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Self Issued Credit Card

December 16th, 2008 at 12:37 am

Yes you read that title correctly, Self Issued Credit Card, here is how it works.

We should always start out with a small credit balance (Much like the credit card issuers do). Let's start this example with a $300 credit limit (CL) as this is the CL that I received on my first credit card.

Take your $300 and put it in a savings/checking account that is earning interest (Electric Orange from ING Direct is a good place to work yourself issued credit card, let me know if I can send you a link for the free $25 bonus for you and the $10 dollar bonus for me). This amount is your credit limit (As all credit cards (cc) have credit limits and as with any credit card, you should not exceed this credit limit.

The next step is to get a debt card for this account (We have this set up in ING Direct Electric Orange Checking account).

Now, you use your debt card which is accepted everywhere a credit card is accepted and you have your self issued credit card.

The key is to have a plan to pay the balance on your credit card, so, if you charge $35 dollars for a meal, by the end of the month you need to pay that balance back (To bring your balance back up to your max credit limit which is $300 in this case).

You can even set up overdraft protection on your checking account to cover you just in case you do "Over draft" on your self issued account.

Let's look at the Pro's and Con's of this set up.

1. No interest fees paid to a cc for borrowing their money.

2. Interest EARNED on the balance of your credit available that you are not using.

3. No penalties if you do not pay your balance in full at the end of the month, you have the flexibility (As long as you have the discipline) to pay over time.

4. Credit limit increase. This is up to you, when you want to raise it, you simply add more to the account. Just be sure you can afford the extra money which will cause higher payments to replenish the balance. The plus to this is YOU know best what credit limit you can afford, not some credit card company that looks at your credit report. Just be honest with yourself and this will pay off in the end.

5. You will not go in debt.



1. This will not directly reflect your FICO score. Indirectly it will assist you in living debt free.
2. That’s all I can come up with right now.

If you see any more Pro's or Con's please post them so I can add them to the list.


Here is the original post that I made when I thought this up, maybe it will help you better understand.

You put 300 in the bank. This is your credit limit. DO NOT EXCEED THIS LIMIT. Use this money as you see fit, treat it like any other credit card. At the end of the month ensure you pay the balance (You should end up with the 300 in the bank at the end of the month).

When you want a credit limit raise all you have to do is sit down and go over your budget. When you can afford to put more money in yourself issued credit account, then raise your limit. I suggest 500 dollars. Do not go to high to fast as at the end of the month you will not be able to pay this credit card in full.

I know what you’re thinking, how am I going to get to the money? That is a good question; most banks have what is called a Debt card. This card withdrawals the money ON THE SPOT! So you need to ensure you stay within your credit limit.

I would recommend tracking your account daily (5 minutes a day looking at your budget will ELIMINATE any financial induced stress). If you are a once a week or fortnight type of person then you can sign up for what is called "Over draft protection" for yourself issued credit card. If you go over your credit limit there will be a slight fee but you will not experience the embarrassing moment of a card rejection.

Alright, all joking aside, if you save up some money into an account for no particular reason you will have funds for that spontaneous purchase. This is different from your emergency fund, and different from your "I'm buying a car" fund. I usually set aside 50 dollars per month for this fund. I call it my "slush fund". I keep about 300 dollars in the fund (It just sits in my credit union checking account as my "Overdraft protection"). Each month I allot 50 dollars to this fund. If we use it, the 50 dollars goes into the account to replenish the use (No interest paid out to a credit card company). If we do not use the fund during the month, at the end of the month the 50 dollars that is budgeted is recycled into the budget.

You can do this with any amount. Once you establish your budget, your emergency fund and you are debt free. All you have to do is set up your slush fund (Some people call it a blow fund). Get a debit card on this account and use it like a credit card (ONLY UP TO YOUR LIMIT which is the balance that you put into the account). If you use more than your monthly allotment then pay back into this fund as if it's a bill. For instance:

Credit limit (Account balance): $1,000
Monthly allotment (Let's say 10%): $100 (This is the money that you budget for this account)
Let's say you charge $300 dollars
It would take 3 months to make up the money, but what if you charge again next month? To fix this, treat this account like a credit card that you want to pay off ASAP. Once you charge on it, you need to work out an aggressive plan to pay it off ASAP, remember for every day you remove money from this account you are no longer earning interest (Imagine a credit card that paid interest on the balance that you did not use).
I know what you are thinking, “How does this help my FICO score?”. Good question, it doesn’t, well it doesn’t directly. Indirectly it will keep you from going in debt which will keep your loan to debt ratio pretty high. Imagine a life where you do not need a FICO score. A life where you paid cash for everything, a life where the only interest you experience is interest earned.
Think about it

7 Responses to “Self Issued Credit Card”

  1. gamecock43 Says:

    This is a good idea. I think there is something to be said about having more motivation tto pay others back rather than yourself. But I agree that Self issued cards are cheaper than reg CCs.

  2. creditcardfree Says:

    We have done something similar in the past. Credit cards are not necessary if you have cash set aside!! Works for us.

  3. Nika Says:

    Why not just use a regular credit card, earn cashback/rewards, enjoy protections and security it provides, pay it in full when statement comes and just keep the money in your account for an extra month until that payment is due?
    Seems simpler.

  4. Dave Says:

    I can think of quite a few cons:

    1) Try renting a car or hotel room with a debit card. You will likely overdraw your account since they will put a large security deposit "hold" on your card.
    2) If you lose your debit card and someone charges something to it you have to report the charges very quickly or you are liable, unlike with a credit card, where you have 60 days to dispute charges.
    3) You do not build up credit history with a debit card, which can make insurance more expensive and can hurt your ability to get a job.

  5. whitestripe Says:

    i think there are lots more pros and cons to each one but i think it's a good idea for people who need rules to help them manage their finance.
    i personally do what nika suggests - but only because i know that i can control the money that i spend. if someone has a credit card + no willpower, that can be a very bad thing. so in that case I think your idea is very good.

    different things work for different people.

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