A college student with a secured card wants to increase his credit limit and asks whether giving the issuer more cash will do the trick
Dear Opening Credits,
I’m 21 years old and I’ve just gotten my first credit card. It is secured with $300, and $200 is available for use. I am applying for residence on a university campus, and a refundable $125 processing fee plus an additional $500 (because of my lack of a guarantor) are required when I submit my application. If I transfer $425 from my debit account to my credit account to make the purchase, will there be any repercussions for going over my credit line (even though I technically have enough money)? Should I just make this transaction with my debit card? — Erik
While certainly interesting, I don’t believe this experiment would work. You see, the credit card issuer sets the line of credit, not you the cardholder. Transferring money to the secured card account wouldn’t expand that fixed sum. If you tried to charge more than the given limit in one billing period, the card would probably be rejected. Even if you did manage to do so, an over-limit fee would be assessed.
At this stage, you can charge up to $200. For example, let’s say you spend $200 with the card. If you were to pay $100 by the due date, you’d have a little less than $100 available to you. The reason it’s not a straight number is because finance fees will be added to whatever amount you roll over.
You are in the perfect position to build a great credit history right now, and I don’t want you to blow it. Here’s what you need to do:
- Use cash for your impending expenses. It sounds like you have money in the bank to cover these college costs, so the debit card is the right choice. I know it’s a lot for you, but welcome to starving student life! I don’t actually want you to go hungry of course, but get accustomed to living at or below your means. It is a great habit that will follow you long into adulthood. (Plus, you will qualify for the bragging rights that come with it.)
- Use your credit card sparingly. The credit issuer will send information about your account to the three major credit reporting agencies — TransUnion, Equifax, and Experian. Landlords and employers often check these reports to see if you’re the kind of person they want to take on as a tenant or employee. Paying your bills on time will make you appear responsible. More, that data will be factored into credit scores that lenders use to assess risk. The better those scores are, the less you’ll pay in interest fees on loans. To create good scores, just use the card regularly, but make timely payments and maintain no or low debt. The less you owe on it, the better your score.
- Pay other bills when you should.Guess what else can appear on credit reports? Unpaid bills that get sent to collections, delinquent car and student loans, and unpaid parking tickets, to name just a few. Therefore, it is incredibly important that you manage your money carefully, minding due dates. The life of a student can be chaotic, making it easy to let these things slide. Resist.
Eventually you will probably want a credit card that offers greater borrowing power, and if you do all the above, that should not be a problem. In about a year of excellent use, you can apply for another credit card with preferable terms or just contact your current credit card company and request a higher limit.
You may also ask your issuer to transition the secured account into an unsecured one. This way you can claim the funds held in deposit. If you do that, however, I strongly urge you to start a savings account with the cash, then deposit a little more each month, if possible. You’ll be so glad you did, as financial emergencies do come up and paying for them with cash will prevent you from going into debt.