need informal financial advice

About two weeks ago, I noticed a piece of admail in my email inbox inviting me to apply for a credit card. Purely on a lark, expecting to be denied because of my low income, I filled out the online application...and was immediately notified that it had been approved. The card arrived in the mail today. I had requested no cash advance privileges, but they decided to give me limited privileges anyway, which means I have to wait for a PIN to be mailed separately before I can activate the card and use it.

Here's my problem. The credit limit is more than three times the amount of my total monthly income from disability. Even the cash advance limit, which is lower than the credit limit, is significantly higher than my monthly income. I screwed up my credit twice in the past, once in 1993 and once in 2006, but now I'm being treated like I have NO credit history and being invited to build a good one. I'd like to believe that i've learned from bitter experience and shan't make the same stupid mistakes again, but I'm still apprehensive.

The question for those of you who are good at managing your money, especially your credit, is how you would handle things if you were in my situation. I have a million possible approaches jostling for space in my mind but have to admit that I simply know nothing because it has been nine years since I had any credit at all. All help much appreciated.

mickey said:

Here's my problem. The credit limit is more than three times the amount of my total monthly income from disability. Even the cash advance limit, which is lower than the credit limit, is significantly higher than my monthly income. I screwed up my credit twice in the past, once in 1993 and once in 2006, but now I'm being treated like I have NO credit history and being invited to build a good one. I'd like to believe that i've learned from bitter experience and shan't make the same stupid mistakes again, but I'm still apprehensive.

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How is that a problem? That's a good amount of credit. Just because you have a high credit limit doesn't mean you need to use all of it, or any of it at all. The way I'm reading it, it sort of sounds like you're blaming them somehow for giving you such a credit limit, and I don't understand why it's such a problem.

mickey said:

The question for those of you who are good at managing your money, especially your credit, is how you would handle things if you were in my situation. I have a million possible approaches jostling for space in my mind but have to admit that I simply know nothing because it has been nine years since I had any credit at all. All help much appreciated.

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What would I have done? Not applied for it at all. Not saying it's not legit, but I certainly wouldn't give my information to something that I considered an spam email or an ad-email even. And if I did apply for something and receive any amount of credit line, I'd think very, very carefully before using it - if I ever did at all.

Bottom line is you don't need to use credit. That's the problem many people have. "Oh, I have it. I can just use it." And they do that over and over, again and again, until they're in debt. You make your debt when you start spending beyond your means, and that's probably what a lot of this institutions want, so they can charge fees and whatever else. But you don't have to use it simply because it's there. Tell yourself it's for emergencies - very specific emergencies. It's on you not to live beyond your means and what your monthly dues are.

I've spoken to someone else who is currently about to start law school, and whose mother has a credit card with the same financial institution. They're legit.

Thanks for your input.

VanillaCreme said:

Tell yourself it's for emergencies - very specific emergencies. It's on you not to live beyond your means and what your monthly dues are.

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This. And I would keep it in a hidden place in my purse or wallet where I won't see it. Set rules for yourself, like you will only use the card for certain emergencies only as well as what these emergencies will not include if that's easier.

mickey said:

I'd like to believe that i've learned from bitter experience and shan't make the same stupid mistakes again, but I'm still apprehensive.

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mickey said:

The question for those of you who are good at managing your money, especially your credit, is how you would handle things if you were in my situation. All help much appreciated.

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My advice works under the assumption that you are in the US. If not, please disregard. You can do this, I have confidence in you. If you have any specific questions, feel free to PM me.

mickey said:

I screwed up my credit twice in the past, once in 1993 and once in 2006, but now I'm being treated like I have NO credit history and being invited to build a good one.

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mickey said:

I have a million possible approaches jostling for space in my mind but have to admit that I simply know nothing because it has been nine years since I had any credit at all.

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The FCRA mandates that any derogatory tradelines have a lifespan of 7 years + 180 days on your credit reports. Positive accounts that were closed in good standing can remain on your file for 10 years, at the creditors' discretion. Therefore, you likely don't have any credit history. If you have interest in rebuilding, this is a good step in that direction.

To establish a good profile, you want to strike a balance. Show that you use the card often but at the same time, don't need to use it. I have several cards with large limits and I rarely charge more than about 8% of any card's limit. I use the cards daily for everything from a cup of coffee to gas to utility bills or car payments for the rewards points. Ideally, the trick is to use the card(s) in place of cash that you already have, not as a supplement. About once a week, I pay all CC balances in full. So, when those monthly statements drop, I have no payment(s) due and I pay no interest.

mickey said:

The credit limit is more than three times the amount of my total monthly income from disability. Even the cash advance limit, which is lower than the credit limit, is significantly higher than my monthly income.

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Don't concentrate on equating your monthly income to the card limit, it's irrelevant. Even if they approved you for 10x more than your income, your income will always dictate how much you can afford to spend. I know that sounds obvious, but that big number can be seductive.


Good luck.

I like how my boyfriend does it. He charges everything on his credit card, but never exceeds his monthly income. He then just pays it off every month. It built up his credit really fast

I don't have a credit card (except for a store rewards card that I don't use), but if I did I would only use it for one thing, like gas for my truck. Then I am using it monthly, and I know I will be able to pay it off every month, and it would help me build credit.

Mickey I would simply phone the credit card company and request a lowering of your available credit. I did this myself as I have had bad experiences in the past with managing my credit. The phone number provided with the card is all you need. I had mine lowered to 500 cdn, but that was a few years ago now. I believe the lowest you can get is 1000 cdn. It was quick and easy and since the credit card company wants to keep your business they will usually do it. Good luck Bright Blessings ^.^

The best advice seems to be to restrict myself to replacing my normal cash spending with credit spending and then use the cash I've saved to pay off the balance in full on the payment due date. That provides opportunities but also involves some danger. Once I can activate the card, presumably this coming week, the first billing period will last until nearly the end of August, and the payment due date won't be until probably some time in late September. I get a disability check at the end of each month, so I'll receive checks at the end of July and August while using the credit card that entire time. The July check will cover the payment in September, and the August check any payment in October, so that I'll always be one month ahead and it'll _feel_ like I have an entire extra check's worth of cash on a rolling basis. Unless there's something important I'm missing here, I need some advice on how to handle this unusual situation.

Also, there have been unacceptable delays in booking my cataract surgery. I'm seriously considering going back to an old clinic I used back when I was working before August 2006 and booking an appointment with the optomotetrist for a second opinion and another avenue for getting the surgery done faster. It would cost money out of pocket, which in effect means I'll be using credit, so would you agree that this qualifies as an "unexpected emergency expense?"

mickey said:

Also, there have been unacceptable delays in booking my cataract surgery.........It would cost money out of pocket, which in effect means I'll be using credit, so would you agree that this qualifies as an "unexpected emergency expense?"

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First priority, get your health issue straight before you worry about even using that credit card. If it will cost you out of pocket, handle that now. The credit card isn't going anywhere.

You mentioned having trouble with credit in the past and right now you are working with a clean slate. If you are on a fixed income and find you have overextended yourself, you could damage the foundation on which you are trying to build.

mickey said:

The best advice seems to be to restrict myself to replacing my normal cash spending with credit spending and then use the cash I've saved to pay off the balance in full on the payment due date.

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In so many words, yes. But, you shouldn't need to 'save' money to make the credit card payments. You are only replacing a method of spending the money you already have.

Let's say that you need to buy gas. Before the credit card, you would just pay cash, right? Now, pay with your credit card, then use the cash to pay that charge off. Obviously, this example is on a small scale, you certainly don't need to make a payment every single time you use the card. But, you get the picture.

mickey said:

That provides opportunities but also involves some danger. Once I can activate the card, presumably this coming week, the first billing period will last until nearly the end of August, and the payment due date won't be until probably some time in late September. I get a disability check at the end of each month, so I'll receive checks at the end of July and August while using the credit card that entire time. The July check will cover the payment in September, and the August check any payment in October, so that I'll always be one month ahead and it'll _feel_ like I have an entire extra check's worth of cash on a rolling basis. Unless there's something important I'm missing here, I need some advice on how to handle this unusual situation.

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Don't overthink it. You will make yourself nuts trying to analyze this too much. You are not spending anything outside of your normal spending. You are simply adding a 'middle man' to build up your credit history and have the opportunity for better interest rates and credit lines in the future.

Example:
Your credit line is $3000.
Your monthly income is $1000
Your monthly bills are $500

You would normally spend $500, every month, when you get your SSI. That won't change. Instead of paying those online with your bank account, you pay them with your credit card. Then, take the money that is still in your bank account and pay the credit card bill when you get your statement. Your bills are paid just like always AND you are building a nice credit profile.

Hope that helps, but let me know if you have other questions.

MissGuided, you are offering excellent advice.

Do you need the credit card to survive? Is there no other way to manage your finances?

I dunno the process for cancelling your card, but if you can't cancel easily I guess you just use it for emergencies, or track your finances personally as much as possible. I've never used a credit card precisely because I don't want any history that could be used against me. I'd say to cancel it immediately, but if you can use the credit card and not get crap from state agencies, use it minimally.

How abour treating it like a pre-paid card... Pay them in advance, in small portion, what you would've spent in cash... If you spend $150/month on food, I'm just guessing, pay $100 in advance & keep $50 in cash in case of emergency... Once you go through $100, you can wait for your statement & do it over again for the following month...