Having bad credit affects more than just your credit score. Bad credit hinders your ability to obtain car loans, home loans, and even some employers run a credit check before hiring. In this day in age, a credit card is almost a necessity. Having a credit card gives you the ability to shop online, sell online with a Paypal account, pay bills online, and get through stores faster. Lack of credit and not having a credit card also limits the way you can shop. Without a credit card, you can forget bidding on eBay or using buying in-app purchase.
A poor credit score or no credit means that your interest rate on a new credit card will be higher than that of a person with a good credit history, or you may even be denied all together. Applying for a credit card will not lower your credit score. It is worth a few tries to avoid paying fees. However, if your credit score is very poor and you find you keep getting denied, a secured credit card is another option. A secured credit card, known as the credit card for bad credit, means that you put down a deposit in order to use it. The deposit is paid back to you when you close the account.
You will want to keep this card open for a year or two however. Closing a credit card adversely effects your score, so you will want to keep this card open until you have established your good credit and opened a new card. The benefits outweigh the cost however, because with your good credit you won’t need to put down costly deposits on utilities and phone bills.
Secured Credit Cards
Many banks and well-known credit card companies like Capital One offer secured credit cards. Credit Karma is a good website to visit to compare rates on both secured, and non-secured credit cards. Look for a card with an interest-free grace period so you can easily make your payments and establish credit. Be sure to pay it off before accruing any interest. If your credit isn’t all that bad, or you have no credit, try applying for a low limit store credit card, like a Target Red card, a Home Shopping Network card. Use it for some small, sensible purchases and pay it off every month.
A prepaid Visa or MasterCard is one way to have the benefits of a credit card while inhibiting your ability to overspend because all the money is already yours that you put on the card. You cannot go over the money on the card, and if you try to, you will simply be denied. Prepaid credit cards work the same way as regular credit cards, but they do not help you establish credit history as they are not reported to credit reporting agencies.
Open A Bank Account
Opening a bank account with direct deposit is another good way to get credit card offers. Sign up at a local bank and talk to the staff about opening a credit account. Having a relationship with a bank, they are more likely to work with you and give you a better interest rate and rewards. Many banks also offer secured credit cards with competitive rates. However, you may have to pay back past overdraft fees to your bank first.
Consider your newly obtained credit card like a pet for the first time. If you can take care of your goldfish, you can have a bigger pet, with more responsibility. Once you have had a card for 6 months to a year, you will have established a good rapport with the creditor, showing you are capable of making your payments.
Check Your Credit Score
Check your credit score often and follow up on anything that appears incorrect. It can be a hassle, but it is important because no one is going to take care of your money like you will. Obtaining a credit score should always be free, and you should never have to pay. Credit Sesame, FreeCreditReport.com, and many credit card companies all offer a free credit report.
Pay On Time
Always dispute an unjust charge, if you just forget about the bill it will never go away and the creditors will start calling. Any unpaid bills reported to a collection agency can negatively affect your credit score. Stick with just the one credit card for a year, stay well below your limit, and your credit should be built up in about a year. Then you can apply for a second card, get a car loan, or even buy a house! Paying rent and making car payments in your name also affects your credit score. Always keep up with your bills and don’t buy what you can’t afford.
When you no longer are using a credit card, simply put it away or cut it up. Calling to cancel a credit card adversely affects your debt to credit ratio and ends up lowering your credit score. On the same note, carrying too high of a balance can negatively affect your score also.
When used responsibly, credit cards are a convenient way to keep track of purchases. The rewards they offer can be valuable too, as long you aren’t canceling them out with interest you pay.