, but the sub-prime history that follows.

I believe that fewer tradelines -- in the beginning -- will yield more fruit in the end. Still, you'll ultimately have to figure out what's right for you.

Best of luck in whatever course you take.


Tuesday, August 26, 2008

Thinking About Becoming an Authorized User? Know What You're Getting Into

Late last month, when Fair Isaac announced that it would not scrap authorized users from its formula when it rolls out FICO 08, many consumers breathed a sigh of relief.

For the uninitiated, an authorized user is someone who is authorized to use another person's credit card for purchases. The credit card company issues a card in the name of the authorized user, but the authorized user is not legally obligated to pay for any charges incurred on the account (except that American Express has some language in its card agreement (story link here) that makes me think some authorized users could be on the hook as well). Instead, the primary cardholder is on the hook for any and all charges. If the authorized user makes purchases, but fails to pay, the primary cardholder must pony up the money.

For years, consumers have benefited from authorized-user status. Authorized users benefit when creditors submit account information to the credit bureaus because the good payment history and credit limits of the primary cardholder inure to the authorized user's credit report. If the primary cardholder has a $50,000 limit on his or her Chase card, for example, that information will appear on the credit report of the authorized user. If that Chase card has always been paid on time, that excellent payment history will be reflected on the authorized user's card history as well. If that Chase card has a lengthy history, that information will be transmitted, too. In sum, authorized users, who hitch their wagon to a responsible primary cardholder, will benefit when the card company reports the authorized-user information to the credit bureaus. (By the way, not every credit-card company reports authorized-user information to the credit bureaus. If you're thinking about becoming an authorized user, you should check with the creditor ahead of time to make sure they'll report the account.)

To be sure, there is also a potential downside when it comes to being an authorized user. If the primary cardholder misses a payment, that information will get reported on the authorized-user's credit report as well. If the primary cardholder maxes out the credit card, that heavy utilization will be reflected on the authorized user's credit report, too. In other words, the bad behavior of the primary cardholder can have a negative impact on the authorized user's FICO score. That's why you never want to be an authorized user on an account that is routinely maxed out or has a spotty payment history.

What's more, if the account is brand new -- opened by the primary cardholder recently -- you'll also get dinged if the age of the new card drags down the overall age of your own credit history. As you can see, being an authorized user is not without its potential pitfalls. So be smart when it comes to being an authorized user. Ditto for primary cardholders. Don't allow someone who is irresponsible to be an authorized user on your account. If the authorized user runs up a huge balance, you'll be on the hook for those charges.

Realizing the potential upside to being an authorized user, it's not surprising that people abused the system. Instead of spouses, the natural beneficiary of the authorized-user system, showing up as authorized users on primary accounts, people started renting accounts to complete strangers -- people who were totally unrelated to the primary cardholder. People who had bad credit could "rent" accounts from people who had awesome credit histories. Indeed, if you could find someone with an old credit card, who had a spotless credit history, and a high credit limit, you could get a score benefit if you could get yourself named as an authorized user on that person's account.

Quick to make a buck, credit-repair companies popped up all over the place, peddling "seasoned" tradelines that could be "rented" by people looking for a score bump. The practice made people look more creditworthy than they actually were, which made it more difficult for lenders to assess the credit risk of these authorized users.

By June of last year, Fair Isaac, the creator of the FICO score, had seen enough. Intent on rooting out the abusive practice of so-called "piggybacking," Fair Isaac said that authorized-user information (of all kinds) would not be included in its new FICO 08 scoring model (link here). The trouble, of course, is that legitimate authorized users in the United States, which Fair Isaac estimates at more than 50 million, would be harmed in the process.

Fast forward to last month, when Fair Isaac reversed its decision to exclude authorized users from its scoring model. In a press release, Fair Isaac said that its scientists figured out a way to include legitimate authorized users while weeding out those trying to game the system. The company wasn't terribly specific on how it would accomplish its goal, saying only that it has created a technology "that will reduce any impact on the FICO 08 score from intentional tampering, while allowing the scores of spouses and other genuine authorized users to benefit from their shared credit experience." Fair Isaac's assurances notwithstanding, it will be interesting to see how Fair Isaac's FICO 08 handles spouses with different last names. Or how it handles children who no longer live at home -- who've changed their last name because of a marriage. Let's just say that I'm taking a wait-and-see approach to Fair Isaac's latest tweak.

Meanwhile, Fair Isaac said the decision to include authorized users in its model would help lenders comply with the Equal Credit Opportunity Act of 1974. Under the Equal Credit Opportunity Act, lenders are legally required to consider accounts that both spouses are permitted to use. See 12 C.F.R. §202.6(b)(6)(i). If Fair Isaac had eliminated authorized users from its FICO 08 scoring model, it would have been difficult for lenders -- relying on the new scoring model -- to comply with the Act. As a result, Fair Isaac had no choice but to find a solution. If it didn't, then it risked losing business.

Meanwhile, VantageScore, a scoring model developed by TransUnion, Experian, and Equifax, has never included authorized users in its scoring formula. I imagine that if the VantageScore ever becomes widely used -- at this point it's a bit player at best -- it, too, will be forced to reconsider how it treats authorized users in the scoring formula.

Now that you understand how the system works, you can make an intelligent decision on the authorized-user question. Should you become an authorized user on your wife's account? What would the utilization on her account do to your score? Is her credit card maxed out? Is it lightly used? Is it a new account -- just recently acquired? Would her new account reduce the average age of your credit history? Does the account have a history of late payments? Is the authorized user responsible enough to not run up huge bills that can't be paid?

These are just some of the questions you'll need to think about if you're contemplating an authorized-user relationship.


Monday, August 25, 2008

College Students: Live Like a Student Today or Live Like a Student After You Graduate

If I had one wish right now, it would be this: I'd make summer last forever. Make that two wishes. I would cancel class for today, too. Alas, summer is ending and I do have class this morning. Still, I thought I'd leave a little note for all of my college-bound readers before I head out the door. (Oh, and for all of the parents reading my blog: be sure to forward this to any college student that could use the advice.)

When you arrive on campus this week or next, you're going to get pitched by credit-card companies who would love to make you a customer (and debtor) for life. But do yourself a favor: if you do get a credit card, use it sparingly -- and pay the monthly balance in full.

In 2004, more than three-quarters of undergrads had a credit card, according to a study conducted by student-loan provider Nellie Mae. The average outstanding balance on undergrad credit cards was $2,169. Nearly 25% of undergrads had credit-card debt in excess of $3,000. More than half of undergrads said they received their first card at 18 years old, according to the study, which can be read here in its entirety.

Meanwhile, one in ten students, by the time they left college or graduated, had more than $10,000 in credit card debt, according to a survey released last week by, which commissioned the survey, and Zogby International, which conducted it. Nearly 25% of the students had $5,000 or more in credit-card debt, according to the survey.

I'm all for establishing a credit history at a young age (see a piece I recently did here). But I am only interested in establishing that history without accruing a bunch of debt in the process. To avoid falling into the debt trap that many of your college-aged peers will succumb to during the next four years, you need to set up a plan early in your college life.

Create a budget. One of the biggest problems people have is that they don't know where their money is going. It's easy to spend money when you're not keeping track of it. I'm a list guy. Make a list and stick to it. If you create a budget you'll be less likely to spend money on frivolous items.

Get a job. Yes, having a job in college is no fun. But graduating with a lot of credit-card debt is even less fun. During college I was a teaching assistant and a writing tutor. I didn't work a lot of hours (less than ten hours a week), but it was enough to cover the incidentals that I would have been tempted to put on a credit card.

Become an authorized user. If you're trying to establish a credit history, see if your parents will make you an authorized user on one of their credit cards. Tell them that you'll only use the card for emergencies. What's more, promise to pay them back at the end of each month. Consider this a training period for you. Over time, as you develop your own good habits, you'll be able to get a credit card of your own.

Read this blog. As self-serving as that recommendation is, you should be reading material that will increase your credit knowledge. But even if you're not reading my blog, make sure you're doing something to educate yourself. When I was in college, I didn't have a clue when it came to credit. Today, there is absolutely no excuse for being ignorant. If you're not using the resources that you have at your disposal, then you're a fool.

Keep track of credit cards with a spreadsheet. I can't emphasize this enough. It goes hand in hand with keeping a budget. Nothing hurts your credit more than late payments. Life is so much easier when you can keep track of credit-card payment dates and balances in one centralized place. Get in the habit of tracking your credit-card details at a young age; by the time you graduate, it'll be second nature to you.

Get in the habit of visiting your credit-card company's Web site on a regular basis (I do it every day). That way you'll be able to see if there are any unauthorized or fraudulent charges that don't belong to you -- and you'll be able to do it in a timely manner. I've also found that as I look at my balances online, it makes me consider how much money I've spent. I tend to spend less money when I can see my real-time balances. You'll have to see if it has the same effect on you.

Avoid eating out. I can't tell you how much money I wasted in college by eating out. Now that I am older, I wish that I had been smarter and ate at home. For you guys out there, learning how to cook is a skill that will also serve you well in your dating life. Trust me. It's easy to take a date out to a restaurant. But if you are a skilled cook in the kitchen, well, let's just say that you'll thank me later. Enough said. And that goes for the gals, too. The fastest way to my heart is through my stomach.

Use your card for needs -- not wants. Because you'll be keeping a budget, this one should fall right into place. I imagine that a lot of charges that get put on credit cards are for wants. Keep balances down, though, by reversing that. Use the card only when you are buying a need. There's an old saying: live like a student while you're in school or you'll have to live like a student after you graduate. Take that heart.

Pay in full. I imagine that this one could be tough to follow -- especially if you don't have a job, don't have much in savings, and don't have a lot of family help. But here's what I would say to any student thinking about getting a credit card: if you can't pay your monthly balance in full, you should not get a credit card. It's really that simple. You should treat a credit card bill much the way you treat your rent payment. If you don't pay your rent payment every month, you'll get evicted. Treat your credit-card payment the same way.

College is where you accumulate education and experience. It's not where you go to amass a boatload of credit-card debt that will haunt you long after you've graduated. Unfortunately, some students didn't get the memo. Do yourself a favor and develop good credit habits today. Use your cards sparingly while you're in school. And be sure to pay all of your credit-card bills in full each month.

If you do, you'll be glad you did. I promise.


Friday, August 22, 2008

Having a High FICO Score is Nice -- But it's Just a Piece of the Financial Puzzle

(Editor's note: this interview was the final installment of a six-part series that ran during the week of August 18-22, 2008. To get the most from it, be sure to read my introduction article, which can be found here.)

CM: Tell my readers a little bit about yourself.

I am 50, male, was a software architect/developer for most of the last 20 years but am currently unemployed after having been "downsized," but for a couple of short-term contracts that I have worked on in the last couple of months.

I live in the Philadelphia area. I prefer not to use my real name publicly on the Internet, so you can call me "Comic Dog."

CM: Comic Dog it is. So, what are your FICO scores, Comic Dog?

I last ordered all of my FICO scores nearly a year ago. Experian [was] 817, Equifax [was] 810, and TransUnion [was] 803. That was the first time I got triple 800+ scores; however, I had an Experian score of 835 in April 2006.

CM: When did you get your first credit card?

I got a Citibank card in 1988. I was surprised to get a "preapproved" invitation at the time considering I was barely making ends meet, but I sent back the form and they sent me the card and I've had Citibank cards ever since.

CM: How many credit cards do you have?

About 20. A few of them might not truly be active. Men's Wearhouse wanted to run my credit as if I was applying for new credit in order to use the card I already had with them, and that still reports to this day as active. I declined. There is no reason I could see that they couldn't do this with a soft pull on an already existing card, other than their own incompetence.

Other than a Kohl's and a JC Penney's card, all of my other cards are Visa, MasterCard, American Express, and Discover.

CM: How did you learn about credit? Who taught you about credit?

I don't recall ever getting any credit education before actually having and using credit. At least not anything directly related to managing credit. I learned how to amortize and understood how to calculate present values and future values of money, basic economics stuff. But that's only peripheral to what I would consider credit education.

My mother did co-sign a loan for me when I was about 20, and made sure to stay on my case about never making a payment late, and made it very clear to me that just because there was a "grace period" of about 15 days on each payment, that using the grace period was still being late. And I think she was right to stay on my case like that.

But other than that I learned by trial and error.

CM: What advice would you give to someone just starting out in credit?

Having credit gives one the power to live beyond one's means. It is up to you to have the discipline not to do that. Also, keep your utilization percentage down by always having enough excess available credit, as long as you don't have to pay fees for maintaining those credit lines.

CM: If you knew then what you know now, what would you have done differently in your credit life -- if anything?

I have never, as far as I know, made the kind of credit mistake that would have caused me to have poor credit scores, even when I had never seen my credit scores. But I did dig myself rather far into credit card debt, and it took several years to dig out of that. And that could have been mostly avoided.

CM: What habits have allowed you to maintain such high scores? What do you think the most important thing you do is?

The most important thing is to pay your bills on time, or at least not 30 days late (I've sucked up more than a few late fees in my time, mostly due to carelessness, but most of those were back in the days where you had to actually write checks and mail them in and allow enough time for them to arrive. But never 30+.) Get online Bill Pay, for crying out loud. Use Yodlee or some other system that allows you to electronically keep track of what you owe and when it is due. These weren't available when I started digging out but I use them all the time now. It is a lot easier to stay on top of things these days.

Try to get credit lines totaling 2 to 3 times annual income so that you can keep your utilization percentage down even if you are cycling a lot of money through cards. Keep in mind that it is a lot easier to get credit when you don't need it that much. Credit will be a lot harder to get once you are using most of what you already have. And don't close unused credit lines (assuming you don't need to and they aren't costing you any fees), for the same reasons.

[Editor's note: I've written about getting credit when you can -- not when you have to -- in the past. I also wrote a recent column about the impact that closed accounts have on FICO. Those stories can be read here and here.]

CM: If you have a lot of credit cards, tell us why you feel the need for all of them.

I have a lot more credit cards than I actually need, though, as I mentioned before, I like to have excess available credit for the purpose of maintaining a low utilization percentage at any given time, regardless of what I cycle through my cards. I took most of my cards out in the 1990s when I had difficulty digging out of debt and was taking up balance transfer offers right and left as part of my overall strategy for getting out of debt. I had no idea at the time of the concept of utilization but felt that I should get more credit while I could, before the credit card companies realized what financial difficulty I was in.

I do think it is important to have several alternate choices for credit card providers. You don't want to be dependent on any one provider. You could get rate-jacked, or declined somewhere for some security reason or because someone put a ginormous "hold" on your card, or maybe even wind up somewhere that doesn't take Amex. Or only takes Amex. Or maybe you want to use a card for a balance transfer, in which case you don't want to use it for anything subsequent until that balance transfer is paid off.

CM: What is your favorite credit card? Why?

I collect US Airways miles and I currently am using the Juniper US Airways MasterCard. But I will cancel that card (or transfer the credit limit to a different card) once the "no annual fee" period ends.

CM: Have you ever been late on a credit card payment? If not, how do you stay on top of your bills?

I am not the most organized person on the planet and as I mentioned before I heavily recommend using Yodlee or something like it; and online Bill Pay. To my knowledge I've never been more than 30 days late on a credit card payment. My credit reports, since I started seeing them, have never reflected any late payments, in any case.

CM: Why do you think people run into trouble with credit cards?

This doesn't apply to everyone, and I don't want to get too judgmental here, but the most common problem is that people live beyond their means and buy things they don't need. They don't really think things through to figure out how they are going to pay for what they charge.

There are also a shocking number of people who don't realize that paying bills on time is important to one's ability to obtain future credit. They figure that if they pay up later, with the late charges and interest, that all is going to be well.

But sometimes one's financial situation changes radically and we're not well-equipped to deal with it, due to health, employment changes, large unexpected costs, and it's a lot harder to find fault with that. And sometimes it's even one's ex-spouse not paying bills that they are legally obligated to pay per the divorce decree...that gets the other spouse in trouble. We see that all the time here.

CM: When did you first become aware of FICO scoring? Did you ever think that you wanted to reach a certain goal with your scores? In other words, did you always want to have an 800+ score?

I got my TransUnion FICO score shortly after these scores first became available for the consumer in 2000. It was 707, I think. I was very pleased with that score at that time. That score was good enough for me to get any credit that I needed at that time. (Plus, as it turned out, TransUnion has generally always been my lowest of the three scores.) I had almost dug out of credit card debt (finally did so in 2001). That was a far more significant achievement in my view.

I bought all three scores in the summer of 2001 upon paying off all my credit cards and my scores were all 720+.

Somewhere around 2002 I became interested in how credit scoring worked and tried to learn all I could about it. I think I was kind of spooked that I had managed to do so many things right when all I could remember was being under severe stress for several years and constantly struggling to dig out of debt while always worrying about being socked with some unexpected expense that would screw up my plan for the month. So I was trying to understand why the credit reporting agencies considered me a good risk. Because I had always thought of myself as teetering on the brink. For some psychological reason I just needed to understand this.

Eventually my hunting around for info led me to, because this was one of the only places where people were informed and talking about it.

And I did briefly get interested (and semi-obsessed) in pushing my scores over 800, but it was always a secondary goal. Getting out of debt, including the house by age 50, was a promise I made to myself and told no one about for over 10 years, until I actually did it. That is what I am proud of far more than FICO scores.

CM: What does having a high score represent to you? What does it do for you? Would you be just as happy if your score was 720? How about 680?

It is good for the ego and allows me to pontificate with the credibility to suggest I'm some sort of expert. But as a practical matter, having 800+ as opposed to 720+ doesn't mean much if anything. At some point if my score were to go down I would risk being rate-jacked, and I wouldn't like that. But I see no reason to spend much time worrying about my scores at this point.

CM: Any parting words for my readers? Some words of wisdom that you care to share?

It's great to have high scores but it's more important to secure your future, to get out of debt, to prepare for unexpected situations and for one's retirement. High scores can be helpful to this end but they are only a means to a more important purpose.

CM: Mr. Credit Dog, thanks for everything. I am sure my readers will enjoy your comments.


Thursday, August 21, 2008

Who Needs FICO 800? Scores of 760 to 799 Work Just as Well

(Editor's note: this interview was the fifth of six installments that ran during the week of August 18-22, 2008. To get the most from it, be sure to read my introduction article, which can be found here.)

CM: Trevor, feel free to tell my readers a little something about yourself.

My name is Trevor. I’m a 27-year-old male residing in the Twin Cities, MN. Along with family, I own and manage an established marketing company. Although I enjoy traveling for business and pleasure, I look forward to coming back home to enjoy everything Minnesota and its seasons have to offer. In the summer you’ll find me with friends on the lakes boating/sailing, waterskiing and swimming. During the winter I’ll be snowboarding and downhill skiing. Other favorite hobbies include painting, drawing, tennis and biking.

: Trevor, what are your FICO scores?

My scores range from 768 to 799.

: When did you get your first credit card?

While I was still in high school, my parents added me as an authorized user on a few of their cards – American Express, MasterCard and Visa. I continued use those cards exclusively through the first couple years of college. Then one day while in a Barnes & Noble, I spotted a credit application for the store’s MasterCard offered by MBNA. I decided to apply and was approved. It was the beginning of my credit independence.

CM: How many credit cards do you have (all types)?

I currently have 43 open cards, both personal and business. This includes a mix of Visa, MasterCard, American Express and Discover.

CM: How did you learn about credit? Who taught you about credit?

Before I was given the authorized user status by my parents, they drilled financial responsibility into my head. They taught me how to make money work to my best advantage. But they also warned me that if I don’t make wise decisions, I could lose money and give someone else that advantage.

My real “credit” education began in early ’04, when I stumbled upon Creditboards. There I began reading and absorbing valuable information. It didn’t take me long to discover I had been a victim of believing popular myths such as “too much credit is bad” and “it’s ok to close old accounts” to avoid keeping too many cards.

CM: What advice would you give to someone just starting out in credit?

Don’t make the mistake of applying for several store cards before obtaining a solid base of bank cards. Store-only cards often do not pay you back in terms of rewards and benefits given by major bank cards. You should plan long term for your credit profile. Obtain at least one of each first – Visa, MasterCard, AMEX and Discover, and then build up from there. Potential lenders will appreciate the diversity and regard you as a consumer with a handle on your credit rather than viewing you as an impulsive credit applicant.

Don’t carry a balance unless you have no other resources to pay in full. Even the enticing 0% offers are often risky to your credit when current lenders are reviewing your account. Many people are often misled into thinking carrying a balance and paying interest to a lender will bring credit line increases faster and more prolifically. This is not true. Lenders will grant credit line increases to customers they view as responsible and those they deem having the resources to pay back the loans. Carrying a balance is a red flag that the customer may not have the means to meet their obligations. Using the card frequently and paying back in full is the best recipe for increases

CM: If you knew then what you know now, what would you have done differently in your credit life -- if anything?

I would not have closed my Target Visa and a couple other cards that I obtained early on and thought I had outgrown. As I previously indicated, I believed the old credit myths before finding CreditBoards. Fortunately, I quickly learned that I was on the wrong path with my credit and didn’t close more cards. So, I began my plan of obtaining additional cards with rewards best suited for my needs.

CM: What habits have allowed you to maintain such high scores? What do you think the most important thing you do is?

I use my cards heavily for both personal and some business expenses. And although my utilization room includes a nice cushion, FICO does not like to see many accounts reporting at one time. So, I never allow more than 6 cards to report a balance each month. I’ve compiled my card activity into an Excel workbook. Each card has its own page, and they are all linked with highlighted due dates for each in a summary. I transfer payments early to the lender for several cards to avoid having too many balances at the cutoff dates. This way I can ensure that 6 or fewer cards will report to the bureaus at all times.

I’ve never engaged in the infamous “app-o-ramas.” This involves applying for many cards in one day to eliminate any of these new accounts reporting before other lenders take notice of this activity. The problem is that eventually the new accounts do start reporting and cause FICO scores to take a sudden tumble. Many lenders now have a system in place that flags a customer’s reports for suspicious activity. And, this sudden ramp up of cards does not go unnoticed during a routine account review. So, I apply for cards gradually, which prevents scores from dropping too many points at once. This method allows the scores to recover before within a couple months and before I apply again. My goal is to eliminate as many red flags as possible, and at the same time build my card profile at a slow, cautious pace.

CM: If you have a lot of credit cards, tell us why you feel the need for all of them. If you have relatively few cards, why haven't you decided to get more?

Each card serves a purpose in my profile. Basically, I keep them working for me. They grant me rewards on various categories of purchases, and perks such as lounge access, concierge service and buyer protections. No one card gives the bonus rewards in every category, and each program has a limit to how many points may be earned within a time period. I often surpass these limits quickly. In order to continue earning the bonuses on purchases, I need additional cards with similar reward structures. This does involve tracking of spending and revolving cards within the wallet. But the effort is well worth it for me. Due to my heavy charge usage, I also need high credit limits and vast utilization room, so FICO will not punish my scores.

CM: What is your favorite credit card? Why?

I always find this question a tough one because my favored card depends on my charge needs for the day. However, there are two cards that for the most part that never leave my wallet -- American Express Platinum and Merrill + Visa.

The American Express Platinum grants me membership rewards on every purchase. The more points I earn, the more valuable the rewards and perks. I also receive complimentary airline lounge access and concierge/event perks. Of course there is an annual fee for this card, however my usage throughout the year overrides that expense. My Merrill+ Visa is accepted everywhere. It’s also my highest limit and lowest annual percentage rate card to date. The purchase points transfer into excellent rewards, and extra benefits are granted as the point total rolls over into a higher tier level

CM: Have you ever been late on a credit card payment? If not, how do you stay on top of your bills?

I’ve never been late on a payment. I use an Excel workbook to record card activity and it is set up to track due dates. I pay either before the statement cuts or shortly after. That gives plenty of time before the actual due date.

CM: Why do you think people run into trouble with credit cards?

I believe most people don’t understand the importance of good credit and how it affects them directly. Many people are surprised when I tell them FICO is watching them and credit carelessness such as late payments are lethal to a good score. Late or slow payment plans have the potential to damage your credit; paying on time and in full will keep your credit on top.

CM: When did you first become aware of FICO scoring? Did you ever think that you wanted to reach a certain goal with your scores? In other words, did you always want to have an 800+ score?

I first pulled my credit reports after obtaining a few cards. It was pure curiosity at the time. To date, I’ve not been motivated enough to pursue an 800+ score. My overall profile is young in age and the desire to apply for additional cards is stronger than seeing the 800 on my reports. I’ll get there, eventually.

CM: What does having a high score represent to you? What does it do for you? Would you be just as happy if your score was 720? How about 680?

I like to keep my score at 760 and above. This is high enough to be approved for any type of credit I desire and still have room to allow for score dips due to inquiries and/or new accounts. When my Equifax score dropped to 750 this spring, I got nervous and put a halt on applications for a longer time period than my usual pattern.

CM: Any parting words for my readers? Some words of wisdom that you care to share?

I can’t stress enough the importance of diversity in a credit card profile. One should have a card with at least one credit union and a healthy mix of several banks. The recent bank mergers, buyouts and closures will likely have at least some effect on card profiles and these activities are rarely good for the customer. It is also beneficial that current and potential lenders see their competition on a report. A growing bank will attempt to lure their good customers’ business away from this competition with higher limits and incentive offers for card usage. Simply put, diversity is power for the consumer.

It is up to the consumer to build and maintain an excellent profile. This does take some time and effort but once established it becomes routine. The satisfaction and rewards are immeasurable.

CM: Thanks, Trevor, for taking time out of your schedule to answer these questions.

Related Articles:

Wednesday, August 20, 2008

Bigger, Better, and Smarter -- How Rebecca Bounced Back From Consumer Credit Counseling

(Editor's note: this interview was the fourth of six installments that ran during the week of August 18-22, 2008. To get the most from it, be sure to read my introduction article, which can be found here.)

CM: Rebecca, tell us a little about yourself.

I'm 30 years old, and I'm an administrative support specialist (fancy title for receptionist/gopher/secretary/customer service). I live in Colorado.

CM: What are your FICO scores?

FICOs, last I checked, were in the mid 700s. PFICO (bankcard-enhanced FICO score), through Washington Mutual, for July was 783 (I just checked to be sure).

CM: Like Joe (my interviewee for Monday), you have an interesting background. At one point, you were in credit counseling. Tell us about that. What happened?

I was in credit counseling because when I was in college (at about 19 years old), I had quite a few credit cards, and not that great of income. I actually entered Consumer Credit Counseling Service (CCCS) without ever having a single blemish on my credit report. I had gone to my dad and said "Hey, I have a lot of bills, I don't think I can afford them all." His solution was CCCS. Had I been more proactive at the time, I would've made a tiny bit more money and not bothered with it, but it was nice having consolidated payments (I entered in either 1998 or 1999 -- so it was a while back).

CM: After credit counseling, did you create a plan so that you would never get into financial trouble again?

The major credit issue I had was when I broke up with my boyfriend (we lived together in college). I relied on him to take care of some joint utility bills after I moved out. I ended up with a judgment (for a loan that he should have been paying) and a collection account for a $70 cable bill that he didn't pay.

So yes, I had a new plan -- never charge more than I can comfortably pay in a month, and be very careful about who/what you trust with your financial well being. A lot of this spilled over into my marriage -- and, with the way that turned out, I'm glad I'm so utterly paranoid.

: When did you get your first credit card?

I think I was 18 years ago; it was a Foley's (now Macy's) store card.

CM: How many credit cards do you have (all types)?

Currently I have, I think, 15 cards. About one-third of those are store cards; the rest are majors (Citibank, Chase, Bank of America, etc.).

CM: How did you learn about credit? Who taught you about credit?

I have always been interested in financial information, money, etc., so a lot of what I know I taught myself. I also took a personal finance class in high school, but most of it... I learned on my own because I wanted to.

: What do you say to women who have no credit in their own name? Anything to worry about there? In particular, I wrote a column a few weeks ago. There, I talked about the dangers of not having any credit. I was particularly writing to those who were authorized users only. Do you think it makes sense to establish your own credit or do you think that it really doesn't matter?

I would say that it is very important to have credit in your own name. Regardless of whether you are male or female, and whether you actually take full advantage of it or not.

: What advice would you give to someone just starting out in credit?

It can be extremely frustrating to get credit when you don't have any to begin with. I guess my advice would be to NOT have a "Rebecca Gone Wild" (an application spree that got out of hand), and to pick and choose (when possible) the credit that will best help you in life and will be of most use to you. Only cards that you will use, only rewards you will use, and relationships that will last.

CM: That's good advice, Rebecca. A few weeks ago, I wrote about having a credit plan. You and I are in agreement when it comes to planning.

CM: If you knew then what you know now, what would you have done differently in your credit life -- if anything?

Only thing I would change is that I never would have co-signed for a boyfriend. That was really the only major credit mistake -- other than overspending and not having much in savings.

CM: What habits have allowed you to achieve such high scores? What do you think the most important thing you do is?

Habits that maintain good scores: not applying for a whole lot, low utilization, positive payment history. Biggest thing I learned on is having low utilization; that never would have occurred to me before.

CM: If you have a lot of credit cards, tell us why you feel the need for all of them.

I don't feel like I need any MORE cards. I am comfortable with the amount I have now because I actually use all the cards; they are of benefit to me.

CM: What is your favorite credit card? Why?

Favorite card is Penfed Cash rewards. It has the best structure for me in terms of rewards because it is paid monthly, and it is for what I buy most -- gas and groceries.

CM: Since your credit consolidation, have you been late on a credit card payment? If not, how do you stay on top of your bills?

I have never been late on a credit card payment, not in the past, not now. At this point I would do just about anything to salvage my score :)

CM: Why do you think people run into trouble with credit cards?

People get in trouble by not making enough money in relation to what they spend. Whether it is for necessities or not, overspending or irresponsible spending is what causes people to get in trouble.

CM: When did you first become aware of FICO scoring? Did you ever think that you wanted to reach a certain goal with your scores? In other words, did you always want to have an 800+ score? Over 750? Coming out of credit counseling, did you even worry about FICO scores?

I really only started paying attention to scores when I joined (in 2006). I don't even know what my scores were when I bought my house -- and that was only five-and-a-half years ago!

CM: What does having a high score represent to you?

High credit scores to me? Well, honestly, it represents a lot of organization, hard work, and being responsible.

I only hope that through my divorce I can count on the ex-husband to keep up his share of our ONE joint obligation so I don't have to have a ding on my reports.

CM: Finally, any parting words of advice for those who might be reading this blog?

Advice? Don't spend more than you could comfortably pay off on one income. Have money in savings.

CM: Short but sweet. I like that. Thanks, Rebecca.


Tuesday, August 19, 2008

Patience is a Virtue but Paying in Full is Divine

(Editor's note: this interview was the third of six installments that ran during the week of August 18-22, 2008. To get the most from it, be sure to read my introduction article, which can be found here.)

CM: Bob, tell my readers a little bit about yourself.

My name is Bob Wang. I’m a little over 50 years of age, and have been in my profession since the early 1980s. I currently live in the Southwest and outdoor activities are my major hobbies. Skiing is my passion.

CM: Bob, what are your FICO scores?

My official FICO scores are 757 with Equifax, 761 with Experian, and 776 at TransUnion.

CM: When did you get your first credit card?

I got my first major credit card in 1982, an American Express Gold Card. I had quite a few store credit cards before then, but American Express was my first “real” credit card. That same year I also got my first Visa card from AAA.

CM: How many credit cards do you have?

I have over 50 credit cards. Around 40 are personal cards, and a little over a dozen are business cards. I also have 2 charge cards: an American Express Platinum Card and an American Express Plum Business Card.

CM: How did you learn about credit? Who taught you about credit?

I think I was influenced by all the American Express commercials when I was in school. I always wanted to have an American Express card, and that was the first one I went after when I graduated. Back in my day, there were no student cards.

I collected a few more cards through the '80s and '90s, but really started hauling them in beginning in 2004. That was about the time that my mailbox started getting flooded with solicitations. I discovered the forum in late 2005, and that is actually where I learned the most about credit. The Credit Matters blog would have really helped, if it existed.

CM: What advice would you give to someone just starting out in credit?

Be patient is my best advice. Also, to peruse the Credit Matters blog for guidance and ideas. I regularly fall into the trap of being impatient, and apply for more credit cards than I should. That is why my FICO scores tank predictably on a semi-annual basis.

CM: If you knew then what you know now, what would you have done differently in your credit life -- if anything?

I think I would have been more judicious in my choice of credit cards. I have many cards that I don’t envision ever using again, but am loathe to close. I will have to cull at some point, since issuers are starting to cull me.

CM: What habits have allowed you to maintain such high scores? What do you think the most important thing you do is?

Always paying in full, and on time, probably makes me appear most creditworthy. Practicing restraint has also allowed my FICO score to recover between application sprees. Picking out specific cards to target will be my objective in the future.

CM: If you have a lot of credit cards, tell us why you feel the need for all of them. If you have relatively few cards, why haven't you decided to get more?

Many of my cards fulfill a specific purpose. Most of the time that is due to the cards’ rewards structure. I only use credit cards that pay me some kind of reward for charging purchases on them. I will probably whittle the number of rewards cards down to a few dozen at some point.

CM: What is your favorite credit card? Why?

My favorite card is the American Express Platinum Card. It is also one of my oldest; I’ve had it since 1984. The rewards structure is only one Membership Rewards point per dollar spent, but I like not having to worry about a large purchase putting me over my credit limit.

CM: Have you ever been late on a credit card payment? If not, how do you stay on top of your bills?

I’ve never been late on a payment. When I receive a new card, I set up a "scheduled transaction" in Quicken to remind me when the statement closes. I also set up automatic payments for all my credit cards that offer the feature.

CM: Why do you think people run into trouble with credit cards?

I think many people mistake their credit limit for money in the bank. I wish more people treated their credit cards like debit cards, and paid in full every billing cycle. 0% interest offers are an obvious exception.

CM: When did you first become aware of FICO scoring? Did you ever think that you wanted to reach a certain goal with your scores? In other words, did you always want to have an 800+ score?

I first became aware of credit scores when I obtained a Providian credit card in 2004 that supplied a credit score every month. I was not aware of the distinction between that score and “real” FICO scores until I joined CreditBoards in 2005. Once I became aware of FICO scores, I wanted to be above 800. However, a more important goal for me was to achieve 7 figures ($1,000,000) of revolving credit, and I had to sacrifice high scores to reach that level.

CM: What does having a high score represent to you? What does it do for you? Would you be just as happy if your score was 720? How about 680?

Having a high score is just affirmation that I am a good credit risk. A high score allows me to indulge myself in collecting high-limit credit cards. I no longer need mortgages or car loans, so accumulating credit is just a fun hobby. I would not be happy with low scores since each $100,000 of additional credit would require more effort on my part.

CM: Any parting words for my readers? Some words of wisdom that you care to share?

Read the Credit Matters blog if credit is important to you.

CM: Thanks, Bob, for your comments. And thanks for touting my Credit Matters blog at least three times during this interview.


Have a Plan if You Want to Keep Your Scores High

(Editor's note: this interview was the second of six installments that ran during the week of August 18-22, 2008. To get the most from it, be sure to read my introduction article, which can be found here.)

CM: If you don't mind, give us a few details about who you are.

My name is Sharon. I am a small-biz owner and live on the east coast. I'm in my mid-30s.

CM: Sharon, what are your FICO scores?

I don't track the exact number. I only track if I am about to make a new major purchase, like a mortgage, for example. I know they range upwards of 770 plus or minus a few points. But they stay around 770-790 for the most part.

CM: When did you get your first credit card?

When I was old enough to date.

CM: How many credit cards do you have (all types)?

I have 29 open and I have 31 closed.

CM: How did you learn about credit? Who taught you about credit?

I really never did learn about credit. I thought not going over the limit was good. I learned more about credit when I wanted to purchase my first home

CM: What advice would you give to someone just starting out in credit?

Be selective, have a plan, and research the creditor.

CM: If you knew then what you know now, what would you have done differently in your credit life -- if anything?

I would have been more selective about which cards I applied for. I would have done more research about the creditor that I was seeking to establish a relationship with.

CM: What habits have allowed you to maintain such high scores? What do you think the most important thing you do is?

The key I have found is keeping low utilization, and only allowing a set number of cards to report balances.

CM: If you have a lot of credit cards, tell us why you feel the need for all of them. If you have relatively few cards, why haven't you decided to get more?

I like diversity and different rewards programs. Large credit limits are a side effect.

CM: What is your favorite credit card? Why?

Right now, it's rewards cards and they're rotated if they have a capped rewards structure.

: Have you ever been late on a credit card payment? If not, how do you stay on top of your bills?

I have in the past been late on a credit card, but only a couple of days late (so it didn't get reported to the credit bureaus). In one instance, I had a balance transfer on the account. I called the bank, explained that I was traveling, and said I was a long time customer, with no previous late payments. They reversed my late fee, re-instated my 0% balance transfer offer, and reversed the rate-jacked APR and interest they charged me. I didn't call screaming and cussing; I simply acknowledged the fact I was wrong, and inquired about a waiver.

CM: Why do you think people run into trouble with credit cards?

I think people run into credit card problems because they have no plan. They blindly apply for credit, and run up balances. I have a plan for almost every card that I have. The plan may include systematically getting credit limit increases, getting APR reductions, etc. I usually call the creditor and ask what they've done for me lately.

CM: When did you first become aware of FICO scoring? Did you ever think that you wanted to reach a certain goal with your scores? In other words, did you always want to have an 800+ score?

I first became aware of FICO when I attempted to purchase a home. Beyond bragging rights, 800 is a nice goal, but it's not essential for me to have.

: Any parting words for my readers? Some words of wisdom that you care to share?

It's a different credit climate than, say, two or three years ago. Therefore, you have to adjust your credit strategy accordingly: build slower and apply with creditors that will work and grow with you. Keep your credit file adverse-action proof. Keep utilization low, keep few balances reporting. Creditors are looking to reduce risk; don't give them a reason. Watch your creditors like a hawk. Have a backup or a few. If a creditor decides to adversely affect you, that's the real advantage of having multiple high-limit credit limits. Finally, time applications in 6-month batches -- that way you'll have a group that will age together.

CM: Thanks, Sharon, for giving me some of your time.


Monday, August 18, 2008

One Man's Struggle to Overcome Bankruptcy -- and Reach FICO 800

(Editor's note: this interview was the first of six installments that ran during the week of August 18-22, 2008. To get the most from it, be sure to read my introduction article, which can be found here.)

My name is Joe. I am a 36-year-old male working as the director of credit for a large manufacturing company in Orlando, Florida. My wife and I moved to Orlando (with our dog) from New York in 2004. We loved New York but after 32 years we got burned out. I have many hobbies; there are too many to mention. I’m into gun collecting and watching college football. Living in New York all my life, I never realized how exciting college football could be, as there is very little college football up north. Go, Gators!

CM: Joe, thanks for the introduction. I'll start this off with a softball question. What are your FICO scores?

My FICO scores as of July 30, 2008, were 767 (TransUnion), 786 (Equifax), 782 (Experian). This is up slightly from April 1, 2008, when they were 764, 765, and 771, respectively.

CM: Now for the more difficult question. Joe, you've got an interesting background. At one point, you went bankrupt. Tell us about that. What happened?

This was one of the most terrible times in my life! To this day only my wife knows about my bankruptcy; I was/am just too embarrassed to tell anyone I know. My bankruptcy was in 2001. It came after years of complete and utter spending irresponsibility. I never actually knew the amount of debt I had accumulated until I was married (in 1999). Once married, I sat down with my wife to go over our bills and while she had close to none I was in awe at what I had amassed. It was spread out over many cards and was well over $100,000. Needless to say I was totally shocked and embarrassed. My wife was great about it and vowed to help get me out of debt but this was no easy mountain to climb. For 20 months we paid $3,000 a month to the credit cards. In total, we paid about $65,000. During that time, the balance on the credit cards only dropped $1,000. After stepping back and looking at the situation after 20 months, I realized this was a losing battle and, after discussing it with my wife, we decided it was time to visit a bankruptcy attorney. The story of my bankruptcy can be found here.

CM: After your bankruptcy, did you create a plan so that you would never get into financial trouble again?

Actually, I didn’t. I probably had the same mindset as most after a bankruptcy, no more credit cards, and everything will be paid by cash. Who needs credit!

CM: When did you get your first credit card?

In 1989 -- at the age of 18 -- I was approved for a Macy's store card with a $200 limit. This card was included in my bankruptcy and is no longer reporting on any of my credit reports. I have not yet tried for another Macy's card and probably never will.

CM: How many credit cards do you have (all types)?

I currently have 19 trade lines (with the bulk of them being credit cards).

CM: How did you learn about credit? Who taught you about credit?

This is a funny story. I applied for a finance position with a software company in 1996. I was very under-qualified but the person interviewing me really liked me and passed me on to another department that was hiring. This was the credit and collections department. I went through the interview and was hired the next day as a credit and collection specialist. Let me point out that being part of a commercial credit and collection department in nothing like the bottom feeders that collect consumer debt; it’s much different! In fact, I’ve always said commercial collectors should really be titled customer service representative. I worked with that company for eight years, eventually leaving with the title of credit manager. In the eight years there, I never took the time to look into personal credit; I was too focused on commercial credit and moving up in the department. It really wasn’t until about 2004, when I found CreditBoards, that I started to learn about the importance of my personal (consumer) credit. Although commercial credit and consumer credit has its similarities, they are much different. But the aspects of commercial credit helped me better understand credit as a whole.

CM: What advice would you give to someone just starting out in credit?

Go slow and read -- but don’t believe everything you read. Take the time to explore books, Web sites, and opinions from others. But form an opinion of your own. There is no one person who knows everything about credit but there are many who can help you form your own opinion/beliefs and work to help you get to where you want to be. Remember, credit is a marathon (a position for life), not a sprint (that will be over tomorrow).

CM: If you knew then what you know now, what would you have done differently in your credit life -- if anything?

I would have looked at my credit as a whole and not individually. I really believe that if I had done that from the beginning, I never would have gone through a bankruptcy.

CM: What habits have allowed you to achieve such high scores? What do you think the most important thing you do is?

My biggest habit is research. Creditboards is a great place to start but there are certainly other places. As mentioned above, there are many knowledgeable people at Creditboards but not everybody there agrees with one another -- and that’s good! This is not to say one person is wrong and one is right. Creditboards is a good place to start making a habit of reading daily, to see the different methods to help build your credit score and get to your goals. For the most part, the fundamentals are the same but there are good, oddball tactics that help as well; never discount those.

Another habit: I set goals! I set goals that are achievable and realistic. Setting unrealistic goals can only lead to disappointment, which can very easily throw you off your mission and extend the time it takes to achieve a high FICO score.

CM: If you have a lot of credit cards, tell us why you feel the need for all of them. If you have relatively few cards, why haven't you decided to get more?

I have learned to always have a backup card or two or three or ten. I am not like some who feel you need an excessive amount of trade lines. For me (and this is only my opinion), I think anything over 20 to 25 cards is a bit excessive. With that said, I will work to have the highest possible credit limit on the cards. I do not feel that you can have too much credit (although I used to feel that way). I currently have 19 trade lines (most of which are credit cards) -- for a total of $601,000 in available credit. My highest credit limit is my Navy Federal Credit Union MasterCard, which is $80,000. I will slowly add a couple of new trade lines over the next year.

CM: What is your favorite credit card? Why?

My Patelco Visa. The reason is simple. They have been great to me and their customer service is great to work with. I do not get cash rewards from them; I get points which I am more than happy with as I constantly trade them in for Home Depot gift cards. Home Depot makes me happy, happy!

CM: Since your bankruptcy, have you been late on a credit card payment? If not, how do you stay on top of your bills?

Since my bankruptcy, I have not been late on anything, not even close. All my payments are sent the day my statement cuts, which leaves time for any mishaps that might happen by the actual due date (i.e., computer failure, Web site down, hurricane, etc.). I know not everybody can do this, but if you can get on this kind of schedule it’s very beneficial.

As for keeping track of my bills I use 3 methods:

One, I have created a very detailed spreadsheet, which is free and can be downloaded from Creditboards. The spreadsheet is used by many members and has been downloaded well over 11,000 times. With this spreadsheet, you can track just about everything you’ll need to stay on top of your revolving trade lines. You can read about my spreadsheet here.

Two, I also use MS Money. I have used this product for eight years and love it.

Three, I use RoboForm. This is a password manager that I have used for about two years now; I could not imagine life without it.

CM: Why do you think people run into trouble with credit cards?

For me it was pure irresponsibility and the fact that I never took the time to look at my credit picture as a whole. Before my bankruptcy, I always just paid a bill when it came, and never took the time to write down all the individual balances as one. Once I did this, I was shocked. I think if I had done this sooner I might have avoided getting in over my head. Looking at 15 individual cards with balances of about $7,500 doesn’t look “too bad.” But take those 15 cards and multiply them by $7,500 and you wind up with $112,500, which looks a lot different! It’s very important you use my spreadsheet or something similar so that you can see your credit picture as a whole -- and not just individually.

CM: When did you first become aware of FICO scoring? Did you ever think that you wanted to reach a certain goal with your scores? In other words, did you always want to have an 800+ score? Coming out of bankruptcy, did you even worry about FICO scores?

After my bankruptcy, I never gave a second thought to my FICO scores. In fact, I never even checked them. I did not want to see what they were and thought I could get though life just fine without FICO. I basically said, F*&^ FICO.

Then, in 2003, my wife and I started house hunting and I was advised by the mortgage broker that using me on the loan would be more hurtful than helpful. It was at this point that I realized I needed to do something. In early 2004 I began my journey.

When I started my journey, I was around 550. I remember just wanting my score to rise. I couldn’t care less by how much, but once I got over 600 I started to set goals -- small goals. If I was at 600, I wanted 610. When I hit 610, I wanted 620. I never asked the question “What will happen to my scores if….” FICO is just too unpredictable for that! I just kept doing the positive things I had learned over the years and knew my scores would eventually move higher. Was I happy when I hit 600? Hell, yeah! Was I happy when I hit 700? Hell, yeah! I’ll be just as happy when I hit 800. Does an 800 score bring more joy than a 600 score? When I hit 800 I will be just as happy as I was when I hit 600, no more and no less. As I said above, your credit score is a marathon and it will take time to build and a lifetime to maintain. Take the time to appreciate your accomplishments and all you achieve with FICO, no matter how small.

CM: What does having a high score represent to you? What does it do for you? Would you be just as happy if your score was 720? How about 680?

I pretty much answered this already, but I will continue to always work to grow my FICO score. I think having the highest possible credit score will, in the long, run save me lots of money and will always serve as reminder that even during the darkest point in your life there is always light at the end of the tunnel.

CM: Any parting words for my readers? Some words of wisdom that you care to share?

Thank you for letting me share some of my thoughts and insights. I hope that readers will come away with some pointers or thoughts that they'll remember when they’re working on their credit.

CM: Joe, thanks for sharing your story with my readers. I'm sure they'll enjoy it as much as I did.