What are the worst credit cards to have?

I can tell you based on my experience as a mortgage loan officer, which ones wreak the worse havoc on my clients credit reports.

I see the same ones come up again and again with derogatory remarks – either late payments or collections.

These are horrendous for your credit score.

In this video I reveal the cards to avoid or be really careful with.

Transcript:

There is one credit card that I see causes the most problems. For whatever reason this is the account, that when I see it on a credit report, usually has late payments on it, and therefore pulls down my clients scores. This is based on my own personal experience, over years as a mortgage loan officer pulling credit reports for my clients as I prepare to get them a home loan or refinance their existing mortgage. I do not personally have this credit card, although I have shopped with them and I have nothing against the company, I don’t have any interest in any competitor of theirs, I’m just telling you what I see and then hear from my clients when I tell them about how this account is hurting their credit score. As you can probably tell by this long disclaimer, I’m a bit apprehensive to name names but I’m doing it because I really want to help people have the best credit score they can have.

So with all that said, and please don’t hate me, but Macy’s – for some reason, when I see a Macy’s account on a credit report, I often see a derogatory mark associated with that account, particularly late payments. I’m not exactly sure what the problem is. I’ve had some clients tell me that they paid it on time but it still got reported as late. I’m not sure if that’s true or if people tend to pay it late because they forget they have a balance on the card. It’s not a card that people tend to carry a balance on each and every month so it’s easy to forget about it. When you don’t check and pay an account each month, it’s easier for that account to fall off your radar and have a late payment. But let me be clear that Macy’s is not the only problematic card.

I also see common issues with Best Buy, Home Depot and other retail cards. I would encourage you to think twice about opening retail credit cards. They’re so easy to open because it usually happens when you’re at the counter and the cashier is dangling a discount on your purchase if you open the account right then and there. They make it so easy and casual that the consequences of saying yes seem harmless. But they’re not. These cards often have high rates and I hear a lot of customer service complaints. Again, I don’t know if it’s the consumers or the credit card companies doing something that causes these issues but I just see that they’re problematic. I have seen someone have a handful of Home Depot credit card accounts because they just say yes to opening a new account every time they go to the store. They forget that they already have one, or three accounts, already open. Unless you are financially fit, meaning very well organized and on top of all of your bills, I would encourage you to forgo the 15% discount you’ll get by opening these cards. They can end up costing you so much more than the money they’ll save you on that new outfit when it causes your credit score to drop.

If you currently have one or several of these cards, I would generally encourage you to pay them off and close the accounts, even though closing accounts can temporarily drop your credit score by reducing your available credit. There are rare occasions when I would tell someone to keep it open, like it’s the account with the longest credit history. Speaking of, please don’t encourage anyone to open a retail credit card as their first credit card. These cards often have high interest rates and more unfavorable terms than credit cards you’d get from a bank. You don’t have to stop shopping at these stores, but just don’t get credit cards from retailers, even when they ask you “are you sure?” after you’ve politely declined their first offer. The last time I had a cashier asking me persistently if I’d like to open a credit card, it was at a Marshall’s, and I respectfully asked the guy, please don’t push these cards on people, they get folks into a lot of trouble. And the guy said I know but that’s how the store makes it’s money – I took that to mean that they made more money on interest on credit card debt than from the clothes and other items they sell. He also said that if they don’t ask several times, if a customer wants a credit card, that a manager will start standing behind them to make sure that they are asking. It goes to show you just how much money these retailers make from the credit card interest and fees that people pay on these cards, even though most everyone thinks that they will never carry a balance and just take advantage of the savings. Again, the savings that you get from these credit cards pale in comparison to their drawbacks, in my opinion and experience.

Oh, and this is kinda random, but the most common cause of collection accounts I see are from cable/internet companies. Clients will tell me that the account belonged to the last place that they lived so this is something to watch out for when you move from one place to another. Next time you move, make sure to check after you’ve closed the account so that you don’t get hit with any other fees or that you pay them off if you are. These likely end up in collections because the cable/internet company keeps mailing the bill to the address you no longer live at so you never see the final invoice. Provide the post office your forwarding address or reach out to the cable/internet company a month or so after you move to make sure everything with the old account is settled out. It really is a bummer when your credit score is dragged into the dumps by a $67 unpaid cable/internet charge.

Keep yourself and your credit safe out there, and I’ll catch you in the next video. Be sure to subscribe to my channel so you never miss a helpful money tip that gets you financially fit and ready to buy a house.