I don’t have much credit history (I pay my bills on time and everything, but don’t take out much debt. I think student loans are the only debt I’ve had) so I decided to start using a credit card instead of my debit card. Since I plan on paying the bill off in full each month I am not concerned with APR and am just looking for one with the best rewards program.
I get 1-2 credit card pre approved offers in the mail each week, including several from the company I applied online for a credit card with.
So I applied online on saturday for a certain credit card through a certain company. On monday I get a mailer telling me I am ‘pre-approved’ for the exact same card I applied for online, with a bigger sign on bonus, and the mailer seemed unrelated. On wednesday I get another ‘pre-approved’ offer for the same card, but with the original sign on bonus, not the bigger one.
Then I get a letter from the company rejecting my online application claiming that have too few revolving accounts. Which is true, I don’t like being in debt and the concept of paying someone else interest to buy things is abhorrent to me (I buy my cars and home products with cash). I had student loans from college but paid those off as fast as I could to avoid paying interest.
But why is that a bad thing per se? I thought having too much debt was a bad sign to a creditor. Why would avoiding debt and paying it off early (as I have done) be seen as a bad thing or a bad risk factor? If they claim it shows I don’t have a long enough track record with debt, why would a credit card with maybe a 2k-5k limit be seen as too risky to someone who could handle 20k+ in student loan debts (my student loans were far bigger than any credit card limit)? Or do they figure that due to my past behavior with debt I am going to use their credit card, collect tons of rewards but pay my bill on time each month and as a result end up costing them more in money than I pay in APR (Ben Stein claimed credit card companies label people who do that ‘deadbeats’).
And why would they reject me, then offer me a pre-approved mailer for the same card, twice in one week? I trash my applications, but I’ve probably gotten dozens of mailers for this particular card saying I’m pre-approved over the years.
You’ve been denied credit. You’re entitled to a free credit report. Something you should have looked into before you applied for credit. Suggest you inform yourself.
tbh, I think everyone is pre-approved. Their qualifications for those mailings are related to if you are breathing or not, not anything tied to your actual credit score.
I wonder if they see you as the type they won’t make any money off of (since you pay things off so quick) but use your lack of revolving accounts as an excuse?
My credit card company LOVES me, and I’ve never had a revolving balance with them. I’ve never paid a dime of interest, but I have at least a hundred transactions a month on the card. They make their money through transaction fees, and are thrilled to do so.
Once upon a time I used to work in credit, so here’s a little background.
First, being “pre-approved” is bullshit. They got your name from a mailing list somewhere and 500 other Wesley Clarks around the U.S. are getting exactly the same letter. If you ever read the tiny, tiny print you’ll see it says something like “you’re pre-approved subject to our getting an actual application from you, checking you out and deciding to really approve you.”
Second, the whole point of giving you a credit card is to collect interest from you. If you pay everything off immediately, they don’t get to charge you interest. That makes you not a good (i.e., profitable) customer. Meanwhile, you’re racking up points, as Ben Stein says.
Third, not having a credit history actually is a black mark against you. You’d be judged a better risk and more desirable customer if they could see how you previously handled an open-ended credit line, as opposed to something closed-end like a student loan.
What to do? Forget the come-ons you get through the mail. Go to the bank you got your debit card from, talk to an actual human being and tell them you want a credit card (chances are since it’s your bank, they’re much more likely to give you a card.) Don’t worry about rewards right now. Just get a card, use it for a few purchases, pay it off each month and then, after a year or so, look for one with a reward program more to your liking. By then, you’ll have an actual credit history built up, and you’ll be much more likely to be approved.
Wesley Clark: What happened to you happened to my son, and for the same reasons. He did what kunilou advised, even though for his first card he was required to give a deposit equal to the max allowed on the card (only $1,000.). After a few months of using it and paying on time, he applied for another credit card with another bank and was accepted. He got his money back from the first card and cancelled that one.
It seems counter-intuitive, but you have to borrow or use credit to have a good credit rating. Good luck.
It doesn’t seem counter-intuitive to me. Your son had no credit, he got a secured card at no risk to the issuer. Then over the next few months he showed he could buy and make on time payments. He showed he could act responsibly.
Amount of interest paid does not factor into your credit score. “Too few revolving accounts” means too few credit cards or similar lines of credit – in other words, not like a car loan where you pay off a single transaction or creditor. It means that the guidelines for the particular card you applied for are looking for a more established credit rating.
It’s not hard to build credit, but it does take a little working at it before you can get the better credit cards. Try to pick a card you’ll be happy to stay with, because the length of time your oldest card has been open for does matter on your credit score. For this reason, store credit cards are a good bet; they’re easy to get, and they tend not to have things like annual fees like many subprime cards. Ones without a Visa or Mastercard affiliation will be easiest to get. You typically will not get approved for more than a few hundred dollars, but use it, pay it off each month, and your credit will rise. It’s best to pick a store that you can see going to often enough for them to keep your account open. If you already have credit problems, going for a secured card is probably the best route.
Getting good credit cards generally isn’t a one-time deal; you have to sort of build your way up. As you get better and better credit, you can get better and better cards. I actually have quite a few cards that I use for the rewards – a Chase Freedom card, a Discover card, a Costco AMEX, a Bank Americard … each one has slightly different features, often rotating each quarter, so I keep a little note in my wallet with the categories. You may laugh but I just filter all of the expenses I can through each card, never pay a dime in interest, and rack up hundreds of dollars in free money every year. There is such a thing as overdoing it – if you have way more credit than you need or could conceivably repay, it can be a ding to your credit, too – but other than my oldest account, I open and close accounts to chase the best benefits every few years, anyway. As long as you can trust yourself not to abuse the card, it’s a pretty easy way to get some nice rewards.
One additional note. Building credit takes time. For a good while (up to 2 years, I hear) after opening a line of credit, it’s actually a ding to your score. How much depends a lot on the circumstances. This is even if you never miss a payment or do anything wrong.
For that reason, even if you don’t have a strong reason for debt right now, it’s a good idea to build your credit. It’s nice to have the flexibility to be able to get credit when you need it. This doesn’t mean paying interest! For example, I just had to get my furnace and AC totally replaced. I had the money, but it would have been a major hit on my finances right before a big vacation I’d planned. I instantly qualified for 12 months 0% financing for well over the amount needed, so now I can pay it off gradually at no cost to me, while most of my money keeps making me interest and there’s no opportunity cost to tying up all that money right before my trip.
Why, on the largest scale, do individuals need credit? Surely, with advance planning, we could save up money and pay for things that way? Rent instead of borrowing to own? (Granted, 99% of people don’t do this, but the point is, we could…)
Is there any reason to have a credit rating if we don’t borrow money?
For what it’s worth, when my wife and I moved to the US our credit score was zero. We were actually told by one credit card woman that we should get a shitty store card, put $10 on it, then not pay it for a few months so our score would go UP to “bad.”
Long story short, what you can get now (for a small fee) is a collateralized credit card, ie one that you load with cash from your bank account. Then it works like a regular card up to the amount you put on it. The trick is that after a few months with that they’ll upgrade you to a big boy card. https://www.wellsfargo.com/credit_cards/secured/
If you don’t understand how requiring to already have something in order to get that same thing is counter-intuitive, then I don’t know what to tell you. “Sorry, sir. But to buy ice cream, you have to give me some ice cream first.”
It honestly seems to be set up in the most confusing way possible. What you said is not what you are told, at all. You are simply told you must have a credit score to get credit, which definitely sounds idiotic.
It does to me. If you have to post a deposit of your maximum credit limit on the card, then how is it not essentially a debit card?
I am experimenting with an AMEX cash back card. Have filled in the forms to be direct debited for the full balance every month (paying interest would destroy the value of having a cash back vard), and will get back 1.5% of my spend in supermarkets and 0.75% of everything else. I intend to run all my spend through it but not carry a balance.
We could, but we’d have to go without a lot of things. We could rent rather than buy a house, but that leaves us at the mercy of landlords and means we would never have anywhere we could permanently call home. If I wanted to buy my house without a loan, and saved up 50% of my take-home pay every single month, it would take me over 13 years at current prices. Or if I wanted to buy a new car instead? Eighteen months.
Credit is not a bad thing in itself. Spending more than you earn is a bad thing. Ask me how I know!
Because it’s a deposit, not a balance. If you have a $300 secured card with a $300 limit, and you charge $200 of stuff, you get a bill for $200 that you have to pay. You only get back the deposit at the end. So, basically, you can prove that you’re able to rack up charges, not exceed your limit, and pay it each month as agreed, but without risk to the lender. A surprising number of people aren’t able to manage the responsibility of an unsecured card.
However, someone without a credit score doesn’t typically need a secured card – there are lower tier unsecured cards (as I mentioned, store cards especially). Secured cards are often intended for credit repair situations. I got one when I was young and dumb and screwed some stuff up. They’re particularly needed after bankruptcy. The alternate is cards with absolutely exorbitant fees.
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