Dear Liz: My brother is 63, living on Social Security only and needs to obtain a credit card. He is old school and pays cash for virtually everything, but realizes he needs a credit card for some basics (renting a car, for example). If he has only $17,000 income a year, would that be enough to qualify him for a basic credit card from any provider? If not, do you have any suggestions for emergencies where a credit card would normally be required?
Answer: Some people use debit cards or prepaid cards in situations where credit cards are typically accepted. But gas stations, hotels and some other merchants can put a “block” or hold on an account for more than the amount being charged. That can limit the user’s access to the rest of the money in their checking account or on their prepaid card for several hours or even days. Also, debit and prepaid cards have fewer consumer protections than credit cards.
The biggest problem your brother faces in getting a regular credit card is his habit of paying with cash. He may not have enough of a credit history to generate a credit score, and most card issuers rely heavily on scores in evaluating applications. He should consider visiting MyFico.com and see if he can buy one of his FICO scores for $20. If he doesn’t have FICOs, he may want to consider a secured credit card.
A secured card gives him a credit line equal to a deposit he makes at the issuing bank. NerdWallet, an online financial site that evaluates credit cards, recommends the U.S. Bank Secured Visa Card, which has a low $35 annual fee and security deposits ranging from $300 to a respectable $5,000. Another option is the Capital One Secured Card, which has a lower annual fee of $25 but a credit limit of just $200.
Using a secured card lightly but regularly, and paying off the balance in full every month, can help your brother build credit scores that eventually will be high enough to qualify for a regular card.
Liz, thanks for your writing. It is always well reasoned and helpful. While you have outlined some good choices, you simply don’t need a credit card. I’ve not had a credit card for several years and I travel quite a bit. I buy airline tickets, rent cars and hotel rooms with my debit card. I keep at least two months income in my account, so if they block some funds, which they rarely do, it’s no big deal. I know most disagree, but you don’t need a credit card. To me they are not worth the risk of overspending that they pose.
Thanks for your perspective, Dwight. I agree that there are some people who shouldn’t use credit cards. But credit cards offer many benefits for people who can develop the discipline to pay them off in full every month.