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,
I have been in the U.S. for a year, and now have a stable job making $82,000. I tried to apply for a credit card at Babies R Us and was declined. I want to start enjoying the benefits of credit card programs for consumers. Does the credit card application affect my credit score if it was declined? I tried to get my score online, but it gives me “an error occurred” message every time. Can you please advise? — Maya
Wow, how fabulous that you have such a well-paying job! In most American communities, $82,000 is considered a healthy annual sum for an individual. And though it can help you attain credit privileges, it’s not the only thing a lender looks at when determining if you are a good credit risk.
While some retailers are open to granting credit to people with little or no credit history, not all are. It’s a matter of policy. The reason some retailers might be more flexible is that their cardholders are restricted to charging at only their stores, which helps their bottom line. Most of the time, however, the information listed on your credit report and the resulting credit scores are the major factors they use in determining whether you are a good credit risk or not.
It seems that Babies R Us did want to know how you performed with other lines of credit before allowing you to have an account with them. They checked your consumer credit report as well as your job history and income level to see if you qualified, but because the area on the report that details your borrowing and repaying activity was probably blank, they didn’t have enough to go on to grant you credit.
As for your credit score, the reason you kept getting an “error occurred” when you tried to get it online is because a score most likely hasn’t been generated yet. Again, this is due to you not having any credit history. The moment you do get a loan or line of credit, though, those numbers will start to emerge. FICO is the most commonly used credit score today, and its score range starts at a low of 300 and then runs to a high of 850.
To get your first credit card without a credit history and credit score, you need to go for a secured account. Most banks and credit unions offer secured credit cards as a way for people to get their start in the world of credit. These cards are relatively easy to obtain because you put some money into a special savings account, which the financial institution keeps as collateral. You are then issued a credit card with a line of credit equal to or sometimes just above your deposit. And there you go — you’ve got a credit card that you can charge with. Make purchases with it a few times a month, and pay the balance in full and on time. Your score will increase with this type of positive activity.
After a year or so of good credit use, apply for another credit card, but this time an unsecured one that you can use anywhere (not just at a particular store). Before you do, though, check your credit reports and scores to see where you stand. If your rating is high (above 700), you’re an excellent customer and may be eligible for a premium card that allows you to build points redeemable for cash back, travel rewards and products and services. Mind that you only apply for one card at a time and for the card you’re most likely to be approved for. As you noted, too many credit inquiries — both approved and declined — can lower your score for a short period.
Finally, know that a few accounts should be sufficient — don’t overdo it! And keep an eye on your credit history every year by pulling your reports at AnnualCreditReport.com to make sure all is well.
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