If you’ve had credit problems in the past, or you currently have large amounts of credit card debt, you may be looking to rebuild your score in order to help you move forward with your life. Poor credit can be a nightmare for various reasons — your credit score impacts your ability to get leases, loans, phone plans, credit cards, and plenty of other much needed items. There are a few ways you can begin to rebuild your credit. One way many Americans do it is by adding themselves onto a family members credit card as an ‘authorized user’ — which can help give you some of their good credit history. It is important to note that you should only do this if your family member has great credit — you don’t want to inherit a bad credit history! But this isn’t an option for everyone — don’t worry, you can get credit cards that can help you rebuild your credit score. Some of these come in the form of credit cards with little credit requirements, and others come in the form of secured credit cards which require down payments prior to receiving credit. If you currently have large amounts of credit card debt, you can even try and transfer your balance to another card. You should view these options as tools to help you build your future credit report. Getting a new credit card to rebuild is a great way to learn the ropes of using a credit card responsibly prior to getting a more substantial credit limit or loan.
This article will help outline the various factors you should consider when deciding what credit card to use to rebuild your credit. In addition, it will consider the benefits and disadvantages of obtaining these cards.
What to Look For
When considering which card to opt for when rebuilding credit, you should consider the following factors: type of credit card, reputation of lender, current balance, and interest rate.
- Type of Credit Card – There are actually two types of credit cards available to those who want to start rebuilding their credit. The first is a regular credit card with low credit score requirements, this means that despite your lack of good credit history, you may still be able to receive this card. The other type of credit card is a secured credit card in which you deposit the amount of money equal to your credit limit into an account so your lender has collateral against your credit use. This is a great way to start using a new credit card without having to worry about your ability to pay it back, if you can’t pay it back then your deposit will be used to cover the money owed.
- Reputation of Lender – You don’t want to get duped into using a dodgy lender because you lack a good credit score. Many predatory lenders are looking for people with poor to credit so they can charge fees and other charges – don’t get trapped by a lesser known lender, try and stick with major banks and lenders! It looks better for your credit report, too.
- Current Balance – Depending on the type of situation you are in you may have a large credit card balance, or none at all. If you do have a large balance, attempt to opt for one of the low requirement cards that will let you transfer your balance. This way you can potentially pay back your loan at a lower rate, or even take advantage of an interest free period. Many balance transfer cards have high credit score requirements, but there are some lower score threshold cards that will still be available. It’s a great way to get a head start at rebuilding your credit and paying back your debt.
- Interest Rate – This is primarily applicable to regular credit cards not secured credits cards as secured cards can always be paid off using their deposit. If you’re using a regular credit card, you’ll want to make sure that the interest rate is as low as possible. Since you are trying to rebuild your credit score, you don’t want to get stuck in a debt trap that you can’t get out of.
The main advantage of these types of cards is the ability to rebuild your credit. You need to have credit to do various things in life and this is the perfect way to get the ball rolling. In addition, the secured card option means that you won’t have to worry about not being able to pay your bill as you have collateral in place should a hardship arise.
The primary disadvantage lies in the fact that you won’t receive a large limit, and you won’t receive any additional benefits for using your card. In fact, if you use a secured card, you will be tying up money in an account to help ensure you can pay your bill – this means that you get no real monetary benefit from having your card.
If you need to rebuild credit for the future, you should start doing so straight away. Using a credit card that allows for credit rebuilding is probably the best possible way to get yourself back onto the credit ladder. As always, avoid high interest cards and be responsible with your spending to ensure you don’t have future problems.