Growing up my Mom always told me to never get credit – she would warn me to always pay eveything with CASH and to never buy anything, if you can not purchase it TWICE! I must say- that was the WORSE advice my mother ever gave me! I love you, Mum- but that theory was a huge setback in life. I remember closing out one of my first credit accounts after paying off the balance-thinking ‘do what mommy says, avoid credit’. Boy she was wrong. Credit is one of the BEST ways to leverage your income and set you up to be in positions to earn MORE than your current annual income!
I can say there will always be times in your life when you are ‘broke’. When you get a paycheck and know that then entire check going to pay your bills! You can get out of this lifestyle. Simple money managment will put your financial life back in control – and you will GROW your credit to allow you to NEVER BE BROKE AGAIN.
Lets Get Started.
In 2013, I checked my credit score by visiting a credit score website. Here is a website I use now to monitor all my scores, because most banks use scores you can not see that credit card issuers do not use. IdentityIQ also monitors my credit profile for identity theft as the bonus with the score – which is a huge plus. I believe they allow you to check ALL 3 credit scores for only $1 – The reason you need to check your scores independently is because FREE CREDIT SCORE websites- give you a better score – to incentivise you to apply for a credit card – when in most cases, you do NOT even qualify. So by getting your scores from a seperate source, you will not get duped into applying needlessly.
After you get your scores, what you are looking to see – is do you fit in the BAD/ FAIR/ GOOD/ VERY GOOD credit.
Chances are if you are this deep into the article your credit is not too good so lets go to the next steps.
How to obtain credit cards the right way with Bad Credit
First you need to KNOW your CORRECT credit score, banks give and use different credit scores that credit card issuers do NOT use! Typically you want to be above 650 when applying for entry level credit cards. These entry level cards need to
- Not carry an Annual Fee
- Belong to a Major Carrier
- Able to use whereever – not Lowes/Best Buy/ Shell, Etc
Ideal places to apply are:
- Capital One
Notice I did NOT suggest a Major Bank, such as Bank of America or Wells Fargo.
Reason being is becuase the major banks only want GOOD CREDIT users to apply! So if your score is below 650 – DO NOT APPLY AT A MAJOR BANK! You will waste your opportunity to get a credit card without DAMAGING your credit!
Most adults know that when you apply for credit, it affects your credit score in a negative way- usually dropping your score from 8 to 12 points… so to counteract this; be sure to only apply for 4 accounts each year and separating the four accounts into 2 parts every 6 months. You only want to use your Limited applications with credit issuers, who are more likely to give you an approval.
Another hack is to apply for your accounts online this way when you apply it can be very quickly and might count as one inquiry on your credit score but if you are not really concerned about using your credit for the next 3 to 6 months then applying on the same date is not as important but the added benefit of applying at the same time is that you know what your anniversary date is and you not have to guess what days you apply for if you applied on two separate dates.
It’s better to just apply for two accounts at the same time online I recommend applying for the Capital One first and the Discover Card second.
I remember applying for Capital One and getting THREE TIMES the credit limit approval, versus when I applied at my personal bank, Wells Fargo.
Capital One and discover also have great secured card options if your credit score is below 650 points! So those are the two accounts I would recommend because they both normally give a high credit limit on approval such as $1,000 or $3,000. But the closer your score is to 650 points the most more likely your approval will be $1,000 or less.
If your approved limit is below $500 something is very wrong and you need to contact their customer support and request an immediate revaluation; because having below $500 credit limit means, you only can use about $50 on that card before your credit is affected negatively! Think about it: you can easily go to the movies and go over 30% utilization in ONE TRANSACTION! Explain this to them and with this reasoning, they should understand and give you an instant increase because it makes sense and they want you to be able to use the card and feel comfortable not having a high balance.
Growing your Credit to allow you to NEVER be broke again
Okay let’s say that you got approved for none of the credit cards. What I need you to do is simply add up all of your monthly expenses such as utility bills grocery bills Etc basically anything that you pay for every month that you can use to pay with a credit card. For most this is roughly $500.
What I need you to do and I know this sounds crazy but do not pay any of your utility bills for one month.
what you’re doing is not using your money to pay utility bills but saving that money to use as a down payment for your secured credit card.
Yes you will have to pay late fees on most of these accounts but these late fees are pennies compared to the amount of Leverage you are about to obtain.
Take the money you saved and go to one of the suggested credit issuers above and apply for a secured credit card and they will ask that you send them your security deposit before they send you the card. This usually takes approximately two to three weeks or 14 to 21 days so make sure you are in contact with your utility bill providers and give them a sad story about how times are tough and you will not be able to pay your bill this month and ask for some sort of payment plan.
I remember when I get this and called my car notes holder and explain to them that I would not be able to make the payment because my job has let me go and I just got a new job but it’s going to take 2 weeks for my first paycheck to come in. They simply waived the payment for that month entirely so I did not even have to use or worry about $350 that should have went toward my car note. And they allowed me to make a payment the following month without a late payment even appearing on my credit report. This was totally unexpected and probably not normal so do not expect this same result but by calling your utility bill providers and giving them a sad story about your finances sometimes they have programs in place to help out people in financial distress and that could even help you even more with your finances not living paycheck-to-paycheck.
What to do when your credit card arrives
Obviously you’re going to call all of your utility bill providers and pay your late bills along with any late fees most of the time you just have to pay a small amount because when you give them your sad story that will put you on a payment plan so most likely when your credit card arrives in the mail you do not have to pay the full amount of your utility bills but only a portion. This allows for you to not max out your credit limit once the car comes in.
But essentially this is what you want to happen you want to nearly max out the credit card and pay the credit card off approximately 7 days before the due date. Some professionals say to pay your bills 10 days before the statement date but that is really Technical and I do not believe it really matters as long as before the due date you are paying down the balance below 30 or 20% utilization. What this is doing is building a credit profile on your account that shows that you are in need of more credit and that you are able to drive your credit limit to the Max and responsibly pay it all down before the due date arrives. If you continue this cycle which is use the credit card to pay your utility bill then when you get paid pay your credit card balance down below 20% approximately 7 days before the statement date over a course of 6 to 12 months you should automatically get approved for a credit limit increase.
Once you have a credit limit increase most of the time they will simply send you a check for the original deposit back or just apply that deposit to your credit limit also. As an example your secure credit card was $500 which you deposited after 6 to 12 months the credit issuer sees that you are responsible with the card enough to Max it out and pay the entire balance off responsibly they will send a $500 check to the mail in your name and your secure credit card will become a unsecured credit card with $500 or more as a credit limit most of the time the credit issuer Will increase your credit limit by 50 to 100% of your original limit thereby stating that your unsecured credit card with $500 should have an increase credit limit between $700 to $1,000 minimum.
Let’s say that you applied this technique 2 with two credit accounts so now you have two credit cards that are unsecured with approximately $1,000 credit limit on each there by effectively saying that you have $2,000 every month to charge between both cards which if you are responsible you will not utilize all $2,000. now every time you get paid you’re already used to swiping your cards for utility purposes and paying them off with your paychecks and while you are waiting to get paid you still have up to $2,000 worth of credit that you can swipe and use while you are waiting for the next paycheck therefore never ever allowing yourself to be broke while waiting for your next paycheck.
I have used this technique to grow my credit limits from $500 to $40,000 within three years. If I never took the time out to take a hold of my finances and grow my credit profile responsibly I wouldn’t always be living paycheck-to-paycheck wondering how I can buy groceries put gas in my vehicle repair my vehicle or more importantly have extra money to invest in other business ideas to grow my income.
By taking control of your financial future you will always have a handle on the money you have to play with and used at your discretion. I used to make $700 every two weeks and I use that to grow my income to well over $7,000 a month. But this was due to making sacrifices and keeping a pulse on my credit situation. I used my credit cards to open up new businesses and fund them, using credit, so I am not coming out of pocket when operations needs to take place. Here at Putting Money in Your Pockets.org you will find other articles about money management and investment ideas-plus you can post your situation or stories to help out others and connect with other members. Check out these other articles for more ways you can use credit to leverage your financial future.