Editorial Policy

Hard work, patience needed to build credit

Erica Sandberg

May 6, 2014

QHi Erica,

My credit score is only 563. I'm trying to find a credit card without an annual fee. I want to get a card to pay off some of my bills, catch up on others and rebuild my credit score. I'm new to this and am having problems finding a credit card from a company I've heard of with no annual fee and a decent APR. Can you help me? –Michael

ADear Michael,

You're clearly a man who wants it all. I admire that. Yet, it's important to be realistic. The finer things in life are achievable, but patience and grunt work will be necessary to get there.

There are plenty of credit cards on the market that do not charge an annual fee. True, there isn't an abundance of such accounts available in the “bad credit” category (563 is in the “bad credit” category of the FICO score system), but move into “fair credit” territory and you'll see more. Such major issuers as Discover, Barclaycard and Capital One are making offers of cards with no annual fee to people with scores not too far from where yours are today.Ask Erica

Don't fixate on accounts with no annual fees, though. Some excellent cards cost less per year than a fast food meal for a family of four. Many of them have low APRs and hearty rewards programs.

The idea is to obtain the best card that you qualify for, then stick with it so you can enjoy its benefits.

This brings us to the “grunt work” I mentioned.

If bills are showing up on your credit report as late or in collections, they are the main reason for your poor scores. Also, you may owe too much. Payment history and the amount of debt you're carrying in relation to the amount you can borrow make up most of a FICO. (Here's the breakdown: payment history, 35 percent; amounts owed, 30 percent; length of credit history, 15 percent; types of credit used, 10 percent; new credit, 10 percent.)

This is what I want you to do before applying for a new credit card:

  1. Identify trouble spots on your credit report. Access your reports free at AnnualCreditReport.com. Look in the trade line section. If you spot errors, dispute them. If you see correct information that is bringing your score down — like evidence of late payments and accounts in collections — highlight them.
  2. Delete your debt. To improve your scores swiftly, bring big balances down and pay off any collection accounts. But, don't borrow more. If you don't have the money at this moment, work for it. Scrimp, save and sell. Do what it takes to accumulate funds to pay off your debt.
  3. Make all payments on time. If you have skipped payments here and there on loans or credit cards, pay by the due date from this point forward. It will be recorded on your reports and calculated into your score. You'll see a real difference in about a year.
  4. Aim for a good score. A credit score of 700 to 749 is considered “good,” and you can get there by doing the above actions. As long as you also have an income that can support a credit line, you should be eligible for the card of your dreams.

Lastly, Michael, credit cards do not exist to fix financial troubles, but to help you buy things safely and conveniently. Only use them to pay for what you can easily afford.

Got a question for Erica? Send her an email.