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Within the next couple of days, I will apply for a secured credit card. I have saved up for the minimum deposit for such an account, but would like feedback.

According to CreditKarma.com, my FICO is currently 580.

18 months ago, I received a discharge on my bankruptcy discharge. I have been slowly getting my basic financial life in order again and rebuilding my credit is significant part of the process. In my final, follow-up appointment with the lawyer at the bankruptcy law firm I used, he said that to rebuild credit faster, I should cautiously apply for a new credit card (secured or otherwise) and use it every month, spending $100 (or barely above it) and paying it down, on time, every month. As this board understands, he strongly cautioned against keeping a balance on the account. He said at least six months from there, I should be able to apply for another account, but again must maintain the same habits. He said that two years after beginning rebuilding (and maintaining proper spending and payment habits), I should have a good credit score again.

Right now, I believe the two best choices for me may be Capital One Secured MasterCard, or Wells Fargo Secured Card. Though Wells Fargo sounds better (APR 18.99%, annual fee of $25), I believe that I may have a better chance with Capital One (APR 22.99%, annual fee of $29) since it appears it is specifically geared to people with poor/bad FICO scores and may be more generous with approving applications. Though Wells Fargo seems good as well.

For reference, this is an article about "best" secured credit cards.

6 great cards for rebuilding credit
http://money.msn.com/credit-cards/6-great-cards-for-rebuildi...
This article names these:
1. Navy Federal Credit Union nRewards Card
2. Citi Secured MasterCard
3. Capital One Secured MasterCard
4. Wells Fargo Secured Card
5. US Bank Secured Visa Card
6. Platinum Zero Visa Card from Applied Bank

I am not eligible for the Navy Federal Credit Union card since I have never been in the military and am not related to anyone who has been in the military. Citi requires an in-person application and seems to be quite stringent. US Bank is higher in fees in general. Plaintinum Zero has monthly mandatory fee of $9.95 (annual $119.40) and least appealing.

Tips and recommendations appreciated.

Lois Carmen D.
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I think telling someone in your situation to put $100 a month on a CC is a bit crazy. Get the card. Use it once in a while (NOT $100/mo), and pay it off completely every month. Anything else and you risk ending up with an "oops" where you start carrying a balance again.
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I think the lawyer has the gift idea, but not necessarily the right amount. If you are only comfotable charging $50 or even $10 per month, that's what you do. The most important thing is to pay in full and on time each month to demonstrate responsible credit usage.

Fuskie
Who cautions your credit rating won't be fully restored until the BK rolls off your credit history, but time and responsible credit usage will slowly facilitate raising your credit score...
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he said that to rebuild credit faster, I should cautiously apply for a new credit card (secured or otherwise) and use it every month, spending $100 (or barely above it) and paying it down, on time, every month. As this board understands, he strongly cautioned against keeping a balance on the account. He said at least six months from there, I should be able to apply for another account, but again must maintain the same habits. He said that two years after beginning rebuilding (and maintaining proper spending and payment habits), I should have a good credit score again.

I would agree in principle with your lawyer's advice. However, I would strongly suggest that the amount of credit that you use on the card on a monthly basis be:

- 10% or less of the amount of the credit line on the card (so if you get a $300 credit line, the max you would charge each month would be $30)
- only the amount that you already have available (in cash, a checking or savings account that you WILL NOT be needing for anything else) at the time that you make the purchase - no saying "I'll pay for it with the check that will come in next month". You may want to somehow set aside that money (like moving it to a different account, writing it in your checkbook register, etc.) so that you will know that this amount is no longer available for you to spend - it is being saved to pay off the credit card.

As far as which card to apply for, if you already have a relationship/account with a particular bank, you may want to see if they have a secured card with reasonable terms, even if they aren't on the list that you found.

AJ
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You should also consider a local credit union. If you are not already a member of one, seek one out and see if you can join and open a secured credit card.

Fuskie
Who notes that credit unions are customer-owned financial institutions that tend to offer better terms and are more customer-focused service...
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Thank you everyone for your responses thus far. Hope to check by tomorrow morning for additional replies and more time to respond in detail.

Also I am planning to delay applying for a secured credit card until end of April (this month), or early May so I can do more research.

Right now, quick questions/responses to this:

I would agree in principle with your lawyer's advice. However, I would strongly suggest that the amount of credit that you use on the card on a monthly basis be:

Thank you everyone for noting that this seemed high! FWIW I never stopped to think and ask the lawyer (the follow-up meeting was more than six months ago) about $100/month. At the final follow-up, he had a very quick and well-rehearsed summation of recommendations. He also works with people of higher incomes as well as individuals like myself (now on fixed income and low income). I wish I had thought about it at the time.

- 10% or less of the amount of the credit line on the card (so if you get a $300 credit line, the max you would charge each month would be $30)

Also it never thought about relative credit card utilization (percentage of available line of credit). Since all/most of the secured accounts I am considering requiring $200-$300 minimum deposit and I plan to open with just the minimum, that would be from 33-50% of total credit card utilization. Too high.

Does anyone know how low (in percentage terms) I can utilize might still be functional? And do I (should I) make an expense every month, or just perhaps every other month?

- only the amount that you already have available (in cash, a checking or savings account that you WILL NOT be needing for anything else) at the time that you make the purchase - no saying "I'll pay for it with the check that will come in next month". You may want to somehow set aside that money (like moving it to a different account, writing it in your checkbook register, etc.) so that you will know that this amount is no longer available for you to spend - it is being saved to pay off the credit card.

Yes, my plan exactly to have a specific amount in savings to cover every month, just in case.

Also I planned to just use it for regular expenses (in my case, groceries, household, or regular and expected bills), but not for grandiose and unnecessary shopping. I am thinking of using it as just a change in how I pay for things (instead of checking account, or cash), not as a way of, "oh good, I can spend more money than is in my budget," which is a deadly error in spending habits.

As far as which card to apply for, if you already have a relationship/account with a particular bank, you may want to see if they have a secured card with reasonable terms, even if they aren't on the list that you found.

My bank is TD Bank and I found this article: http://creditcardforum.com/blog/is-there-a-td-bank-secured-c... . Similar to Citi, this requires an in person application and requires a minimum of $500 to open a secured account. Reasonable APR (19.99% plus prime) and $29 annual fee. It sounds good, but I believe the Capital One and Wells Fargo cards are still my first choice. If/when I open a second secured account, I will consider TD Bank.

Thank you and will respond again tomorrow.

Lois Carmen D.
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I don't really think the dollar amount you charge each month matters, nor the percentage of your available credit, through you want to keep it relatively small. The big issue is to establish a history of responsible usage, not volume usage.

Fuskie
Who notes one easy solution is a recurring charge, such as your $7.99 Netflix membership...
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Fuskie,

You wrote, I don't really think the dollar amount you charge each month matters, nor the percentage of your available credit, through you want to keep it relatively small. The big issue is to establish a history of responsible usage, not volume usage.

The dollar amount matters in so much as it can affect your credit utilization. If you need to buy something that might come close to maxing out your credit line and you want the purchase protections of your card, consider sending the credit card company some of the money in advance.

Also, it's not a history of responsible usage that matters. It's a history of on-time payments and no other negative marks. The balance issue I mentioned before is a transient effect on your credit score and should disappear in 30 days if you pay the account on-time, in full each month.

- Joel
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You are absolutely correct, Joel. I was thinking more along the lines of it doesn't matter how little you spend. I was never in favor of larger amounts. That's why I suggested something like a Netflix membership on the card because it's limited, regular, and you don't actually use the card for consumer purchases. Plus, you can set up a recurring payment for the correct amount since it doesn't change from month to month. As long as you keep $7.99 plus tax in your checking account, you are good to go.

Fuskie
Who sees a history of on time payments and no negative marks as being responsible usage of credit...
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Thank you again, Fuskie, and thanks to Joel for your clarification and precision in your response.

Fuskie, I understand the suggestion of saying paying NetFlix at $7.99/mo. as an example. I do understand your point of using some sort of small, but fixed monthly expense to be automatically attached and billed to the secured account.

Nonetheless I do not have, nor have ever used, Netflix, nor do I have any other strictly entertainment subscriptions such as this. Sometimes being on an internet community such as this, I think there is an expectation that everyone has the same access and interests.

Meanwhile from the below article (extremely helpful to me and I suggest reading the entire article for anyone interested), it seems the author suggests a very moderate range of only 5% of utilization on an account (maximum of 10%). Relevant excerpts below.

How Secured Cards Help You Build Credit
http://www.credit.com/credit_information/credit_cards/Secure...

As with any credit card, the best thing for your credit is to charge no more than 10 percent of your credit limit. If you have $250 credit limit, that means you'll want to spend no more than $25 per month on your card. If you have a $300 credit limit, you'll want to spend no more than $30 per month.
...
As mentioned above, charging 10 percent or less of a secured card's credit limit will also help boost your credit score.

Another key factor in your credit score is something called revolving utilization.

...
Thirty percent of your FICO score is based on revolving utilization. The lower your revolving debt utilization, the more points you'll get on your credit score.

And that's why charging no more than 10 percent of your credit limit in any month is such an important guideline, especially when you're looking to boost your credit as quickly as you can.


I believe when I open a secured account, the credit limit will probably be in the range of $200 and I will open at that minimum. All the accounts I am aware of, the smallest minimum credit line is $200.

Utilization at 5%-10% per the above article would be $10-$20 expense. A trip to the supermarket for select items in that cost range can easily be met, even if not a fixed and regular amount. My intention is to take out my credit card only once a month to go to the store for this purpose and then put it away again until the following month. (Yes, I will pay down the account monthly, using online payment options assuming all accounts now have online payments.)

Lois Carmen D.
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It doesn't have to be Netflix or any entertainment charge. The point was that you could use any kind of recurring charge where you could depend on a fixed balance and payment each month.

Fuskie
Who notes generally that the nice part about this approach is that once set up, you never have to take out out your card at all to use each month, which can be beneficial in resisting the urge to use it if discipline has been a problem in the past or you want to build up credit worthiness while still maintaining primarily a cash-only lifestyle...
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