If you have bad credit, finding a company that will offer you a credit card is difficult, even if your situation is not your fault. Fortunately, many credit card companies understand what you’ve been through and offer a variety of options to help you rebuild your credit score. You are not alone in what you’ve been through. You can choose to apply for a card that best meets your financial needs, your income and your spending habits.
Bad Credit Does Not Mean Bad Character
The term “bad credit” really means that you have a low credit score. It isn’t a judgment on your character. Credit card companies know that there are many reasons why people end up in difficult financial circumstances resulting in low credit scores. Anyone who has had medical bills they can’t pay, has lost a job or has had to declare bankruptcy can end up with a bad credit score.
People who have not used or applied for any type of credit in the past do not have a credit score and must build one from scratch. If you are just trying to start building a credit score, you will start out with a low score in the “bad credit” range. In either situation, you’ll still be able to apply for a credit card and build, or rebuild your credit score.
What Credit Score Is “Bad?”
If your credit score is in the 300-579 range, the lowest range of scores you are considered to be in the “bad-credit” category. Lenders and credit card companies don’t typically judge why you are in the situation you are in but they do understand and offer credit cards to help you move your score upwards.
Because your credit score is in this “very poor” range, credit card companies consider you to be a higher risk customer. Card companies offset the high risk of extending credit to you by charging higher interest rates and bigger fees for each transaction and by requiring a deposit on secured credit cards.
Secured Credit Cards Can Help Improve Bad Credit
Credit cards are either secured or unsecured. Secured credit cards are the best options for people with poor or bad credit scores. A credit card company is more willing to extend credit to you if you provide security in the form of a cash deposit, into the credit card company’s bank.
The amount of credit the company will give to you is equivalent to half-or-all of the security deposit you’ve made. You still should pay the amount you charge on the card each month, to build-up your credit score. Carrying a balance over to the next month can hurt your credit score, even if you make the payment on time. So, you’ll want to only charge a small amount each month that you are sure you can pay at the end of the month.
Unsecured credit cards are what most people with excellent credit scores use. These cards don’t require a cash deposit or security payment. If you make your payments on time and keep your balances low on a secured credit card, you can reestablish a good credit score. After several months, your credit card company may offer an unsecured credit card to you.
What You Should Do If You’re Looking For A Credit Card
It makes sense to do some research before applying for a credit card. If you apply for the wrong card, it can lower your credit score even more. The wrong type of card can also prevent you from obtaining the right card in the future or from obtaining the credit you might need in an emergency or to apply for a student loan.
The most important things to consider when evaluating cards are the following:
No Credit Check
Check your credit report on a regular basis. Your credit report will list all of your purchases and payments each month and summarize them based on whether you have paid your monthly statement on time and in-full and how much credit you have used out of the amount available to you.
Low Initial Deposit
What kinds of purchases will you make with your credit card? Understandably, many people with serious financial difficulties have used their credit cards to buy necessities like food, gas and medical care. You should not be using your card for impulse purchases or things you don’t need.
Low Interest Rates and Fees
Will you be able to pay back your charges after one or two billing cycles? If you think you will not earn enough income to pay the bill in full each month, you’ll need to look for a card with low interest rates and fees. However, the best course of action is to not charge the item at all if you can’t pay the balance due in full.
Reporting Good Behavior to Credit Bureaus
Can you commit to using your card for only essential or token purchases? If your goal is to rebuild your credit, you should only charge what you can afford to repay when the monthly statement arrives. Repaying the balance in full and on time is one of the best ways to rebuild your credit score. Showing monthly activity, however small, and paying it off in full is the best way to demonstrate that you are responsible with credit. Make sure the credit card company will report your good behavior to the major credit bureaus.
Rewards and Benefits
Compare various cards to understand what the fees and costs are including the annual fee (often zero), lower or no fees to transfer funds, for cash advances or unlimited deposit amounts. Some cards have lower fees if you make a larger deposit into prepaid accounts with the credit card companies. Others even offer rewards for purchases you make.Check your credit report on a regular basis. Your credit report will list all of your purchases and payments each month and summarize them based on whether you have paid your monthly statement on time and in-full and how much credit you have used out of the amount available to you.
Make a budget and a schedule for paying off existing credit card debt. Include a category for saving for emergency expenses like home and auto repairs or medical care. Also, budget to make extra payments to pay down credit card balances when you have extra funds rather than spending the money. You may be able to negotiate with your existing credit card company to make a smaller monthly payment each month to help you pay off the balance faster.
Rebuilding your credit score will take time, about 6-18 months. If you pay your bills on-time and limit the amount of credit you use to about 30% of how much you have available to you, you will rebuild your score quickly. Understand what goes into calculating your credit score so you can try to improve those areas of spending-behavior and quickly correct any errors or falsely-reported information.