The Better Credit Blog

I have been receiving a lot of emails from folks asking how authorizing another person (usually a friend or relative) on their credit card will affect both party’s credit score. Well, the news is that the folks over at Fair Isaac (they own the algorithm that generates your FICO score in case you don’t know), have decided to take authorized users out of the FICO calculation. I suppose there were a handful of people who were taking advantage of the system.

Basically authorizing another person on your credit card will have no affect on either person’s credit score, which was usually the reason people did it in the first place –in another words, by authorizing a person with bad credit, the payment history would show up on both credit reports while only the primary account holder would be responsible for the payment.

Authorizing someone on your credit card is risky!

I don’t care how much you trust this person, here is what you are doing by authorizing someone else on your credit card:

1. You are solely responsible for every aspect of the account –including the payment!
2. With the new FICO changes, the other person will see NO positive changes in regards to their FICO score
3. If they charge up a huge balance on the credit card, it’s your responsibility to pay it off.

Sign up for a Joint Account instead!

While creditors may look more closely at a credit score when opening a joint account, setting up one of these accounts can be a much safer bet. Plus, both people will see the positive credit score gains!! And, since it’s a joint account, both people are responsible for the payment and both names are on the account.

Get a secured credit card otherwise

If you are unable to get a joint account with another person, I suggest (as I have suggested many times before) signing up for one of these secured credit cards that I have used myself and been very happy with.

(1 votes, average: 5 out of 5)

If you have attending college in the past 10 years, it’s likely you keenly remember receiving about 20 pre-approval credit card offers your first semester. And gauging by the numerous emails I receive daily on the subject of credit card debt due to college, it’s likely you applied and received a few of those credit cards. In fact, it was the credit card debt I accumulated in college that served as a catalyst for my credit disaster.

Credit card companies, like cigarette companies, are smart when it comes to luring in potential lifelong customers when they are young and vulnerable. They cleverly setup booths on college campuses, give out free stuff like t-shirts and book bags, and mail students letters aimed to create a subtle hint of pride within. The statements usually say something such as, “You’re in college now! It’s time to start building you’re credit history!” How kind of them to notice and look out for my future. It’s quite alluring.

Students are obviously a good target. They are likely far away from their caution-invoking parents, don’t have a full-time job, need money for food and beer, and may or may not be financially educated. I could name a dozen more logical reasons why students are good targets for credit card companies, but I want to put at least some restraint on your ability to write, “duh!” in this article’s comments.

Universities are banning credit card companies from marketing on campus

There are has been some progress to limit credit card companies ability to market directly to student on campus. An article over at Bankrate says that some 300 universities have banned it altogether. While this is mildly encouraging, it doesn’t address any real plausible solution –again, clever marketing folks will find an equally successful way to grab students.

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Often I am asked whether I recommend a secured credit card over a high interest rate credit card for people in the process of fixing their bad credit. The short answer is that I recommend a secured credit card. However, it should be stated that I will only recommend a secured credit card if the provider will do one thing: withhold that the card is secured from the credit agencies. A secured credit card recorded as such will not improve your credit very much –in some cases it can even hurt it.

Luckily, through the wonders of competition, there are very few card providers still out there that will record a secured credit card as secured. As a matter of fact, you will likely find that most secured credit card providers will openly advertise that they do not report the card as secured. This is a big selling point.

How much can I expect my credit to improve?

You can expect your credit to improve substantially if you haven’t had any credit card activity on your account for awhile (ex., if your credit card accounts have been closed or noted as charge offs.). Remember: having positive, recent credit activity is a very important factor in determining your credit score. Simply cleaning up your credit history and removing bad accounts will alone only help your credit score so much.

Secured credit cards require an initial deposit before they will open the account, (i.e., before they will “secure” that deposit). Every provider has their own minimum deposits, but you’ll be looking at around $200 - $300 to start out with. Orchard Bank’s secured card, which I recommend, have a minimum deposit of $200. It’s important not to simply deposit $200 and start using the card. Why? Because a credit card with a $200 balance will do little to improve your credit score.

This will, in fact, hurt your credit if you have other cards with higher balances. Therefore, it’s best to increase the limit whenever you can –deposit another $100, for example, when you have the extra money. This will increase the credit limit recorded on your credit report. After you have had the secured credit card for a year, call them and ask if they are willing to switch it over to unsecured. Most of the time, (if your payments have been good), they are more than happy to make the switch and give you an increased credit limit.

Secured credit card tips

1. Make sure the provider reports to all 3 credit bureaus and they don’t annotate that the card is secured.
2. Be ready to make an initial deposit and keep depositing to increase your credit limit. This is what will increase your credit score.
3. Keep the card for at least a year before requesting that it be switched to unsecured and your credit limit be increased.

(1 votes, average: 4 out of 5)

I have had about a dozen people ask me if Orchard Bank credit cards are a scam. If you aren’t familiar with Orchard Bank credit cards, they are designed specifically for people with bad or no credit. Orchard Bank (HSBC) offers several types of these cards, such as Gold, Platinum, and Classic, but basically there are two types: a line of credit (like any traditional credit card), and a secured credit card. Both cards are available to people with really bad credit, but the secured credit card requires you to deposit the full amount you want secured before they will send you the card. This may sound more like a debit card, but it actually works like a credit card in almost every other way. A secured credit card is preferred by people that are still working towards financial self-control. I recommend this card. You can get it here.

Are you worried about the bad reviews over at Ripoff Report?

I have had two Orchard Bank credit cards over the past 3 years. I have never been late on a payment –this is the key to having a positive relationship with Orchard Bank. It’s important to remember that the vast majority of Orchard Bank card holders have bad credit. This is a liability for Orchard Bank. In order to protect their business they must have certain policies that are different from a normal credit card provider. This policy is their past due policy. Indeed, it is strict. If you pay your bill one day late, your account will be automatically charged $35.

This is why I am extremely skeptical about the bad reviews at Ripoff Report. For one, Ripoff Report allows anyone to post anything as many times as they want. I read about 300 posts about Orchard Bank credit cards, and most of them appear to be posted by the same person. Also, 90% of the complaints address one reoccurring theme: past due fees. Complaints usually say something such as, “I was 1 day late on my bill and I got charged an extra fee!!!! OMG!!!”. Sorry, but that’s not Orchard Bank’s fault, it’s yours –you signed the agreement, you are a risk, and if you want to truly rebuild your credit and gain the trust of creditors, you ought to pay your bill on time.

Orchard Bank is one of only a handful of credit card companies that will offer a card to people with bad credit. Don’t get me wrong, they aren’t doing it out of altruism, they are doing it to make money. Nonetheless, as a customer, I have been extremely happy with my Orchard Bank card. Here are some things that Orchard Bank offers that others do not:

• Awesome customer support via email. I haven’t ever called so I don’t know about their phone support.
• Online services such as account activity, bill pay, and credit limit increase requests.
• You can setup automatic bill pay (this is the only credit card for people with bad credit that offers this as far as I know)
• Report to ALL 3 credit agencies on a monthly basis (this is absolutely required if you want to improve your credit).

With all of my praise it may sound like I work for Orchard Bank, but I don’t. I have however always had a good experience with them. I hope this article has cleared up some uncertainties. Remember that simply negotiating debts will not alone fix your credit. In order to build a good credit score (725+), you need to have open lines of credit (2 or 3) with excellent payment histories.

Orchard Bank will not offer you the best rates (far from it). But it’s a good place to start when you can’t get one anywhere else. Remember, however, don’t be late on your payments.