Start Late on Credit? Steps to Boost Score, Qualify for a Mortgage

Dear Opening Credits,

Hi, Erica. I am 39 and just got my VERY FIRST credit card in March 2012. Sad, I know. My mother and sister had huge issues with credit cards, bankruptcy, etc. So I paid for everything with cash and avoided credit cards like the plague. Now that I am older, I want to buy a home within the next four years.

I applied for a Visa with my bank six months to a year ago and was denied for having "insufficient credit history." The card I have now is a secured MasterCard from Capital One that is 3 months old. I did not apply for any other type of card assuming that without sufficient credit history, I would just be denied for anything else and lower what score I did have.

Do I need a second card that is not secured to show my creditworthiness and boost my score to get approved for a home loan? The credit card I have now I only use so there is something on it and then pay it as soon as it posts to the account so I am not paying any interest.

I currently have $201 as my credit limit and if I want that to increase, I have to give them more money, which I won't get refunded until I close the card. So I thought just giving them that until I had history and then applying for a unsecured credit card, but now I'm wondering if that's even necessary. If it is necessary, how long should I wait to apply for another? I appreciate your time and look forward to your response. Thank you! 


Dear Jenn,

There is nothing sad about getting a first credit card in your 30s! Instead, you should be happy and proud. You saw firsthand how poor credit use led to horrible problems for your family, and you made a conscious decision to never follow them down that dark and dusty road. Good for you.

That said, I don't believe that credit cards are to be avoided as if they were germs for incurable infectious diseases. They are just one way to pay for things. True, the ability to borrow more than you can afford to repay all at once is imbedded in the product, but you just have to learn how to manage it.

For example, let's say you have a massive box of chocolates in the kitchen. You'd like to have more than a few pieces in a sitting, but you know that you'll feel ill if you do, so you limit yourself to just a couple. If you find it impossible not to devour every last bit in one sitting, you have two smart courses of action: one, get smaller boxes in the future (thus mitigating the damage); or two, never keep the sweets at home. The analogy works perfectly for credit cards. Know what you're capable of, and if it's too hard to stay out of debt, either reduce the credit line and number of cards, or don't have any at all.

Now that you have a credit card, though, it appears that you're doing just fine with it. A secured credit card just means that you've left a cash deposit with the issuing bank. It's held as collateral in case you don't pay back what you borrow. Your charging activity is being reported to the credit bureaus just the same as it would be with its unsecured cousin. I'm glad that you already have a secured credit card, because that's what I would have suggested you get. They're ideal for people with not-yet-established credit histories. I'm also impressed that you didn't knock your head against closed credit doors. Again, you saw fit to go for what you really qualified for. That's smart.

I get it that you need to impress a mortgage lender with a fabulous FICO score, but you don't need an unsecured credit card to accomplish that. Just continue to use the card you have, in the same way you described. Make regular charges, pay on time and keep the balances low or at zero. After about 12 months of such activity, your score should look quite attractive. Remember, too, that a lender isn't only interested in scores, but income as well. Build your savings as you build your FICO score. Make sure your income is secure, steady and sufficient for the payment amount on the home you're after.

Finally, after a year or so, go for an unsecured credit card with a larger credit line -- if and when you're ready. It's not necessary, but it is nice. Just hold that analogous box of chocolates in mind and avoid the temptation to overindulge. You are not your mother or sister. You are Jenn, a woman who is handling her finances beautifully.