You’ve made a huge mistake if you’ve ever listened to someone who tells you maxing out your credit card is a good idea.
But that’s just part of the unsound advice salespeople from the now-defunct Trump University allegedly gave to prospective students. We know this based on sworn statements released this week in an ongoing federal lawsuit alleging fraud at the for-profit real estate school launched by Donald Trump in 2005.
Some of the most revealing statements come from Corrine Sommer, an events department manager at Trump University for 3 months in 2007. In written testimony, Sommer said employees “would lure customers into the initial free course” and then “would try to up-sell consumers to the next course using high-pressure sales tactics.”
Trump, the presumptive Republican presidential nominee, has defended the legitimacy of the courses and says he plans to reopen the university if he wins the lawsuit.
Here are 5 pieces of bad credit advice Trump University employees handed out — all in an alleged effort to coax people without any money to pay thousands of dollars for investing courses that had questionable value.
1. Ask your credit card company to increase your limit.
This isn’t necessarily always a bad idea. In fact, if you use an increased credit limit in a responsible manner, it could help boost your credit score.
But this only works if you don’t add to any balance you carry. Having the extra credit, but leaving it untouched will lower your credit utilization rate, which is one of the factors that influences your credit score.
But the salespeople explicitly wanted students to do the opposite: Ask for an increased limit so they could use that credit.
Here’s Sommers: “I am aware that instructors were trained to, and witnessed them, asking students during the $1,500 seminars to call their credit card companies and raise their credit limits 2, 3 or 4 times….”
2. Use your credit card to make an investment.
The rest of the Sommers quote from above ends like this: “…so that they would be able to invest in real estate.”
Further, according to a Trump University “playbook” that was used to teach employees aggressive sales techniques, the employees were to use this script regarding using a credit card: “You need to look at what this small investment will fix in your life. You can stop living paycheck to paycheck, build your retirement account and pay cash for your dream car.”
Debt, schmedt… congratulations! pic.twitter.com/ROm5YHCwLh
— Domenico Montanaro (@DomenicoNPR) June 1, 2016
But instead of paving the path to riches, using a credit card to buy real estate or enroll in a class is more likely to make your financial affairs worse. If you don’t have the cash or can’t get a cheaper loan – in the form of a mortgage or a student loan – it’s best just to walk away.
3. Max out your credit card.
Anyone who tells you this is not looking out for your best interests. “They would tell students to max out their credit card because they would make their money back,” Sommers wrote.
Maxing out your credit cards is a bad idea – even if you can afford to pay the balance off in full each month. That’s because it will impact your utilization rate.
A few years back, we gave advice to a reader who used 90% of her credit limit each month, but paid it off:
“Despite your habit of paying in full, the monthly reported balance on your credit report may not be 0. The amount on your report will reflect the account balance at the time the lender supplied it to the credit bureaus. If your statement balance gets reported, then your credit report will show that you’ve used 90% of your available credit. The higher the reported balance is in relation to the limit, the worse the impact on your score.”
In the case of Trump University, employees allegedly were in a position to know that at least some students wouldn’t be able to pay their bills.
“I recall that some consumers had showed up who were homeless and could not afford the seminars, yet I overheard Trump University representatives telling them, ‘It’s OK; just max out your credit card,'” Sommers wrote.
4. Run up balances on multiple credit cards.
Sommers wrote that salespeople told students to spread out the course payments over several credit cards if they lacked a high enough limit on 1 card to pay for the seminar.
Your utilization rate is important on all your revolving credit lines. By running up a balance on multiple credit cards, you’ll increase the rate on each, which will damage your credit score.
5. Open multiple credit cards.
Trump University salespeople also tried to get students to increase their available credit by opening multiple new cards. They said this would have a positive impact.
“In fact, I recall representatives telling consumers to open up as many credit cards as they could to increase their credit score,” Sommers wrote.
This is one of the 9 myths to build better credit. Lenders will see multiple hard inquires on your credit report, which will lower your credit score, causing them to “worry that you’re in dire financial straits and desperately need access to credit to make ends meet.”