Newbie Questions

Q: I am new to all of this credit card stuff, what card should I get first? How do I start building credit?

A:There are two solid options for you (+ 1 additional if you are a college student):

Apply for a secured card – Secured cards enable people to build credit history by placing a down-payment/security deposit that equals the credit-limit.

In my view the top secured credit cards are:

          • Citi® Secured Mastercard®
          • Capital One® Secured Mastercard®
          • Discover it Secured Card

Get added as an authorized user – Some card companies enable customers to add an authorized user. What that means, is that a parent/guardian/close friend can add you to their credit line (they are financially responsible for any spend). The card company will report your info. to credit reporting agencies so you can start building credit history.

Be careful with this one and make sure the person you attach yourself to makes their payments on time, or this could hurt you.

Apply for a student card (If you are a college student) – Student cards are designed for students with limited/no credit history and will generally offer low credit lines and can help you build credit.

In my view the top student credit cards are:

          • Discover it® for Students
          • Citi ThankYou® Preferred Card for College Student

Good Rules to Stick to when you get your first card:

          • Keep utilization low. This means if you have a $500 credit limit, in the first six months you will want to spend less than $100 to show banks that you are not financially stressed
          • Don’t apply for too many cards at once, wait 6-12 months before you apply for your next card. Building credit is a an marathon, not a 40 yd. dash

Q: How is a credit score calculated?

          • 35% Payment History aka Did you pay balances on time
          • 30% Amounts Owed aka
          • 15% Length of Credit History – Longer good history = higher score (closing accounts will impact this)
          • 10% Credit Mix – Looks to see if you have multiple products (Mortgage, Installment Loans, Credit Cards, etc.)
          • 10% New Credit – If you open a lot of accounts in a short amount of time, you might be viewed as higher risk

Q: How can I get a high credit card signup bonus without spending the high amount of money? (ex. Spend $7,500 in 3 months get 75,000 points)

A: Manufactured Spending is when you buy something that is the equivalent of cash (gift card, money order) and liquidate the funds to pay back a credit card balance. You do this so you can earn more points / miles without spending large amounts of unnecessary money.

For example, some weeks you can buy $400 of VISA Gift Cards at Staples and get a $20 fee rebate. Which means you spend $413.90 for the gift cards (each one has fees) and get a $20 rebate back.

If you used a Chase Ink card that earns 5X points at office supply stores, you can earn 2,070 points on this. You can then take the gift cards to spend later, give as a gift or buy a money order (just use the last 4 digits as the PIN number to cash out).

If you don’t want to do this that many times, you can also pre-purchase gift cards from your favorite restaurants and stores at a discount.