A Money Talks News reader recently caught my attention with this compelling story…
In 2006, I was in a car accident that left me a widow and quadriplegic at age 37. Since then, I have gone back to school, and I am about to graduate with my undergraduate degree. I plan on starting my Master’s program in the fall of 2013. My only income is SSI [Social Security Insurance] and child support. I am working on becoming a college professor. Before my accident, my credit was not that great. I want to apply for a credit card for emergency purposes only. Do you have any advice?
First, Leslie, I want to recognize you for your impressive achievements.
Beyond your educational goals, I’m glad you realize it’s important to build and maintain good credit. In addition to qualifying for the best rates on a home or student loan, a strong credit report will help lower your insurance rates and may even help you to pass an employer’s background screening requirements.
A credit card can also be a good tool for emergencies, but that depends how you use it. If you need to repair or replace a major appliance immediately, and you have the money coming in a couple of weeks later, that’s a good reason. But if you need to finance an unexpected purchase that’s beyond your means – say, your TV goes out and you buy the latest flat-screen – that’s not.
A better strategy is to slowly build an emergency fund. For details on how to do that, check out Want to Get Richer? Here’s Step 1.
Once you’ve decided to get a credit card, first get a copy of your credit report. That will tell you how many accounts you have open, as well as your payment history. It will also give you the chance to correct any mistakes you find. The “big three” consumer reporting companies – Equifax, Experian, and TransUnion – are required by law to give you a free copy of your credit history once a year. You get them by going to annualcreditreport.com.
If your scores are low, you might want to look for a secured credit card. But if you do qualify for a standard card, I’d recommend starting with one of the simpler credit cards.
The Equal Credit Opportunity Act (ECOA) forces lenders to consider your SSI and child support income when deciding whether to grant you credit. According to the FTC’s website…
When Evaluating Your Income, Creditors May Not… Discount or refuse to consider income because it comes from part-time employment, Social Security , pensions, or annuities. [or] Refuse to consider reliable alimony, child support, or separate maintenance payments. A creditor may ask you for proof that you receive this income consistently.
So make sure you list these sources of income when you apply.
You’ve worked hard and rebuilt your life after an incredible tragedy, Leslie – rebuilding your credit will prove much easier.