Editorial Policy

Pining for a card on a tight budget, bad credit

Erica Sandberg

November 4, 2014

QHi Erica,

My credit was terrible due to my own stupid mistakes, and they took away all my credit cards. That was two years ago. I’m cash only now and my budget is very, very tight. I am on Supplemental Security Income. My question is about the Wal-Mart card.  That is where I shop, and every time I go, they ask if I want one. I am tempted. It would be so good to not pinch pennies all the time. Maybe I’m going crazy? –Eve

ADear Eve,

Your desire for relief couldn’t be more sane. Constantly trying to cover all your vital expenses from a meager source is both stressful and depressing. Anyone in your position would crave even a day of being able to shop without having to pour over price tags, meticulously count change, then settle on the very cheapest thing.Ask Erica

I see nothing wrong with pursuing a credit card issued by Wal-Mart or any other retailer or creditor — but under two conditions: if you can qualify for the account, and if you will use it to your advantage.

It is a common company policy for cashiers to ask every customer at checkout if they’re interested in opening a credit account.  They make it sound quite compelling. Typical spiels include explaining that there is a huge discount on that day’s purchases, and a whole host of money saving deals after that.

The problem is that the person extolling the card’s virtues has no clue if you would qualify for the card. That’s for you to find out, and if you say yes, you’ll soon be supplying some basic personal information (your name, address, income and Social Security number.) The store will run a quick credit check on you, which triggers a hard inquiry to be placed on your credit file. In a few minutes you’ll know if you’ve “passed.”

So will you? I can’t tell for sure if you meet Wal-Mart’s criteria, but if I had to guess, I would say it is unlikely.

The credit trouble you got into a couple of years ago is still listed on your consumer credit reports, and will until seven years have gone by. It’s being calculated into your credit scores in a negative way. Almost all credit issuers use scores such as the FICO to determine eligibility and set terms. Your numbers are probably quite low, not only because of what you did with the now-defunct accounts (delinquencies, defaults and collection activity will all sink a score like a stone), but you also don’t appear to have any current positive data on the reports to offset those dings.

Using cash and debit cards is great as it will keep you out of debt, but it won’t do anything to help your credit rating rise. (Oh, and that application for credit at Wal-Mart? It will decrease those digits further — not by much and it will be temporary, but there will be a slight downturn.)

Another reason you would almost certainly be rejected is that you’re not earning much. Income is an eligibility factor, and what you’re receiving in government benefits is barely enough to keep you afloat. Consequently, any creditor would be wise to doubt your ability to repay what you could borrow with the card. A denial would not be punitive, but a protective business decision.

Even if Wal-Mart gives you a pass, and you still want a credit card, you do have another option. If you can scrape together a few hundred dollars, you may be able to get a secured card. They are easier to qualify for since the money you put down in a special savings account guarantees the credit line. You would still need to prove that you have sufficient earnings to handle the credit limit, but if the charging amount is very low (the same amount as the deposit), their risk is nil. In that case, they might decide to provide you with a credit card. Before you choose a secured card, however, make sure the issuer sends its information to the credit bureaus. If it does, and if you pay on time and in full each month, you will improve your credit score.

Now for using an account advantageously. Go ahead and shop with the card, from Wal-Mart and beyond. But don’t stop pinching pennies! Spending within your means is crucial.

You know from past experience that anything you charge will result in a bill. The anxiety you’re feeling now will escalate if you have to scramble for a payment that you can’t afford. The only way to stay out of debt is to send the balance owed in full each month.

Before you borrow, make sure you’ll have the cash to do so — without heart palpitations. If you’re confident that you can use plastic this way and you can start small, either with Wal-Mart or a secured credit card, go for it. You’ll reap all the benefits with none of the drawbacks.

Got a question for Erica? Send her an email.