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I initially signed up for a Wells Fargo cash secured credit card, last month, but lately with their changing the ToS and extra fee, I am worried about my choice.

People have asked me not to close that recently opened card just now, because it might affect my history in a very negative way, but recommended that I join some CUs.

I am thinking of getting cash secured credit card from DCU and CUSocal but am thinking - Is it a bad idea to have 3 secured credit card accounts open?

The CU's cash secured credit cards have no annual fee, so unless I am missing something, it should not harm my history just to keep it open (and keep them at ~20% utilization).

I am doing this because there is a risk that I might need to close the Wells Fargo cash secured credit card by year end.

EDIT:

Let me rephrase my question and put in some numbers:

a. My gross income, as a part-time on-campus worker on an hourly wage, will not likely exceed $1k/month

This does not include the federal tax and other associated taxes I need to pay (would reduce my net pay)

b. If I open up two new cards, I will likely keep a credit limit of $500 on them

This means, then, I have the WF $1k card and two new $500 cards

Now:

  1. My understanding is that having multiple credit accounts with low credit lines is better than having fewer credit accounts with higher credit line. In other words, my understanding is

    • 3 cards with a $500 credit line: Good
    • 1 card with a $1500 credit line: Not (so) Good

    I would like to have a thicker credit report than a thin one, and perhaps having accounts with multiple lenders is a better way of doing that?

    I think 1 is too less but perhaps 3 is too much and 2 accounts would be sufficient to have a "thicker credit report", or is this "thin" and thick credit report all BS

  2. How is the Debt-to-income ratio calculated?

    Is the 'income' my net pay after taxes or gross income, before all deductions?

    • Is it the ratio of the oustanding balances you have on your credit accounts to your income

    or

    • Is it the ratio of the sum of credit line you have on your credit accounts to your income

    In other words, with an income of $1k a month and a balance of $300 on all my credit accounts, would my debt-to-income ratio be:

    • i. 300/1000 (oustanding balance/income) = 0.3

    or

    • ii. 1500/1000 (sum of credit line/income) = 1.5

My target is to have a healthy credit history with a good score such that I can

  • get an unsecured card with a good rate and nice features in a year

  • not face issues renting an apartment near work (I had to put down 3 months rent as deposit with the landlord)

  • be qualified for a postpaid wireless/cellular plan (all I am eligible for now are prepaid plans)

  • get a good rate on a loan for a new car

I am not thinking about mortgage or anything that long term at all.

  • When would a lender (or anyone else) take your Debt-to-income ratio into consideration? – f1StudentInUS Sep 20 '11 at 15:51
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I think you should stop for a second and think about what you're trying to achieve.

What do you need the secured cards for? What are you changing the banks for?

If its just because of the fees on the WF checking account - just close that account, its not tied to your secured card in any way (regardless of what the representatives might say, they're paid to make you open more accounts). I had a secured card with WF, and closed my checking account there, and had no problem with the secured card working for another year. When they had to return my deposit - they just mailed me a check.

If you think you need more credit limit - just add to the deposit you already have at WF and ask them to raise the limit.

If you need 3 credit cards - then, and only then, it will make sense to have 3 credit cards.

EDIT after your re-editing the question

My understanding is that having multiple credit accounts with low credit lines is better than having fewer credit accounts with higher credit line.

Not really. With revolving accounts, what matters is the credit to debt ratio. I.e.: how much of the credit available to you is actually utilized. Also, the age of the accounts (the length of the history) is important. The number of accounts is less critical, and can have negative influence if you have too many of them.

How is the Debt-to-income ratio calculated?

It's not. Income doesn't appear on your credit report. The ratio that is influencing the credit score is debt-to-credit. I.e.: how much of the available credit line is utilized (aggregated for all the accounts).

get an unsecured card with a good rate and nice features in a year

Usually a secured card will become unsecured automatically after ~1 year in good standing. You shouldn't care about the rate, it's an irrelevant number (unless you're going to accumulate credit card debt, but then again, you seem to be smarter than that), features you will be getting a bit later (although after 1 year you might start getting offers for decent cash-back cards).

not face issues renting an apartment near work (I had to put down 3 months rent as deposit with the landlord)

Length of the history is more important here than the number of accounts. Closing one and opening another will actually do more damage then good, because you'll shorten the available history. Also, the previous references play a big role here, as the employment status.

be qualified for a postpaid wireless/cellular plan (all I am eligible for now are prepaid plans)

Again, length of the history. Once you've got a 1yr worth of history - you won't have issues here.

get a good rate on a loan for a new car

Debt-credit ratio, length of the history, and the income. With 1K a month - don't get your hopes high, regardless of how many credit cards you have.

  • Very good points. I have thought in details about what I am trying to do: I would like to have a thicker credit report than a thin one, and perhaps having accounts with multiple lenders is a better way of doing that? I needed to update my question after some detailed mental rumination – f1StudentInUS Sep 16 '11 at 19:53
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    Again, what for? Why do you need a thicker report for? What are you trying to achieve here? It costs you money and effort - is it worth it? – littleadv Sep 16 '11 at 19:58
  • No idea if it's worth it :-) Updated my question to put in my thoughts. Hope that helps. – f1StudentInUS Sep 16 '11 at 20:10
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    @f1Student - updated the answer as well – littleadv Sep 16 '11 at 20:47
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    @f1StudentInUS - for credit cards as well. For any loan, the lender would probably be happier to see that you don't actually use the loan. If your credit utilization is high and you're requesting more credit, it shows that you don't have enough money, ergo the risk of giving you credit is higher. Lenders don't like to lend to people who need loans, they like to lend to people want loans, but don't really need them (i.e.: credit utilization is low). – littleadv Sep 20 '11 at 16:04
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Length of credit history accounts for 15% of your FICO score, so the longer you have accounts open, the better it reflects you. Just be wise when shopping for a secured card. Credit unions generally have much better rates and lower fees.

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It will depend on your credit limits and income. But really the only credit that matters are the accounts that you have open when you apply for a loan and those that you paid late or defaulted on. Personally I would close the WF Account as soon as I got approved for the DCU or CUSocial account. If you are not going to keep the Wells fargo open long term then your carring a small balance for a year is not going to matter in a couple of years. But if you forget to make a payment or get some BS Fees that the big banks like to through on it could really hurt you. And since the account was short term it is not going to have a big impact on your credit score.

You are better served by keeping one account open long term with one bank and keeping your balance under 20% but over 0%. Take the security from your WF account and add it to your security for your new account if that will increase the limit. If not then put it in a savings account for emergencies. Any hit you take for closing the account will be wiped away with a year of good credit history. Once you have a credit card it is far more important not to get bad credit by paying bills late than to get more credit limit.

  • You echoed my thoughts exactly, with more valuable additions. Let me think more about this and get the cards from CUs and check them out before I close the WF card. How I hope I had asked these questions before opening up with WF. What do they stand to gain by loosing people? At the minimum, they just lost out on a $1000 interest free loan from me! Maybe they don't care for such small fry :-( – f1StudentInUS Sep 16 '11 at 18:44
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    @f1Student - it's not interest free. They pay interest on your deposit, which is actually pretty competitive (should be ~2% right now) – littleadv Sep 16 '11 at 19:47
  • WF made me agree that the security against my card will earn no interest: "The Secured Card Collateral Account is a non-interest bearing account, therefore no interest will be paid to you on the Collateral Account". wellsfargo.com/credit_cards/secured/terms – f1StudentInUS Sep 16 '11 at 20:26
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    @f1Student - that's nasty. That actually is a valid reason to consider switching to another card (provided they do pay interest and the difference is higher than the fees, which will probably not be the case....) – littleadv Sep 16 '11 at 20:48

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