A low FICO score needn't be the end of the world or your access to credit
By Tamara E. Holmes
No one wants to have bad credit, but with the record job losses, foreclosures and credit card defaults of the past couple of years, more people are finding themselves with less-than-stellar credit scores these days. But there's good news for those with scores in the 600s or below who still need a credit card whether for emergencies or just to rent a car: Life -- and access to credit -- still goes on.
"We tend to think of money problems as a character flaw," says Geoff Williams, co-author of "Living Well with Bad Credit. " "But we've all found out in the past two years that money problems can happen to anyone."
While you may avoid applying for a credit card, thinking your application will only end up in the card issuer's trash, the truth is you shouldn't count yourself out, says Peter Garuccio, a spokesman with the American Bankers Association. "There are still a lot of offers out there," he says. Your personal bank or credit union may be even more willing to work with you if your credit has taken a hit.
Of course, it may be harder than it was a couple of years ago. "Like everyone else in financial services, Wells Fargo adjusted underwriting standards to manage risk in this difficult credit environment," says Lisa Westermann, a spokeswoman for San Francisco-based Wells Fargo & Company. Today, fewer people are
being approved for credit cards due to deteriorating real estate values and investment portfolios, high unemployment and increased levels of personal debt, she says. Another factor that's making card issuers more stringent: "Many consumers with traditionally good credit scores are defaulting at high rates," Westermann adds.
Sob stories count
If you know you have a major blemish on your credit report, such as a loan default, you might increase your odds of getting a card by explaining the reasons for your financial difficulties. Consumers can add a 100-word statement to their credit reports. letting creditors know what led to a drop in their scores. "Anyone who pulls your credit is supposed to take into account what you put in that statement," says Linda Sherry, a spokeswoman for San Francisco-based education and advocacy organization Consumer Action.
Honesty is the best policy when making your pitch. "Say, 'Look, the economy of '08 and '09 killed me. I lost my job and am still trying to catch up, but you'll see that I typically paid my bills on time before this happened,'" Sherry advises. Creditors may also be more willing to overlook bad credit if the circumstances were unrelated to your spending habits. "Divorce and illness are two reasons that everybody understands," says Williams.
If you make your pitch and are still denied, there are other options for securing credit, though they come with a cost.
When I saw that dramatic change in the score, my self-esteem came back, and I became even more responsible.