Editorial Policy

Low Credit Score? You Can Still Apply for a Card

Erica Sandberg

March 9, 2012

QDear Erica,

I have paid off all of my debt — credit cards (thanks to my debt consolidation program) and a car loan. I checked my credit score, and it is in the mid- to upper-600s. I would like to get a credit card to help rebuild my credit, and also to make purchases like an international trip or vacation. Should I hold off on applying for a credit card until my score gets higher — into the 700 range? And should I shop for a credit card that requires me to pay the balance in full every month?

I am also looking to trade in my car because the cost to maintain the luxury car I have is high. I don’t have any savings or money for a deposit for the new car, other than a trade-in. Should I suck it up and deal with the expensive car maintenance costs until my credit score improves? — Jenifer

AHi Jenifer,

Congratulations on your success! Sticking with a debt repayment plan takes dedication and, very often, sacrifice. Now that you’re in the clear, it’s time to loosen things up a bit and tiptoe back into the credit world. Not everyone should — or even desires to — charge again after such an ordeal, but if you want to, I’m all for it. Here’s the best way.

Right now, your FICO score sits at the midpoint of the spectrum. While FICO scores range from a low of 300 to a high of 850, it doesn’t reach the “excellent” mark until around 720. However, that doesn’t mean that you won’t qualify for a good credit card. These numbers aren’t the only factor banks use to determine if you’re a good fit for one of their products. They will assess your income as well and compare it to any current obligations that you have. This way, they can see if you have the means to handle the credit line they’re offering. I don’t see much reason to wait until your credit is perfect to apply. In fact, the best way to build your credit back up is to use it, so getting an account soon is wise.

Check out the deals that are available to you right now. Your score is considered fair to good, so concentrate on these sections of Credit Card Guide’s Cards by Credit page. As you can see, options abound. While you may not be right for the cream of the crop — cards with no annual fees and super generous rewards programs — you’ll quickly note that many cards you’d qualify for do come with attractive features like cash back on purchases.Ask Erica

You wonder if you should get the type of account where you have to pay the balance in full each month, and that’s a charge card, not a credit card. Charge cards are terrific because the limits are often very high, and the rewards tend to be stellar. They’re a great complement to credit cards, which allow you to pay for what you spend over time. Whichever type of card you get, treat it the same way: Do not carry over a balance. Ever. The credit cards you most likely qualify for have relatively high annual percentage rates (APRs), so the cost to keep debt will be pricey. Moreover, you don’t want to fall behind again, and the only way to do this is to always pay on time and in full.

Regarding your vehicle, I’d love for you to exchange your money guzzler for a more financially efficient model. If your current ride is breaking down (or soon will be), you could be spending big bucks on repairs. Because you can’t buy outright, you’ll have to finance the new car. I’d wait until your credit scores are up to the excellent level so you can get the best APR on a new loan. Charge responsibly with your new card for about a year, so your score rises. After that, identify the car that you can best afford. Review your budget carefully. The monthly cost should not be a stretch, but easy to manage.

Best of luck to you, Jenifer, and keep up the good work!