Expert: Regan Shinski - 10/22/2009

Question
QUESTION: I only have one credit card, Mastercard. I've used it for many years and have good credit. But I am 58 years old, never owned a house and paid off my car many years ago, after making payments for a few years and have been unemployed for a very long time. I also had a different mastercard years ago that it no longer active. Although my credit report shows me in good standing (I don't know my exact score), I just wonder that if I ever need to make a major purchase, like another car, is my credit history and just one current credit card, enough to show I have good credit or do I need or should I get another one to bolster it? Thanks

ANSWER: Lee:

It is nearly impossible for me to predict with 100% certainty what you need to do to be able to purchase a vehicle or improve your score.  There are just so many factors that go into a score and the exact formula is a tightly guarded secret.

To further complicate this, each lender has different standards of acceptance, so the score is no longer the only factor in lending decisions.  None credit related factors such as income, job stability, down payment, and assets also factor into larger purchase approval.

However, you definitely have a thin file.  People with pristine credit usually have more accounts and revolving credit.  I believe you are also hampered by not having a mortgage or installment loan on file.  The problem with opening new credit while having a thin file is that often the immediate impact is to lower the score.  Once the account has been open and reporting positively for 3-12 months, the score will rebound - usually above where it was before the accounts were opened.  This is the doubled-edged sword you may face, but there is no way around it.

If you are not planning a major purchase in the near future, I would give strong consideration to opening another account or two.  I would not open more than a card or two every 6-12 months.  If you are declined, don't keep applying as inquiries can also hurt your credit.  Instead, move down to a subprime or secured card until your portfolio is more full and credit becomes much easier.

If you need to get a vehicle in the near future, I would not open a new credit card until after you apply for the car.  The risk of a credit score drop is real for the short term.  Again, long term, your credit will be better with more accounts.  It's just a matter of timing and a decision you have to make based on your situation.

You can also purchase your credit score through various websites including www.myfico.com and www.experian.com as examples.   This will give you an idea of where you stand. You can then contact lenders directly and get an idea if you would qualify for credit with them.  Do NOT let them pull you credit until you are ready to apply.

I hope this helps.  Please contact me if you have any other questions.

Regan
mbscompany@aim.com

---------- FOLLOW-UP ----------

QUESTION: Thanks, sorry to bug you again. I never got my credit score because even though those places offer a "free trial period" they require entering  Social Security and credit card numbers online, which makes me uneasy. They also say "If you don't cancel your membership within the trial period, you will be billed $14.95 for each month that you continue your membership" and I've heard it's not always that easy. Is it your experience that it is safe to do this online and also easy to avoid getting billed each month by canceling during the 'free trial'?  But I guess my main question is, if I do get my credit score and it's high, would you still recommend getting more cards if I need to make a major purchase or would having a high score be enough, at least for the credit aspect (I know there are other factors)?  Thanks again.

Answer
Hello Lee:

I have never had a problem with the major sites but that does not mean others have not.  You can purchase your score by calling each of the credit bureaus or writing to them if you don't want to do it online.

I cannot state with 100% certainty in this credit market that you would be guaranteed an approval - credit wise - with a high score but very thin file.  Lenders are just on pins and needles in this market.  They have kind of evolved their approval process and predicting is just not as easy as it once was.  I WILL say that a higher score is probably still more important than not having a thick file - as long as SOMETHING is showing positive history.

What I would do is get your score and reports and call a few lenders.  Tell them your situation.  Say you do NOT want your credit pulled.  Don't give them your social security number.  Just get a feel if you would be approved.  They will give you the run-around saying they can't say for sure without pulling your credit, that it depends on the car, down payment, etc.  You just have to stay persistent, weed out the sales pitch, with the goal to just get a GENERAL idea if your score and file is good enough as is.  This should give you an idea without formally applying and before you make the decision to get additional credit.

I do think additional credit will still greatly help you in the long run going forward.  Adding a single card should have a MAJOR drop on your score but if you think you will be making a major purchase in the short term, I would not get new credit until the major purchase is taken care of first.  If this is only an emergency type thing, I would start getting a better credit portfolio by adding a single card.  Wait 6-12 months and get another.

Hope that helps and makes sense,

Regan
mbscompany@aim.com