Editorial Policy

Repair your credit before adding a new card

Erica Sandberg

March 29, 2016

Q Hi Erica,

Should I wait for my score to be better before I get another credit card? I have three credit cards now, but I can’t use any of them due to problems. My score is 530. — Danita

A  Dear Danita,

At this juncture, I advise against applying for any new credit accounts, for three good reasons:

1. Credit issuers won’t find you appealing.
When you apply for a credit card, the issuer will check your credit score to see if you’re the type of person the creditor wants to take on as a customer. The score you cite is either the FICO or the latest version of the VantageScore, as they have the same 300-to-850 scale. These scoring systems take the financial information from your consumer credit reports and plug that into a mathematical model that predicts lending risk. In general, scores of 300 to the low 600s are considered poor; those in the low 600s to the low 700s are decent; and any above the low 700s are good to excellent.

Clearly your credit scores are in the first category, and chances are they got that way by mismanaging your credit cards. Your cards are unusable because you’ve charged them up to the maximum or you’ve skipped a bunch of payments. Maybe the accounts are closed, and the debts have been turned over to collections. This type of card mismanagement will drastically reduce your credit scores.

In short, with scores like yours, issuers would be wise to doubt your ability to handle another line of credit.

2. Any card you can get will be pricey.
There are many types of credit cards on the market, and some are designed specifically for people who have damaged or thin credit histories. Secured cards, for example, tend to have more forgiving application standards. With a secured card, the cash you would put down as collateral (fully refundable when the account is closed with a zero balance) provides the issuer with assurance that any card debt will be covered in the event you default. Some issuers are also willing to extend unsecured accounts with small credit lines to applicants with poor credit ratings.

These accounts, however, tend to have costly fees and high APRs. I only recommend these when applicants have the money to spare for the extra fees, and will be sure to charge only the amount they will pay off within the interest-free grace period.

3. Another card will probably lower your credit score.
You need to treat credit cards responsibly, and I’m not sure you’ve reformed. Credit scores don’t just “get better.” You make them better. Increasing your credit score takes time, as well as effort on your part, and I’m not sensing ownership of the problem. Did you overcharge? Fail to pay? Let accounts slide until they wound up with collection agencies? Now is the time to deal with these issues, not worsen them by adding a new card to the party.

How can you turn over a new leaf? Make amends. First check your credit card statements and pull copies of your credit reports (free from annualcreditreport.com). Review your bills and reports carefully, identifying areas of concern. If your card debts are high compared to your credit limits, pay down your debts. When you pay down your debts, your credit scores will naturally rise. Your credit reports may indicate missed payments, and if that’s the case, commit to at least a year of sending your payments in well before the due date. Positive payment activity will show up on your credit reports, and that pattern will eventually take precedence, causing your credit scores to gradually improve. Satisfy any debts in collections too, especially if they’ve been freshly acquired by third-party companies.

After you’ve mended your past, you can work on your future. If your credit cards are still active, you can start to charge again, but never borrow more than you can afford to repay quickly. If your card accounts are closed, check your credit scores. With the action I have recommended, your scores will begin to rise, and you will be an attractive credit customer again soon.

Got a question for Erica? Send her an email.

SEE ALSO: How to recover from poor credit scores

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