Should I get a credit card?

[Anonymous]

Hi, I am new to the boards and just read some of the recommended reads. One mentioned that you should not close all your credit cards to help keep your debt to credit ratio low. Well, I can't find anything on my situation:

I am trying to repair my credit. I have EQ=629. My main bad is I have a history of a lot of late payments, but all accounts have been current for over 6 months now. I actually closed all of my bank cards several years ago. I do have a Sams/Walmart card from GEMB. It has a $500 balance with $710 limit and no lates opened in 2004. I also have an installment loan with no lates. I don't have a car payment. It is mainly our house payment that has been late more recently. We applied for a loan modification but were denied because they said we did not get the information to them in time. Our records showed that we did (the lender also reported over the phone that their records showed that we did too) so we filed a dispute but never got a reply. We finally got the point we could make the payments again and gave up on the modification thinking it might be more adverse to our credit scores.

I was wondering if I actually need to try and get a regular credit card to help improve our credit. Should I just pay down that one card we have and the installment loan? Should I try to get a secured credit card? Any advise would be greatly appreciated. I did read the information on credit from myFico and it looked like we should maybe consider a secured card, but it did not suggest that on the report from myFico related to our situation. It just said to pay down the debt. I don't see how paying down the very little debt that we have is going to help us much at all, even over the long haul.

Thank-you,

[Anonymous]

For paying the debt down, it's most likely due to utilization. With $500 on a $710 CL, you have around 70% utilization, which is pretty high. If you're looking to get a non-store card, I'd say pay that card off (or down at least) and let your credit report update before applying for a new card. Even though $500 in debt really isn't much, the problem is that it's such a high % of your total available credit. That's why low-limit cards are such a pain since you really can't ever carry a balance without taking a score hit.

Now, I could be wrong, but as long as you have one revolving account (the store card), that should be enough to help your credit rating as long as it's paid off in a timely manner.

But if you're looking to actually get some use out of a credit card, you might want to get a card that's not store specific. If you get a secured card, most of them will let you add additional funds later to increase your CLI, and some do have a chance of graduating to unsecured eventually. So you could just start it at the minimum (200, 300 or 500 depending on the bank) and just keep it on the backburner, just make sure to charge something minor every month and PIF.

Keep in mind with a bunch of late payments, you could get turned down though. Even pre-approvals aren't ever pre-approvals, you're just pre-approved to attempt to qualify. In other words, it means nothing at all except you have a chance of getting approved.

[Anonymous]

Thanks so much.

I now have the ability to PIF and then charge and PIF on that card regularly, so I think I will do that for a while. I buy my groceries and gas at Sams, and I usually don't use this card to pay for them. I got the balance by using it as an emergency fund when I did not have enough money to buy my basic necessitites, but now I don't think I need it for that. Do I need to PIF each month before they actually bill me or when I receive the bill to show that I am not carrying a balance that will affect the % of debt to credit?

In a few months, maybe I will apply for a simple secured card that can graduate to unsecured. I think I can put $1000 into a secured card to have for "just  in case" and to build my credit again hopefully.

I am feeling really boxed in to my score because I did close all my good standing accounts a few years ago. I thought I was protecting myself from someone stealing the numbers or my identity and charging on these open accounts at the time.

[kjm79]

You do want to get a credit card.  FICO does look at your mix of credit.  Major bank cards (Visa/MC), store cards, installments, mortgage.  I'd pay down the CC you have and let it report anywhere from 1-9% of the limit.  That alone will give you a boost in your score.  Take a couple months to play with the % to see what your "sweet spot" is for your best score. 

Then once your score goes up from lowering UTIL, the late payments will have gotten a little older.  You'll be in a better position to get a new CC.  And as discussed, a secured card that will graduate would be best instead of gettting a rebuilder HSBC or Orchard card with a small limit that never grows.  Just pay down your current card, let your score come up from that and then get your new card. 

[Wolf3]

Lowering your utilization will improve your score immediately.  

For a better FICO score you should have at least 3 credit cards, with some being bank cards. A secured card is a good way to rebuild when you have negatives on your credit report.  I think it is a good idea in your case..