Repairing a poor credit score is the first step to financial recovery. Your credit score is used to determine the interest rate that you will pay on money that you borrow and even if you will or will not get the loan that you are requesting.
It is a number that represents your overall credit worthiness to lenders and it has a huge impact on your financial future. Deciding to focus on repairing your credit is a wise choice and using the best credit cards for bad credit to rebuild your credit might be easier than you thought. A few tips and simple steps can offer you a path to better credit.
I Have Bad Credit- How do I Get a Credit Card?
Having bad credit does not eliminate the opportunity for you to have a credit card but it might limit the type of card you can get. The best credit cards for bad credit to rebuild your credit score is a secured credit card. A secured credit card is one that you have gotten because you have given the lender money to hold as collateral against the charges you will make on the credit card. It is similar to a prepaid card in that you pay money to the credit card company before you can use the card, but unlike a prepaid card, this card is in your name and helps you re-establish a good credit history. Your card limit will be the amount that you “deposit” when you first get the card. You will then make monthly payments on the card just as you would an unsecured credit card. The best way to look at a secured credit card is just as you would a debit card. Only use it for things that you have the money to pay off. Make small regular charges and quickly pay them off in full.
How Does Using a Credit Card Help My Credit Score?
At first, many people think that paying in cash and never charging anything on a credit card would be the best way to improve their credit. After all, that shows that you are living within your means and staying on a budget. But the truth of the matter is that using a credit card in a responsible manner is a much better way to improve your credit score. An important part of establishing good credit is demonstrating a history of making on-time and regular payments. This history of good payments is the best demonstration of your financial responsibility. Your payment history accounts for about 35% of your credit score and is the part that you are completely in control of.
How to Benefit from a Credit Card if You Have Limited Money
One of the dangers of a credit card is simply spending too much. It’s easy to use that card and not realize how quickly the amounts add up. At the end of the month you are left facing a bill that you don’t have the money to pay, all because you were trying to use the card to improve your credit. Don’t fall into that trap, use your credit card to pay for regular monthly purchases such as food, dry cleaning, gas for your car or your cell phone bill and put the money you would have spent on those items in the bank. Many utilities also offer online payment for credit cards. You simply pay your regular bills with the credit card and then pay off the entire balance once a month with the money you put in the bank. This will allow you to make many purchases each month on a credit card and also to pay off the balance on the card each month. You will build a good payment history and keep a small or zero balance on your credit card.
The Importance of a Low Credit Card Balance
In addition to payment history, 30% of your credit score is based on the amount that you owe. The term is called credit utilization and it is basically a ratio or percentage of your available credit that you currently are carrying as a balance. You never want to have a high or “maxed out” credit utilization. That can be a strong indicator that you are spending or charging more than you can really afford to pay for. Not only does it have a poor impact on your credit score but it also costs you in the form of additional interest charges. Keeping a low and manageable balance will help rebuild your credit and eliminate the risk of being too far in debt.
Stick With a Credit Card
Similar to no inspection title loans, many credit card companies offer great sign up bonuses or rewards for a new account. Don’t fall into the trap of opening several cards just to get the bonus and then closing the accounts. Your credit score also reflects the length of time you have held specific credit accounts. About 15% of your credit score is based on this information as it shows responsibility. Open an account or two and stick with those accounts unless you decide to close one account for a new one which is offering much better terms such as a long no interest period or a much lower interest rate overall.
Invest Time to Save Money
Deciding to use the best credit cards for bad credit to rebuild your credit is a wise step to take. So spend a little bit of time researching your options and don’t just sign up for the first card that you find. Remember that you will want to keep the account open for a while, like people do who get a title loan without a job, and will have to live with the terms of the card you select to help establish a long history with the account and a good payment history. Those two factors alone account for half of your credit score. So choose wisely, consider more than just the introduction rate and possible sign up bonus as those will not last for the full length of the account. Also remember to keep a low balance on the car as that will account for an additional 30% of your credit score. These simple tips will let you rebuild your credit and maintain a manageable balance. You will soon be enjoying the benefits of better credit and a secure financial future.