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Post Chapter 7, When should I apply for a credit card?


Luckyword
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I had a Chapter 7 bankruptcy discharged in early January, then, I applied for a credit card, in order to obtain a free credit report. I was denied for the card. I had a $5000 outstanding student loan debt, and I've just finished paying the final $500. So now I am virtually 100% debt free. I only have savings of $2000, and earn $3500/month before taxes. My rent and expenses are roughly $1200, and I can save at least $1000 per month, which I am now doing. My most recent credit report, 2.16.09, indicated my credit score as 634. I've been offered secure pre-approved credit cards that have fees of roughly $200 per year, and I'm not interested in any of those. What I am interested in is a credit card with no annual fee. How long will I have to wait before being approved for such an offer? If I have to wait a few years, that's fine, as I don't want to use credit cards anymore. My sole interest is to use credit cards in order to raise my credit score, and I'll pay off the balance every month. I responded on another site, and it was recommended that I establish a mailboxes etcetera postal address, change my driver's license to that address, and start trying to have items removed from my credit reports. What do you think? Thanks. Luckyword

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Hi Robert, I'd only want a credit card in order to rebuild my credit and get a better score. I've learned my lesson though...and would ALWAYS pay it off in full each month. :)

I can pretty much guarantee you that virtually everybody who has ever gotten a credit card has told themselves they would pay it off every month - the fact is, very few people do and even for many who do, they don't save (even though they'll tell themselves they will "next paycheck") and then some emergency happens and guess what...they start charging on that credit card (or multiple credit cards) until they have more charged on their cards than they could ever hope to pay back and this time they may not have the "out" of a bankruptcy.

I'm not suggesting people should have a bad score but frankly, most people whant a "good score" without even knowing why. For the most part, all a good FICO score will get you is the ability to go quickly and easily into debt.

Do what you want but I suggest you get a debit card, live within your means, pay cash for what you need and save MONEY.

People with money don't need a credit card (or a FICO score).

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I do agree, that if you have the cash, you don't need credit. The thing is, I actually have learned my lesson. I'm living within my means, working every day, making decent money, and most importantly, SAVING. I'd like to buy a house in about five years, once I have enough for a down payment and the mortgage. But I'd like to get the best interest rate possible on the mortgage...the reason I want to rebuild my credit. So I'm not at all looking to use more credit. In the two months I've been out of bankruptcy, I've completely paid off a student loan, am virtually debt free, have savings, and am accumulating more. I am SOOO DONE with credit. But, again, I want the best score possible so I can buy a house eventually. So I'm wondering, what's the best way to get that score given my circumstances?

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I can pretty much guarantee you that virtually everybody who has ever gotten a credit card has told themselves they would pay it off every month - the fact is, very few people do and even for many who do, they don't save (even though they'll tell themselves they will "next paycheck")
It depends on your atittude. Since my BK7 late in '04, I've religiously saved OVER $1000/month and managed to accrue 12 credit cards with $0 balances. The key is to live like you make minimum wage, and save and invest every dime of disposable. Track every penny. I balance multple accounts EVERY single morning, even 60 months after my credit meltdown.

But to answer your Q, there's a method to it. First, get a secured credit card at a credit union. Then a few months later, get a Target Red card. Then maybe a mid-level card or too. Then open a few SECURED installment accounts at a local credit union that reports to CRAs (this is huge).

There has to be a sticky about this on this site. That's where I started. Good luck.

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I do agree, that if you have the cash, you don't need credit. The thing is, I actually have learned my lesson. I'm living within my means, working every day, making decent money, and most importantly, SAVING. I'd like to buy a house in about five years, once I have enough for a down payment and the mortgage. But I'd like to get the best interest rate possible on the mortgage...the reason I want to rebuild my credit. So I'm not at all looking to use more credit. In the two months I've been out of bankruptcy, I've completely paid off a student loan, am virtually debt free, have savings, and am accumulating more. I am SOOO DONE with credit. But, again, I want the best score possible so I can buy a house eventually. So I'm wondering, what's the best way to get that score given my circumstances?

Do what you want.

I suggest that anyone who believes that credit scores and credit cards are the formula for financial health is misguided and those who follow that course will eventually suffer the consequences.

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I suggest that anyone who believes that credit scores and credit cards are the formula for financial health is misguided and those who follow that course will eventually suffer the consequences.
LoL. Buying a home with cash is a fool's game.

Revolving credit card balances? Stupid. Even if you are in the lucky tiny minority that has a massive lump sum of cash to buy a home with cash, mortgaging a home is SMART when rates are at levels they are now. Why? First, home equity is illiquid. Lose your job or get stricken with a major illness and need to tap a source of funds, you may not get a home equity loan at all because your income may be impaired. Or, if you do get a loan, it may be at some ridiculous rate. Why would you want to beg a bank to loan you your own money? So leave the money where its liquid. Second, this is a case of favorable rate arbitrage. If you think you can invest your money at more than a 5% return over the long term, then you're better off having the bank be your partner. Third, you can likely use mortgage deduction to write down income while sheltering the income from the pool of money you held on to. There all kinds of tax deferred investment strategies. This lets YOU use the Code to your advantage. Fourth, you reduce the risk of catastrophic loss. The lien on the property protects that portion from creditors and/or assets to pay out a losing lawsuit. Fifth, this is purchase money. Assume in some bizarre case that real estate prices drop another 50%. You could wak away. The bank takes the substantial loss, not you.

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xheadscratchx I didn't say anything about buying a house with cash but I would always advocate doing so rather than borrowing.

Debt ALWAYS entails risk...what is foolish thinking otherwise and even more foolish is using debt when you have cash.

I've seen to many lives ruined by debt (and I don't just mean credit card debt)...many who thought that because their Quicken said they had more assets than debt they were "successful"...who fancied themselves sophisticated investors...who were quite successful...for a time.

Justifying debt by pushing a loss onto someone else is simply immoral.

You don't ever have to beg anyone for money to cover emergencies if you have money and the single best way to have money is to not have debt. That's because the single, best tool for building wealth is a person's income and being able to save a significant portion of it out of every single paycheck. When a huge percentage of a person's income gets spent; especially to service debt (and most especially to service debt on depreciating assets);it robs the person of the use of that one best tool.

If you want a tax deduction; give money to your church or other local charities - it will do a hell of a lot more good than paying interest.

You're only four or so years out of a bankruptcy...I'm happy your plan is working out for you but come back a couple of decades from now and show me a continuous and uninterrupted success story and I'll be happy to congratulate you and buy you dinner at the best restaurant in whatever city you live in but don't ever expect me to change my position or ever advocate to someone, especially someone fresh out of bankruptcy; that debt and the concept of using other people's money is anything other then the true fool's game.

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Justifying debt by pushing a loss onto someone else is simply immoral.

In the case of a mortgage, which is what the poster was referring to, some might debate this.

Depending on the contract and the state, the mortgage might legally be a put contract that both parties willingly entered. In such a transaction, the lender can hardly be considered a "babe in the woods" and the debtor may well be able to legally and freely walk away from the note and the lender will take the collateral. I do not believe any court will take into account your personal views on morality when interpreting a contract two entities willingly agreed to.

I would suggest anyone who is considering walking away from their mortgage seek legal counsel.

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...I do not believe any court will take into account your personal views on morality when interpreting a contract two entities willingly agreed to.

What does that have to do with what I said above?

The answer, by the way, is nothing.

I said pushing a loss (that you owe) onto someone else is immoral because it is...it was a statement of opinion...a statement of principle that I believe in...whether you or a court or anyone else agrees or not in immaterial to statement's validity.

I wasn't in any way referring to what a court night decide as they interpret a contract; be it a mortgage or something else.

That a person can enter into an contract and, when things don't work out the way they wanted, may get a court to let them out of their agreement is immaterial as to whether doing so is immoral or not.

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It has everything to do with the author's point and your response.

The court is not letting anybody out of the contract. The contract is fulfilled. If a lender tried to further enforce it in the circumstances described they would be SOL. And in case, that doesn't mean statute of limitations.

The lender accepted the possibility of a loss when it entered the put contract.

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It has everything to do with the author's point and your response.

The court is not letting anybody out of the contract. The contract is fulfilled. If a lender tried to further enforce it in the circumstances described they would be SOL. And in case, that doesn't mean statute of limitations.

The lender accepted the possibility of a loss when it entered the put contract.

100% pure Bovine Scatology and 180 degrees away from from the basis and purpose of my statement.

You are free to hold whatever opinion you wish but there is nothing to be gained by arguing with me about it.

Have a nice day.

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I'm afraid it's not BS. It is a simple put contract. The contract is fulfilled by either making the payments or turning the collateral over to the lender.

In certain contracts and certain states.

And the point you insist on arguing about has absolutely, 100%, nothing to do with the statement you seem to take such exception to.

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I had a Chapter 7 bankruptcy discharged in early January, then, I applied for a credit card, in order to obtain a free credit report. I was denied for the card. I had a $5000 outstanding student loan debt, and I've just finished paying the final $500. So now I am virtually 100% debt free. I only have savings of $2000, and earn $3500/month before taxes. My rent and expenses are roughly $1200, and I can save at least $1000 per month, which I am now doing. My most recent credit report, 2.16.09, indicated my credit score as 634. I've been offered secure pre-approved credit cards that have fees of roughly $200 per year, and I'm not interested in any of those. What I am interested in is a credit card with no annual fee. How long will I have to wait before being approved for such an offer? If I have to wait a few years, that's fine, as I don't want to use credit cards anymore. My sole interest is to use credit cards in order to raise my credit score, and I'll pay off the balance every month. I responded on another site, and it was recommended that I establish a mailboxes etcetera postal address, change my driver's license to that address, and start trying to have items removed from my credit reports. What do you think? Thanks. Luckyword

Congrats on being debt free. My advice is to save, save, save all you can. If you want a credit card.....try getting one at a local credit union...maybe start with a secured card. Then maybe in a few months...you can get a secured loan through the credit union. It's a good way to boost your scores pretty good...without getting yourself into more debt. They usually also report to the CRA's and that is a good tradeline to have.

Filing BK is not the end of the world...and you should not be brow beaten for doing it. Nobody feels worse about a BK than the person that had to file it. Your BK is pretty new....so it will take some time..

Best of luck

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Okay so we all know how Robert feels about credit cards and debt. It's not a stupid position. Neither is Big Woody's or JQ's or anybody else's who might hold that same position. You all have great points and I really think each situation is different. I don't think there is a "one size fits all" t-shirt for every financial situation.

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These threads are always interesting...but I think it flushes out some important fundamental differences of opinion about debt. Robert, I think we agree on at least 80% of financial concepts. If we can narrow this to our differences, it seems you equate ALL debt with negativity (Dave Ramsey-ish). I disagree. In some cases, such as my lump-sum of cash guy example that I posted above, paying cash for the house is RISKIER than having mortgage debt. Why? Illiquidity. Assume the homeowner loses the job. His house is paid off, but he still has regular fixed costs (taxes, insurance, upkeep) plus living expenses to cover. Certainly can't get a home equity line w/out income. He'll quickly end up being insolvent on the monthly income statement although he has substantial net worth on the balance sheet. Seems analogous to much of what is going on with long-term asset rich companies who have been forced into Chapter 11 because they can't meet short-term liabilities.

So if you have $200k in your pocket and you want to buy a $200k home, put down $40k. Have the bank partner up with you for the remaining $160k at 5%. And invest your money in a variety of pools based on need for liquidity and time-horizon. Same balance sheet result, increased liquidity potential, and better rate of return. I think the risk here lies with paying cash for a home. Where is this risk of debt that you mention when you say "ALL DEBT has risk?" Ramsey rightfully takes a lot of heat for this. He's overgeneralizing to the point he is incorrect sometimes. The devil is in the details.

In addition, there is the added benefit of reduced liability exposure. When you own a rental property within an LLC, its advantageous NOT to pay the mortgage balance down at all. Any potential plaintiff against you has no assets to reach because the property is secured by the purchase money lien. But I don't think the OP was discussing a rental property anyway.

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I suppose people don’t see debt as risk if they are willing to walk away from it and leave someone else holding the bag; however, ultimately, someone pays. It may be a partner…a bank…the government (which means all of us)...but ultimately, someone suffers when someone who owes a debt doesn’t pay it…I don’t let other people pay my debts.

So when I say all debt has risk I guess I should have to preface that with “unless you have no intention of paying when things get rough” - in that case, all the risk is on the lender stupid enough to have extended credit.

I’m not trying to beat up on anyone who has or ever will file bankruptcy, as I mentioned, I did so many years ago, but I will never do it again and I would rarely recommend it for anyone and I certainly don’t recommend that people think that it is a viable fall-back position. The only thing good about the last bankruptcy law revisions is that it made it tougher for people to just have their debts discharged…creditors deserve to be paid if the debtor has any ability to do so; even if it’s a bit painful.

I’m still not sure why you decided to bring up paying cash for a home??? At any rate, as to the liquidity issue; you operate under the assumption that it’s a completely either/or situation. Just because a person has paid cash for a home does not automatically mean they have no cash left. I wouldn’t necessarily advocate people wipe out their entire ready savings to pay cash for a home but even assuming they did so, it doesn’t take very long to build up a huge pile of cash if you are paying mortgage payments to yourself rather than to the bank.

And as for getting a line of credit when you loose your job; well so what? The last thing a person should do if they have no income is go borrow money. Even in today’s economy more than 91% of the working population is working so why dwell on what happens if a person looses his job…yes it may happen but lot’s of thins can happen. That aside, if you have MONEY you don’t need credit. If you have money, and you loose your job then you have money to use until you find a new job. Whether it’s a job loss or whatever “emergency” happens, borrowing money is not the answer to a financial problem whether you are an individual or a bloated, runaway national government.

As I said, I’m glad your plan is working for you but I think it’s a house built on sand…storms don’t always hit ever piece of sandy beach in the world so you may well be Ok long term but even if it works well for you in the long term that doesn’t mean it's a solid plan nor one I would recommend to anyone.

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