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.
Dear Opening Credits,
Hi, Erica. I am 39 and
just got my VERY FIRST credit card in March 2012. Sad, I know. My mother and
sister had huge issues with credit cards, bankruptcy, etc. So I paid for
everything with cash and avoided credit cards like the plague. Now that I am
older, I want to buy a home within the next four years.
I applied for a Visa
with my bank six months to a year ago and was denied for having
"insufficient credit history." The card I have now is a secured MasterCard
from Capital One that is 3 months old. I did not apply for any other type
of card assuming that without sufficient credit history, I would just be denied
for anything else and lower what score I did have.
Do I need a second
card that is not secured to show my creditworthiness and boost my score to get approved
for a home loan? The credit card I have now I only use so there is something on
it and then pay it as soon as it posts to the account so I am not paying any
I currently have $201
as my credit limit and if I want that to increase, I have to give them more
money, which I won't get refunded until I close the card. So I thought just
giving them that until I had history and then applying for a unsecured credit
card, but now I'm wondering if that's even necessary. If it is necessary, how
long should I wait to apply for another? I appreciate your time and look
forward to your response. Thank you! -- Jenn
There is nothing sad
about getting a first credit card in your 30s! Instead, you should be happy and
proud. You saw firsthand how poor credit use led to horrible problems for your family, and you made a conscious decision to never follow them
down that dark and dusty road. Good for you.
That said, I don't
believe that credit cards are to be avoided as if they were germs for incurable
infectious diseases. They are just one way to pay for things. True, the ability
to borrow more than you can afford to repay all at once is imbedded in the
product, but you just have to learn how to manage it.
For example, let's say
you have a massive box of chocolates in the kitchen. You'd like to have more
than a few pieces in a sitting, but you know that you'll feel ill if you do, so
you limit yourself to just a couple. If you find it impossible not to devour
every last bit in one sitting, you have two smart courses of action: one, get
smaller boxes in the future (thus mitigating the damage); or two, never keep
the sweets at home. The analogy works perfectly for credit cards. Know what
you're capable of, and if it's too hard to stay out of debt, either reduce the
credit line and number of cards, or don't have any at all.
Getting poll results. Please wait...
Now that you have a
credit card, though, it appears that you're doing just fine with it. A secured credit card just means that you've left a cash deposit with the issuing bank. It's
held as collateral in case you don't pay back what you borrow. Your charging
activity is being reported to the credit bureaus just the same as it would be
with its unsecured cousin. I'm glad that you already have a secured credit
card, because that's what I would have suggested you get. They're ideal for
people with not-yet-established credit histories. I'm also impressed that you
didn't knock your head against closed credit doors. Again, you saw fit to go
for what you really qualified for. That's smart.
I get it that you need to
impress a mortgage lender with a fabulous FICO score, but you don't need an
unsecured credit card to accomplish that. Just continue to use the card you
have, in the same way you described. Make regular charges, pay on time and keep
the balances low or at zero. After about 12 months of such activity, your score
should look quite attractive. Remember, too, that a lender isn't only
interested in scores, but income as well. Build your savings as you build your FICO score. Make sure your income is secure, steady and
sufficient for the payment amount on the home you're after.
Finally, after a year or
so, go for an unsecured credit card with a larger credit line -- if and when
you're ready. It's not necessary, but it is nice. Just hold that analogous box
of chocolates in mind and avoid the temptation to overindulge. You are not your
mother or sister. You are Jenn, a woman who is handling her finances
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.
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