Credit Card Myths

[Dannmcg357]

Many people on here feel they need a cc after bk to rebuild credit. Some feel one is needed to travel. I have to agree with the ladder but think that other methods are possible (i.e. secured credit card, debit card). On the issue of rebuilding credit, I don't think getting a cc is going to help, I really don't. I think its a myth and that you can rebuild credit and get a loan for a car or home with out having one single cc account. Now bring it on, prove me wrong!

[SMinGA]

Debit cards do not 'build credit'. Secured cards - as long as they report to the CRA's - would build credit in the same way an unsecured would. For building a good credit score - having revolving credit lines is important.

I don't think 'rebuilding' should be the primary focus after a bankruptcy though. Instead concentrate on living within a budget, saving, and developing a 'if I don't have the $ I can't afford it right now' mentality. Concentrating on credit score is useful before going for something major like a mortgage - as getting a lower interest rate pays off for years to come.

Many people on here feel they need a cc after bk to rebuild credit. Some feel one is needed to travel. I have to agree with the ladder but think that other methods are possible (i.e. secured credit card, debit card). On the issue of rebuilding credit, I don't think getting a cc is going to help, I really don't. I think its a myth and that you can rebuild credit and get a loan for a car or home with out having one single cc account. Now bring it on, prove me wrong!

[Mensa1]

If you have an interest in credit following Bk then you need a creditor to extend cr to you. The easiest way is to obtain CC's, whether low limit unsecured or secured, it doesn't matter as long as they report. Also, if you are reaffirming property with existing loans such as mtg debt or auto loans then this automatically begins reestablishing credit, assuming that you are paying timely.

So no, cc's are not necessary but you must have some form of positive reporting credit in order to recover a decent cr rating, if that is important to you. If the OP has a better way of accomplishing this please share, since you seem dead set against the cc route. So how have you re-established yourself OP.................? All ears.

[Dannmcg357]

I don't disagree that using a cc is the easiest way to start getting a good payment history established, I think it’s dangerous. My beef is with cc companies and this perpetuated myth that you need a cc to rebuild credit. Payment history can be established with small loans, car loans etc. Hey is I’m wrong fine, I just don't see any proof that it’s nothing more than a myth. I haven't restablished myself, I haven't even been to my 341 yet. I don't plan to obtain a cc to do it though is my point. Unless secrued credit card is considered cc, I do plan to get one of those.

[SunshineGal]

The credit scoring models are going to look for a credit card. The idea is to show you are able to use responsibly. Therefore, in a perfect would, you would have a mortgage, a car loan, a major credit card and 1 or 2 other tradelines. For the credit card, they want to see the balance at 33% or less of the available credit line. They also want to see the card used periodically, although you can pay it off monthly with the same affect. Just my two cents.

[Mensa1]

I guess one doesn't need a cc, but it is the most direct route, or easiest way to re-establish yourself, IMO. Sure, you can get other loans but it will be harder to do w/o having any other TL's of record. What you need is for someone to believe in you in order to have a TL or two that shows positive results.

If you think it is risky then that is a whole different matter. If you are not able to have credit and not overspend then I would say you SHOULDN'T have cc's if that is the case, whether rebuilding or not. W/o self control to regulate your use of credit it will lead to a bad spot ahead. So maybe the thread should be about how to temper your use of credit as opposed to cc's being a myth.

[Dannmcg357]

Thanks SunshineGal.
Have you worked in the industry? I am curious how you know this. I find it disturbing if it is true they look for a cc and it negatively effects your score not to have one.

[SunshineGal]

I spent many years in the lending business so I've seen plenty of credit reports.

[Mensa1]

I spent many years in the lending business so I've seen plenty of credit reports.

So are you still in therapy due to those many yrs in the lending business?

The lending business has certainly beat up a number of folks over these past few yrs.

[LadyInTheRed]

Unless secrued credit card is considered cc, I do plan to get one of those.

A secured card will have the same affect as an unsecured card. It's a good tool for credit building if you can't get an unsecured card. But, if you can get an unsecured card under reasonable terms, why let them hold your money at a low interest rate? Late payments on a secured card will still be a negative on your credit report.

Thanks SunshineGal.
Have you worked in the industry? I am curious how you know this. I find it disturbing if it is true they look for a cc and it negatively effects your score not to have one.

The lack of a cc doesn't negatively affect your score, but the responsible use of a cc will improve it (I know this splits hairs a bit, but there is a difference).

If you don't think you are able to use a cc responsibly, then don't get one. There's no point ing giving yourself a temptation you don't think you'll be able to resist. This is a choice each person needs to make for him/herself.

[SMinGA]

By my own logic, how you pay on different types of accounts says different things and my guess is these things somehow factor in to a credit score. Examples - my thinking only:

Car loan: paying on time means you want/need to keep your car
Home loan: paying on time means you want/need to keep your home

Those 2 things, in my opinion, don't say alot about whether or not one makes a good credit risk. They just say you are likely to pay for things you need since you know failing to pay results in foreclosure/repossession.

Student Loan: paying on time means you know the govt. can take your tax refund and/or pursue garnishment if you don't.

Paying a student loan on time also does not say much about your continued credit worthiness - since the govt./student loans have resources for collection beyond what the common creditor has available to them.

Revolving lines of credit - paying on time and having low balances relative to the credit limit.

This shows financial stability and responsibility when it comes to spending. As in, you could spend more (because you have available credit) but choose not to. And paying on time shows responsibility & continued credit worthiness because you a) don't lose what you bought if you stop paying and b) the creditors don't have any special ability to force repayment so it is purely voluntary. Sure, there are legal means credit card companies can pursue but they take time and don't always result in repayment. They can't take back what you bought, and they can't go after garnishment, etc. without investing money into legal processes.

Now, that logic does differentiate between secured and unsecured since the secured creditor has nothing to lose. But from what I've read, the scoring models don't know that.

[flyinbroke]

Count me in on those who prefer having a CC to travel with. After managing to rack up 300 bucks in overdraft fees on my "play" account (when I log in, there is nothing indicating an overdraft, much less 12 of them), I discovered that the "holds" placed on cards are deducted from your balance...even if the charges are already accounted for. The kicker is you may never see a "hold" on your account (my main credit union does show holds, but my play account CU did not). I will use debit cards at gas pumps, their hold is usually a dollar. However when a hotel holds 200 dollars, this can make a difference.

I will pay with debit, but will never hold anything without a CC. Messes with the books a lot less.

[SunshineGal]

So are you still in therapy due to those many yrs in the lending business?

The lending business has certainly beat up a number of folks over these past few yrs.

I probably should have been while I was still in the business, lol. Seriously though, I loved my job.

A secured card will have the same affect as an unsecured card. It's a good tool for credit building if you can't get an unsecured card. But, if you can get an unsecured card under reasonable terms, why let them hold your money at a low interest rate? Late payments on a secured card will still be a negative on your credit report.



The lack of a cc doesn't negatively affect your score, but the responsible use of a cc will improve it (I know this splits hairs a bit, but there is a difference).

If you don't think you are able to use a cc responsibly, then don't get one. There's no point ing giving yourself a temptation you don't think you'll be able to resist. This is a choice each person needs to make for him/herself.

I agree. However, most underwriting systems will be looking for 4 tradelines and at least 1 major credit card. I actually had a loan get denied, for an excellent borrower with a high credit score and multiple tradelines, because there wasn't any activity on his revolving accounts. Certain underwriting systems, such as VA, will automatically refer for a BK within 7 years. That doesn't mean you can't get the loan, but now they have to manually underwrite it and tradelines become even more important.

I don't agree with the system at all. I have seen borrowers who never missed a payment in their life with scores in the 580s, and borrowers 6 weeks out of a BK in the 680-700 range. (Generally the lower score is caused by a high percentage of debt.)

Another thing I have a problem with are the borrowers who pay off and close the accounts, which is smart, but then the score drops because the percentage of available credit goes down. While I'm on a roll, lol, one of my biggest pet peeves is when a borrower has paid off an old collection account which changes the date of last activity and drops the score.

[MrBankruptcy]

I do believe that credit cards help rebuild your credit. One idea I have seen people use is to get a joint account with someone who has good credit so you can piggyback on their credit this. You get the use of the card with usually a higher limit and you get reported to the credit reporting agencies because you are a jointly responsible on the account. I also think a car loan is a great way to rebuild your credit also. It's secured by the vehicle and you might have to pay a little bit higher interest rate but that credit is easier to get.