This week: Everyone knows how to get a credit card when you're debt free. But what if you're not?
Question: My credit score stinks because I did some dumb stuff when I was younger that I’m still fixing — like buy expensive cars and declaring bankruptcy and getting a lien placed against me once. I’m doing everything right now thanks to sites like this one and some credit counseling. I even cut up all my credit cards a couple years ago.
But now that I got my stuff together, I want to get a credit card and earn some reward points and maybe airline miles. Is there one you suggest?
— Rick in Arizona
Howard Dvorkin CPA answers…
I’ll give you two answers, Rick. The first one you probably won’t like.
Don’t get a credit card.
Without more details about your finances, I can’t speak authoritatively about your past debt problems. However, I know enough to applaud you for fighting your way back. A big part of that success, I’m sure, was cutting up those credit cards that led you into trouble in the first place.
Why mess with that success?
In my second book, Power Up, I directly addressed your situation. I was speaking to a hypothetical individual, but it could very well be you, Rick:
Considering the position you are in, you may not qualify for a credit card. Believe me, it’s not the end of the world, and remember, we are concentrating on how to change your ideas of spending and saving money — you are financially reinventing yourself to be stronger, more resilient, and better able to adapt to a fiscal crisis…If you don’t use credit cards, you will begin to take your money more seriously.
Fortunately, you seem to have already done that last part, Rick. You’ve not only recognized and admitted how overspending got you into trouble, you’ve already done something about it.
If you’re still determined to get a credit card, then I have some advice: Get a secured credit card.
These cards require a deposit, which then becomes your credit limit. For example, you deposit $500, and that’s all you’re allowed to spend. Why go through the extra step when you could just spend your $500? There are two:
When you pay your statements on time, that fact gets reported to the major credit bureaus. Do that for a year or two, and your credit score will likely improve enough to acquire one of those coveted rewards cards.
There’s a psychological benefit to having a card and paying it off each month. You confidence is boosted as you prove to yourself that you can handle this responsibility now, even if you couldn’t in the past.
Not all secured credit cards are created equal. So I suggest you read our report on the best credit cards for those with bad credit.
Good luck, Rick!
Have a debt question?
Email your question to firstname.lastname@example.org and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.