When faced with problem credit, many people rely on prepaid cards to manage their daily expenses. However, prepaid cards simply provide access to your own money, not credit from a lender. These cards do not report to credit bureaus and do not help re-establish credit history. People need to demonstrate on-time monthly payments on a credit card in order to rebuild that important credit history.

So how can someone who cannot get a credit card rebuild their credit?

The Public Savings Bank Secured Visa offers people with low credit or no credit the opportunity to re-establish their credit history and work towards improving their credit score. Individuals make a deposit into an FDIC-insured account that acts as a security deposit. They can then make purchases anywhere Visa is accepted or take cash advances up to the deposited credit line amount, currently between $300-$2000. Payments are reported to all three major credit bureaus (TransUnion, Experian and Equifax) so customers can begin to establish credit immediately.

The Public Savings Bank Secured Visa does not require a credit check or even a checking account to apply. Customers can fund their account via Western Union, ACH, wire transfer, check or money order. The card has no annual or monthly fees, and offers 0% APR for 6 months. Rush shipping is available so customers can begin using their card just days after funding their account.

Building good credit is critical at a time when credit is getting harder to obtain. This card allows the customer to build good credit while enjoying all the benefits of a Visa card at very favorable terms.

Click the image to apply and be approved within a few hours!

The mainstream card issuers have a shrinking window of time to remold their cardholder base to their liking. This means consumers will continue to suffer the at the hands of their credit card companies, unless they employ one or more of the following strategies.

1. Don’t Not Use Your Card – Ok, the poor grammar was intentional and corny but I think I’ve made my point. Credit card issuers are in business to make money and make a profit. They can’t do either unless you are using your credit card. And, the best news is that you do not have to carry a balance from one month to the next in order to drop a few dimes in your credit card issuers’ pockets. Each time you use your credit card the merchant (aka the place you used the card) has to pay the bank a fee. This fee is called interchange. It technically comes out of your pocket because many retailers will build the assumed fee into the price of the merchandise but it sure doesn’t feel that way when we buy stuff with our credit cards.

2. Shut Up! – In the past a viable strategy to get fees waived and interest rates lowered was to call your credit card issuer and complain or otherwise plead your case. That’s still a decent strategy but beware. Your credit card issuer might turn the tables and start asking YOU questions in order to determine whether or not they still want to do business with you. If you call them and THEY start asking questions about your job status and salary then hang up or you might just end up with a closed credit card.

3. Open Another Card, NOW – One of the worst strategies I see people employing today is the 1-card strategy. This is a consumer who has swallowed the Dave Ramsey gospel hook, line and sinker. The problem is that it’s unrealistic and appealing only to the lowest common credit denominator. You should have MORE cards, not fewer cards. Clearly this is a credit score play as well since having more available and unused credit limits are always good for your credit scores. So, if you have one or two credit cards right now, think about opening at least one more. This gives you options in case one of your credit card issuers starts behaving badly towards you. Nothing is more empowering than saying “I’ll take my business elsewhere” and then actually doing it.

4. Don’t Hide Behind Great FICO Scores – FICO published a study earlier this year and the findings showed that the median FICO score for a consumer who has seen his or her credit limit reduced was 770. A 770 FICO score is fantastic in any lender’s book and especially in this credit environment where lenders are gravitating to stronger borrowers. What this means is that just because you have great FICO’s it doesn’t fully shield you from adverse treatment from lenders.

Stay tuned for Strategies 5 through 7 coming soon!

 1)   You have a new credit law, The Credit Card Accountability Responsibility and Disclosure Act of 2009, which partially became law in August 2009 and will completely become law in either February of 2010 or December 1, 2009 if Democrats have their way.

2)   You have a new FICO® score, FICO 08, which is now live and commercially available at all three of the credit reporting agencies. This new FICO score promises to do a better job of predicting future credit risk.

3)   You have millions of credit card holders who have seen their credit limits reduced, accounts closed, interest rates increased and/or their minimum payment requirements increased.

4)   In addition you have billions in lost home equity, which means no more safety net for those consumers who have excessive credit card debt.

5)   You have debt settlement companies aggressively marketing their services like vultures circling a dying carcass without fully disclosing the downside of possible lawsuits and severe credit damage to their customers who use their services.

6)   And finally, you have media and the undereducated that are spreading fallacies about the credit world, and are causing panic.

All in all, it’s a tough environment to survive and thrive in. Here are what I believe are the most important things that we consumers should be focused on over the next 24 months:

• Continue to Improve Your Credit Scores
  • Continue to make your payments on time regardless of what you read or hear – Debt settlement companies would have you believe that the best way to serve you is to suggest that you stop making your payment to your credit card issuers. The theory is that a lender who isn’t getting paid might be more flexible for a consumer who isn’t making their payments. I guess it’s the “I’m lucky to get something” hypothesis. The problem is that many credit card issuers will gladly work with their debtors and work out settlements or payment plans directly, without the intervention of debt settlement companies.
    This helps them to collect more than what they’d get from a 3rd party settlement company and it will also mean that you are paying them more of what you owe them, which is a good thing. It will also protect you from litigation should the credit card issuer grow tired of you avoiding them at a debt settlement company’s request.
  • Pay down your debt to no more than 10% - The new FICO score, FICO 08, is more sensitive about your revolving utilization percentage, which is the relationship between your balances and limits on credit card accounts. This means those of you who are highly utilized will suffer more as lenders continue to convert to this newer credit score, and many have already made the switch.If you can’t get your balances to less than 10% of your credit limits then get them as low as possible and your score will benefit. Why is this important? It’s simple. Lenders are being more critical about credit scores than in the past 36 months. A good score, say 700, two years ago would have gotten you approved at their best deal a lender had going. Today it will get you approved but not with the best terms. Shoot for 750 to ensure you of the best terms. And, be aware that mortgage lenders not only want 750 but they also want a larger down payment in many cases.

• More Cards Are Better, Shoot for Five –This is counter intuitive but we’re living in a bizarre credit world. Those of you who have less than five credit cards are in a bad position. A bad position because of a couple of reasons, which are:
  • You have fewer options if one of your credit card issuers changes your terms – Tens of millions of consumer have seen the terms of their credit card accounts changed adversely over the past 18 to 24 months. This means lower credit limits, higher rates, higher minimum payments and closed accounts in some cases. If you have only one or two cards then you leave yourself without options should one or more of your credit card issuers start misbehaving. And for those of you who think you’re immune from this because you have good FICO scores, think again. FICO released a study several months ago that showed that, at a 2 to 1 ratio, cardholders who saw their credit limits decreased had median FICO score of 770. Nobody is immune.With more cards you give yourself the option to move your business elsewhere and not lose the access to the capital that a credit card provides.
  • Think About Litigation If You Know You’re Right –
    Fair Debt Collection Practice Act (FDCPA) lawsuits are going to eclipse 8,500 this year, which will easily be a record. According to John Ulzheimer, a professional expert witness, “many consumer are finding that they can’t get legitimate errors corrected on their credit reports. The choice they have is to live with it for seven years or take someone to court and force them to listen.”Many collection agencies are finding it hard to avoid lawsuits despite a huge growth in outstanding delinquent receivables. Some are calling for a revamping if the FDCPA but any politician that chooses to reduce consumer protections at this time in history is asking to be voted out of office.

The fact is, income is not a factor in determining your credit scores. In all actuality, it’s impossible to use income in the credit scoring calculation. This is because the information used to determine your credit scores is derived solely from the information contained in your credit reports. It’s also important to understand that just because it can go into your score doesn’t mean that it actually does go into them. The information must be predictive, legal, and it must be readily available on your credit reports.

Let’s take a quick look at exactly what makes up your credit reports. All credit reports can be divided into the following sections:

• Personal Identifying Information – this section includes your name, address, social security number and date of birth. It can also include employment information, previous addresses and other known aliases. This information is reported by your creditors and comes directly from the applications that you submitted when you applied for credit with them.
• Account Information – this section includes all of your credit accounts – which are also commonly referred to as trade lines. This is the bulk of the information that makes up your credit report and contains the type of account, the date the account was opened, the credit limit on your revolving accounts or the loan amount on installment accounts, the balance and your payment history – all of which are used in determining your credit score.
• Public Records – this section includes bankruptcies, judgments and liens. There are many other types of public records but these are the only ones that are reported in your credit report and therefore, are the only ones that are used in the credit score calculation. A word of advice: public records can never be good – they are always bad so you should avoid them at all costs.
• Collections – this section includes collection accounts that are reported by collection agencies. As with public records, collections are never good and they are most certainly used in the credit scoring calculation.
• Inquiries – this is a listing of anyone that has accessed your credit report and on what date. Inquiries remain in your credit report for two years and occur whenever you apply for credit. These hard inquiries are included in the credit scoring calculation but only those that have occurred in the last 12 months. You may also see promotional or soft inquiries, which occur whenever a lender orders your report in order to make a pre-approved offer of credit in the mail. These types of inquiries are not counted in the credit score calculation.

Now that we know what’s included in your credit reports, let’s go over what’s NOT included. Your race, your salary and your level of education – all of these things are not included in your credit reports. As such, none of these things can be used in the credit scoring calculation. Some people would argue that your salary, race, and level of education have an indirect impact on your credit scores because they play a part in how you establish and manage credit. This is probably true, but the fact remains the same. Race, salary, and level of education are not on your credit reports and therefore do not have any overt impact on your credit scores.

The bottom line is that your credit score only looks at information that is contained in your credit reports. And guess what? Your income is NOT included in your credit reports. You could be the world’s richest person but if you don’t manage your credit wisely, you could also have one of the world’s lowest credit scores.

1. The FICO Mortgage Score – This score is actually a variation of the FICO score currently available at Equifax, which is called BEACON. This new score, which comes at the request of players in the mortgage industry, is meant to give them a better understanding of credit risk posed by mortgage borrowers rather than just general credit risk across all different types of accounts. This new score is what’s referred to in the credit scoring industry as an “Industry Option” score. The Industry Option score uses the standard FICO score as a foundation and then adjusts that score up or down based on the consumer’s credit risk for a specific type of loan, in this case a mortgage loan. So, for example, if my FICO score at Equifax is 750 but I’ve managed my previous mortgage loans very responsibly it is likely that my mortgage score will be slightly higher. This is because I actually pose less risk to mortgage lenders because I’ve exhibited that I can manage mortgage debt based on previous experience, which is displayed on my Equifax credit report. This score will be available some time in April.

2. The FICO Auto Score – The industry option scores do not stop for just mortgage lenders. There is actually an entire suite of these scores available for other lenders as well. They are available for credit card issuers, auto lenders, personal finance lenders and installment lenders. TransUnion will be making the FICO Auto Industry Option score available immediately to lenders who loan money to consumers who are buying a car, new or used, or are refinancing an existing car loan. The new auto score is expected to easily outperform the previous auto score version at TransUnion. According to FICO, “auto lenders may be able to identify as many as 5 percent to 15 percent more potential delinquencies among consumers as they could with the previous FICO auto score.” This increased predictive power will help to accomplish two things sorely needed in the auto-lending environment. First, it will allow lenders to loan more money into a dying auto market. And second, it will allow healthy auto lenders to loan deeper into the credit score pool because of the increased ability to identify the future bad accounts before they even make it to their books.

3. The FICO Bankcard Score – In addition to the auto score available at TransUnion FICO has also made available it’s newest Industry Option score designed specifically for credit card issuers. This new score, called the Bankcard Industry Option, does the same things as the mortgage and auto versions, which is to give credit card issuers a better crystal ball to use when making decisions about whether or not to approved or deny credit card applications and whether or not to modify the terms of an existing credit card customer’s account. It’s my belief that of all of the industry specific scores, this is the most commonly used. According to FICO this newer score will also do a better job of identifying riskier credit card users than the previous version of the same score. According to FICO, “…testing found that the new scores could potentially increase issuers’ delinquency prediction rates by 6 percent to 12 percent…” This is a significant improvement especially when you apply the average loss of a credit card account for a major credit card issuer who might have 30 million active credit cards in circulation.

One of the biggest hurdles to implementing one of these new scores is the work to accommodate a new, different scoring model. This is one of the reasons VantageScore, a product of the credit bureau’s joint venture VantageScore Solutions hasn’t done well. It’s a different score with a different score range and likely performs very differently than a FICO score.

In order to make the transition from previous versions of FICO to these newer scores as painless as possible FICO has done a good job of keeping the structure of the newer scores identical to that of the older versions. The score range is still 300 to 850. And the new scores maintain the same set of adverse action codes, also commonly referred to as score factor codes or reason codes. They have also maintained the same minimum scoring criteria, which means if a bank has traditionally seen a 2% “no score” rate, they should continue to see the same.

FICO releases a new generation of scoring models every few years for each of the three national credit reporting agencies; Equifax, Experian and TransUnion. And in most cases it doesn’t make the headlines when it happens. Given the current state of the economy and especially the credit environment any time a newer better score becomes available it seems to draw more attention. This probably won’t change any time soon.

*Range above based on the FICO credit score, which is used by most lenders.

Outstanding: 800+
If your credit score is over 800 then you’re pretty much the best of the best as far as the lending and insurance worlds are concerned. With scores this high, you represent an outstanding credit risk, almost non-existent, and you’ll qualify for the best deals. Consumers that score in the 800+ range typically have a long credit history with multiple credit accounts that have been paid on time for years. There are no derogatory records such as collections, bankruptcies or charge-off accounts and very little credit card debt. These people are almost immune to the credit crisis.

Very Good: 750 – 799
If your credit score is between the 750 – 799 range, lenders will view you as a very low credit risk and you’ll qualify for some of the lowest lending rates available. You manage your credit responsibly by paying your bills on time and keeping your credit balances very low in relation to the credit limits.

Good: 700 – 749
Credit scores in the 700 – 749 range are categorized as a low credit risk. There may be a history of late payments in the past but all of your accounts are currently paid on time and have been for the last several years. You also manage your credit card debt reasonably well and are not close to maxing out on your credit cards. Scores in this range won’t always qualify for the best deals but they will definitely qualify you for very competitive rates and terms.

Not Bad: 650 – 699
Now we’re starting to get into the riskier credit score ranges. If your credit score is in the 650 – 699 range, lenders and insurers will view you as a moderate credit risk. You probably have older derogatory items on your credit report that aren’t hurting your score as much as they used to. A score in this range could also be the result of high credit card balances or too many applications for new credit in the last few months. With scores in this range you should still be able to obtain credit and insurance, but your rates will be considerably higher and the terms would be much less attractive than they would be if you were in the 700+ categories.

Poor: 600 – 649
If your credit score is in the 600 – 649 range, then lenders and insurance companies will view you as a high credit risk. Scores in this range are typically considered “subprime” by most lenders. Your credit score could be lower than average because of derogatory items on your credit report, such as late payments, collections or even bankruptcy and/or you may have high amounts of credit card debt. Scores in this range are less likely to get approved for standard credit products and usually pay very high interest rates and even less appealing terms. It’s also important to note that scores in this range have a high possibility of being denied for credit or insurance.

Very Bad: Below 600
Consumers with scores below 600 are considered very poor credit risks and will have a very hard time finding a lender willing to take the risk to approve your applications. If you are approved, you’ll be charged extremely high interest rates and/or insurance premiums. Credit scores below 600 are usually caused by chronic late payments, collection accounts, or public records appearing on your credit reports. Combining excessive applications for new credit with large amounts of credit card debt can also lower your scores to this level. It will be difficult for you to obtain new credit without the help of a co-signer, a large down payment or collateral.

No Credit Score
There is one other category that we haven’t talked about and that is the ‘no credit’ category. In order for lenders and insurers to accurately predict your risk they need to evaluate your credit score. If you don’t have a credit score, they can’t predict your risk and will typically bet on the safe side and decline your application or price it very poorly. There are a few reasons why you may not have a score:

1. You don’t have any credit accounts in your credit files. In this case, having no credit score is better than having very bad credit for the simple fact that there are some lenders that will take the risk and give you a shot at establishing credit with them for the first time. These lenders are typically retail store accounts with smaller credit limits and higher interest rates. Another option could be a secured credit card. With either option, you can establish your credit by opening an account and managing it responsibly. This means making your payments on time and keeping the balances as low as possible. After 3 – 6 months of use, your credit report will be able to be scored.

2. You have credit accounts in your credit reports but you have not been using the credit cards or loan accounts regularly enough for there to be recent information or activity in your credit reports. In order for there to be a credit score, at least one of your accounts need to have been updated within the last 3 – 6 months to show activity. If you haven’t used any of the accounts in the last year or so, it might be a good idea to charge something small and pay it off just to show some type of activity on the account in your credit reports.

3. You have a deceased indicator on your credit reports. If you have a joint account with someone who passed away, it is possible that the lender will report the account as belonging to a deceased person. And if you’re a joint holder on the account, that notation can show up in your credit files too. If it does, you won’t be able to be scored until the deceased indicator is removed from your credit reports.