Turned down for secured card. Now what?
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.
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Dear Opening Credits,
I was turned down even for a secured card, which everyone tells me is
for people like me who are trying to rebuild credit. Now what? A brick wall and
me have met up and it's winning. No one wants to help, no one wants to give me
a break. Everywhere I turn I get the door slammed in my face. I get calls day
and night. Yes, I made mistakes, but should I be punished forever? Should I
give up and do bankruptcy and forget trying? Banks don't care about the little
guy, so maybe I shouldn't care about the banks. -- Hank
You're right. Banks don't care
about you, or me or anyone else. Why? Because they are not people but financial
institutions, so they don't possess any human emotions. The people who work in
them, however, do -- and very often they want to help their customers.
They aren't the only people who
might be concerned with your financial well-being. So before you march off to
bankruptcy court, I implore you to explore other options.
First, let's address why you might have been rejected for a secured credit card. It's true that these products are easier to
qualify for than your typical unsecured card, but there's still no guarantee
the issuer will take you on as a customer. Applicants still need to meet the issuer's criteria, which probably includes bringing in some sort of income and having enough
cash to set aside in the special savings account that collateralizes the credit
Credit scores, too, come into
play for secured cards. Even though the issuer may be more forgiving with the
numbers than they would for unsecured cards, if yours are extremely low, you
may still be rejected. The most commonly used scoring system is FICO, and it
rates payment history and credit utilization as the most important factors. So if
you have a long pattern of letting your accounts go delinquent, have many
accounts in collections or owe a lot of money, your scores will be too poor
So does that mean you ought to
just give up? Not before trying to fix the problem first. If you repay your
debts -- even if they're in collections -- your credit history and your
scores will improve. It won't erase the fact that you didn't deal with them the
right way in the first place, but a satisfied balance always looks better than
one that's outstanding.
After that, you'll probably have
repaired the damage enough to be eligible for a secured credit card. Once you
have that, charge a little each month, but pay the balance off in full and
before the due date. That's all it takes to create what you want: a healthy
credit history. After seven years, most negative items will be removed from the
report, and no one will be the wiser.
Now for the assistance you want.
I've always been a big proponent of credit counseling agencies. The nonprofit
agencies are often excellent, and at the very least they'll give you support
and information. Appointments are even free. Don't expect them to take over
your obligations, though.
The repayment program offered by most credit counseling agencies is primarily for
accounts still with the original creditors, so be prepared to let them
work with you to develop a budget and review your rights and responsibilities
regarding collection agencies. I presume those are the people who are calling. I
would suggest contacting an agency near you that is affiliated with either the
National Foundation for Credit Counseling or the Association of Independent
Consumer Credit Counseling Agencies.
As a preview, know that the Fair
Debt Collection Practices Act is a federal law that restricts the way third-party
collectors contact you. For example, they can only call you between 9 a.m. and 9
p.m. They can't swear, harass or lie. You also have the right to not talk. If
you prefer, you can conduct all communication by mail.
And bankruptcy? Well that's there
for you as well, but only if you truly need it.
See related: FICO's 5 factors: The components of a FICO credit score, 4 ways to build credit without a credit card
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: October 16, 2013