NFCC Financial Education Blog ? How to Rebound from a Rock ...

By Erica Sandberg

Dear Erica,

I wanted to know what I can do to obtain a real credit card. My credit rating really stinks, and it?s embarrassing. It?s in the low 400s, and I don?t qualify for anything. To make matters worse I?m receiving unemployment, but actively seeking employment. What can I do? I cannot at this point pay any of my past debts, so I?m really stuck. I know I got myself in this mess and want to take responsibility for it. Thanks for your time and help.

? Michael
Hi Michael,

I?m not going to gloss over this ? your credit does smell pretty bad. A FICO score in the low 400s is barely above the 300 start point. That could mean one of two things: You have not yet become a responsible and adroit borrower, or you have borrowed money but failed to pay it back as promised. Because you have some debt to contend with now, those low scores are a result of the latter situation.

Squelch your shame, though. You?re one of millions of Americans who have made mistakes with credit cards. It?s easy to get into overwhelming debt, and, once you do, it?s hard to get out of it. And, as you?ve already learned, when you owe too much and don?t make the payments as you should, your credit rating suffers.

Here?s how to dig yourself out of this mess and get your finances and credit scores moving in the right direction:

1. Concentrate on getting a job. Ignore your score right now. The most important thing you need to do is to start bringing home a paycheck. I know that securing a job can be tough right now, but keep looking and eventually it will happen. You must earn an income, not just to pay your way in life, but to send money to your creditors. As your balances decrease, your credit rating will rise.

2. Obtain a secured credit card. Right now, you don?t deserve an unsecured account. I don?t write that to be cruel, but because unsecured credit cards are granted based on your current income and previous credit prowess. You have neither. Without them, the credit card issuer takes a mighty big risk in extending you credit, since it has no way of knowing that you can and will pay them back. However, a secured credit card is far less risky. The lender collects a cash deposit from you and holds it as collateral while also offering you a credit line. For this reason, secured cards are fairly easy to get.

3. Don?t make the same mistake twice. As I said, almost every cardholder falters some point. The key is to not let it happen again. You know how bad it feels to acquire huge balances and to be out of a job. So go ahead and use the secured credit card, but only for small, affordable items and services. Never carry over a balance, and always pay on time. As you are acutely aware, credit cards are not to be used for those times when you?ve run out of funds. Pretend the plastic doesn?t exist. If you come up short, suffer through it by eating rice and beans until your next paycheck arrives.

These three steps will lead you to a better place. Once you?ve cleared up the old debt and have established a positive payment pattern with the new card, your FICO score will smell a lot prettier than it does at this moment. When it is positively perfumey ? around 700 or so ? you can go for another credit card that offers a sweet rewards program.

Erica Sandberg is editor at large for Bankrate?s Credit Card Guide, columnist and features reporter for CreditCards.com, and the consumer protection spokeswoman for Western Union. She is also a contributing personal finance writer for the San Francisco Chronicle?s online edition, and author of Expecting Money: The Essential Financial Plan for New and Growing Families. Prior to her current work as a national money and credit expert and journalist, Erica was affiliated with Consumer Credit Counseling Service of San Francisco for 10 years.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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Source: http://financialeducation.nfcc.org/2012/03/28/how-to-rebound-from-a-rock-bottomcredit-score/?utm_source=rss&utm_medium=rss&utm_campaign=how-to-rebound-from-a-rock-bottomcredit-score

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