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February 23,2009

  • Proper Care and Handling of Credit Cards, Pt.2
      The different types matter.


    Are all credit card types the same? Definitely not. Major credit cards are at the top. One important goal should be to build a healthy credit rating. FICO Scoring has long been our national standard because of it's almost-universal acceptance. According to FICO rules (both existing and the emerging new set), the type of credit card you hold has everything to do with your score. In fact, 10% of your score rating will depend on this. So much the more with the rules being implemented at this time.

    FICO Scores range from 300 to 850 with a score of 720 being the current division mark between a ‘good' and a ‘marginal' rating. So you see, 10% can make a big difference. Many private-label credit cards, like Sears and JC Penney's fall into a lower category (this may not be true of these two examples, however). Many credit unions fall into this category, also. These institutions do not actively participate in the nationally-accepted reporting standards (don't regularly report their borrowers' performance to credit card reporting bureaus). All major card companies do, so they're a safe bet. (For more on the new "FICO ‘08" rules coming out, please refer to the article series entitled: "Rules of FICO'08 in 2009").

    What about secured credit cards? These have four main advantages:
    1) Easy to get: Since they're less risky to the lenders, they reduce the minimum requirement standards to open an account. Beyond that though, they pretty-much behave like conventional cards – Finance charges, late fees, defaults, etc.
    2) Allow people a ‘first' or ‘second' chance: These may be the only kind available for those with no credit history or bad credit history. It's an excellent way for these people to ‘prove themselves' as being ‘creditworthy'.
    3) "Responsible-challanged people: No joke, there are many who are intimidated by credit cards because they don't trust themselves. One of the advantages that these people enjoy is the ‘built-in' protection of limited liability. If you max out the credit card and then, fall into hopeless default, the lender will simply close the account. Then (and only then), they will apply the moneys you have already given them in deposit, toward the defaulted balance. You won't find yourself still owing a huge balance, only the amounts (including penalty fees) that aren't covered by the deposit.

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