Editorial Policy

81-year-old widow needs to build credit

Erica Sandberg

June 17, 2014

QHi Erica,

I am an 81-year-old widow and I'm trying to build my credit. How can I find the best deal for me? Please advise; I would like to have a low APR and no annual fees. –Anita

ADear Anita,

It appears that you have two goals that you want to achieve simultaneously: One is to get a premium piece of plastic with which to make purchases on the cheap, and the other is to improve your damaged credit rating. While it would be great to get them at the same time, I'm afraid it's not realistic. Order is key. To obtain the first, you've got to do the second. Ask Erica

On the positive side, you can probably qualify for a credit card now, even with your damaged credit. After that, you can use it to work your way up to the type of account for which you're aiming.

As you may know, most issuers offer an array of credit cards, each designed for different types of customers. Some of the cards are right for people who have long, fantastic credit histories. Those products tend to have low interest rates, few fees, and rewards programs that allow cardholders to earn points redeemable for cash, travel and merchandise. For people with less than stellar ratings, cards with higher interest rates and fees are available, though some do offer rewards programs, too.

To shop for the right card, you'll need to know your FICO scores, which most lenders use to gauge your creditworthiness. You can order them through MyFico.com for about $20 apiece. If money is tight, just get one. Each of the three major credit reporting agencies, Experian, Equifax and TransUnion, will have a slightly different score. Still, a single score should give you a decent idea of where you stand. A bad FICO is from 300 to 599, poor is 600 to 649, fair is 650 to 699, good is 700 to 749, and excellent is 750 to 850.

Once you know what your score is, check the current offers in your category. Most issuers require an income, but if you're receiving money from such sources as a retirement or pension plan, that should be fine.

When you have a credit card, you can begin to mend your credit rating by showing creditors that you are financially responsible. You can do that by clearing up past problems as well as charging responsibly and regularly. Use the card to pay for something affordable every month, then pay in full and on time.

Not all credit troubles can be fixed, but some can. For example, if you're deep in debt, reduce it to less than 30 percent of what you can borrow. If you have accounts that went into collections or if you were sued and owe a monitory judgment, pay them off. These two actions alone will cause your credit rating to spike.

However, late payments also bring a rating down, and there's nothing you can do about that except change the future. Maintain a perfect payment history from this point forward. After about a year, the good will overshadow the bad, and your credit rating will be in a far better place than it is today.

And that's it. Sure, the account you get now has a high interest rate, but if you never carry a balance, who cares? The annual fee is a factor, but if you prove you're a great cardholder, the issuer may consent to drop it the following year. Eventually, you'll be eligible for the credit card of your dreams.

In the end, though, you must ask yourself if all this effort is really worth the trouble.  Not everyone needs a credit card. If you can get by with a debit card, that's great. Excellent credit histories are only important when you need them. That might be when you want to finance something expensive, will be job hunting, will get insurance or a cell phone, or want to rent a home. If none of that is in your future, turn your attention to more important things, such as basic needs.

Got a question for Erica? Send her an email.