A person’s credit is one of the most valuable things he has. Credit helps a person qualify for car and home loans; it also impacts a person’s ability to get a job, qualify for a rental property and much more. A credit score is easily damaged, however, and many people find themselves suffering from poor credit after making a few bad financial choices. Fortunately, it’s possible to repair your credit. Once your finances are stable enough to pay for a credit card, getting a new card and establishing fresh credit is a great way to improve your credit score.
How Does a Credit Card Help Rebuild Credit?
A person’s credit score is affected by the number of debts he has and how quickly he pays those debts back. People with multiple credit cards all carrying a balance will have worse credit than people with a single credit card with no balance. In some cases, the best way to begin repairing credit is to transfer the balance of several cards onto a single credit card. This pays off all of the existing debt and often reduces the interest rate, in essence refinancing the credit card debt.
Another way that a credit card can help repair a person’s credit is by establishing a fresh line of credit. In many cases, people will cancel all lines of credit and either pay off their debts or have those debts settled. A credit score cannot be improved without a person actually having credit, so it’s necessary to maintain an open line of credit and consistently pay it off in order to improve the score. Credit can also be repaired through paying utility bills or having a car or home loan in a person’s name but these are often not automatically reported to the credit bureaus. Credit cards are the fastest way to begin rebuilding credit.
It’s important to realize that simply having a credit card will not improve a person’s credit. In order to work, a credit card must consistently be used and then paid off. Every time the balance is paid, the person’s credit score will improve. Over time, this allows even people with terrible credit to rebuild their credit scores.
Having multiple lines of credit is also not as advantageous as a single credit card that is paid off frequently. The age of a credit card also has an effect on a person’s credit score. In some cases, it might be best to retain the oldest credit card that you have and pay off the balance rather than getting a new card. In other cases, this may not be possible, especially if the card went into default.
How do I Qualify for a Credit Card with Bad Credit?
There are numerous options available for people with poor credit. In some cases, the interest rate may not be ideal or the card may come with additional fees. Credit card companies have become very competitive, and it’s easier than ever to find a company that can provide the best possible card without an extremely high interest rate. After a person has established his credit, he can usually qualify for a better card and transfer the balance in order to take advantage of a lower interest rate.
For people with very bad credit, a secured credit card may be the best choice. Most credit cards are unsecured debts, meaning that they have no collateral. A secured credit card, however, uses collateral equal to the credit limit of the card. This could be a vehicle or other object, but in most cases the card uses cash as collateral by making the cardholder pay a cash deposit up-front. This differs from a prepaid credit card, which does not help to improve credit. The secured credit card can be used over and over once it’s been paid off without any additional deposits being made.
If possible, you may wish to obtain a rewards card. Although these are not always available to people with bad credit, these can be extremely useful for people who wish to use the card on everyday purchases like gas or groceries. A person charges the purchases to the reward card and receives points for each purchase whenever it’s paid off. These points can be used to receive cash rewards, gift cards, airline miles or other rewards. Many cards offer double points for use at a gas station or other types of stores.
Whether you obtain a secured credit card or a regular card, it’s important to pay at least the minimum balance promptly each month to avoid extra fees and damage to your credit. Ideally, you should pay off the total balance of the card shortly after making a charge. This will have the best effect on your credit and also ensures that you pay the least in interest fees.