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Q. My son has bad credit from a few overdrawn checks in college. His only current bill is a monthly cell phone bill. He has no credit card and can't get one to begin building good credit. How does he start with no credit to pay off? Where can he get a credit card when he is denied anytime he applies from a mailer?
A.Your son will probably have to apply for what's known as a secured credit card. It looks just like a regular MasterCard or Visa card but the issuing bank will require a deposit of several hundreds dollars. It will use that money to his pay his charges if he misses a payment.
The credit limit on the card will be low, probably however much he has on deposit. So send the credit card company a $500 deposit and he can charge up to $500. But using the card will still allow your son to establish a history or making regular monthly payments, which is what he needs to begin building up his credit score
Q. I would like to know how paid off and not used store credit cards affect my credit score. Should I close them or should I leave them open (I don't want to use them any more)?
A. A paid off credit card is a plus when calculating your credit score – so don’t cancel them.
That’s because the standard formula lenders use considers how much of your available credit you’ve spent.
Let’s say, for example, that you have three credit cards, each with a $3,000 credit limit. You have one that is paid off, but you owe $1,000 on each of the other two.
You would have $9,000 worth of credit and owe $2,000, or 22.2% of your available credit.
If you canceled the card with no balance, you would reduce your available credit to $6,000 but still have $2,000 in debt. The cold-hearted credit score formula now calculates that you’ve spent 33.3% of your available credit and will punish you for that.
The best way to boost your credit score is to keep your all your cards and payoff as much of the balance as you can. Cut the cards up if that helps, but don’t close the accounts.
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