Know where you stand before you apply for new credit

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I was denied for credit in November 2011, and I have had a 30-day late notice on my credit profile since October 2010. I don't have any debt. When will I be able to reapply for credit? Will I be able to qualify for a good credit card?  -- Rachelle 

Dear Rachelle,
One of the most common mistakes credit hopefuls make is applying for the wrong type of account for their profile. It's kind of like shopping for a pair of jeans: The design you like may be fabulous, but if the pants are the wrong size, the cut is all wrong or the price tag is ridiculously high, then dragging them into the dressing room for a try-on will just end up in tears. As with clothes, a credit card must fit your current style, needs and situation.

Therefore, before you apply for any more cards, take your measurements:

• Obtain copies of your consumer credit reports. Free reports are available for near-instant download on AnnualCreditReport.com. Read them carefully to make sure everything listed is correct, and if you do spot inaccuracies, dispute them. Evidence of that late payment will be in the trade lines section of your report. You can't purge it before the full seven years it's allowed to be on there runs, but don't worry too much. Recency counts, and at two years old the negative affect is already fading away.

• Purchase at least one set of FICO scores. Credit card companies and other lenders check your scores to determine what kind of credit customer you've been. With those scores, they can more accurately determine what kind of product you qualify for. FICO scores range from a low of 300 to a high of 850. You can get your Equifax and TransUnion FICO score for $19.95 each at myFICO.com. If your scores are high -- in the mid-700s -- you'll be more apt to qualify for premium level cards. However, there are credit products for people even with very low scores. The key is to only apply for those that match your numbers. You may want to try CreditCards.com's CardMatch tool to help you figure out which cards are a good fit for you.

• Mind your employment status. A financial institution that is considering you for a line of credit will also want to know that you have the means to repay what you can borrow. Even with no debt and a high FICO score, if you don't have a job or your income is very low, it wouldn't make much sense to offer you a card. So how much do you make? If your paychecks are nil or anemic, consider ways to get a better-paying position.

Once you have your credit report, know your scores and are earning some cash, you can start to work on getting the best type of credit card for you. You may need to start out with a secured credit card, where you put a little money down as collateral. They're relatively easy to qualify for because the financial institution assumes very little risk. If you don't pay and default on the account, they just take your deposit.

After acquiring an account, focus on getting into amazing financial shape. Charge with your card regularly to add positive information to your credit report and increase your score, pay on time and in full, and keep your job intact. After a year or so, revisit the credit card fitting room to try on some plastic that comes with fashionable bling: a rewards program that allows you to build points redeemable for cash, air miles, or products and services.

Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.

Send your question to Erica.

Published: May 2, 2012

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