Finding
a credit card when you have bad credit is tough but
not impossible - you just have to accept paying
higher interest rates and fees.
Many card providers specialize in solutions for
customers with adverse credit and have a range of
credit card options.
The key to rebuilding your credit is applying for a
card that reports to a credit bureau. Taking on a
card that does not show on your credit profile is
pointless, because mainstream lenders will not see
your efforts as the repayments and credit limits are
not reported to TransUnion, Experian or Equifax, the
three main credit reporting companies.
Don’t take the providers word that they report to a
credit bureau, after all they have a vested interest
in you as a customer - if you have any doubts, ask
the bureaus directly.
What Is Bad
Credit?
Bad credit or adverse credit covers a whole range of
payment problems that give a customer a higher risk
of defaulting on their borrowings.
The main problems card providers consider as bad
credit are:
• Missed or late payments - an irregular payment
history on an account that is not in arrears
• Unpaid tax liens - remain for up to 10 years.
• Bankruptcy - Chapter 7, 11 and 12 bankruptcies
stay on your credit profile for 10 years
Not having a traceable financial history also comes
under the bad credit even if you do not have any
black marks against your name.
Adverse credit
and your credit score...
Your credit score is a number between 0 and 850 that
tells a credit provider the likely probability
whether you will repay any money you borrow.
Credit scoring is considered very accurate and
credit bureau files contain few errors.
The score is based on your financial history of
making repayments on debts reporting to a credit
bureau. Missed or late payments are marked on the
file and reduce your score, along with court
judgments, collection agency activity and
bankruptcy.
Bad credit card
solutions...
Here are some options for bad credit and credit
repair cards:
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Secured or prepaid credit cards -
often the first port of call for customers
with bad credit. Simply put some cash on
deposit and instantly acquire a line of
credit. You still have to make monthly
payments to the card provider, but if you
miss the payment, the money is clawed back
from your deposit. |
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Secured credit cards are not tied to owning
a home, the security is paid in to a savings
account. Typical deposits are from $200 to
$500, so card limits stay low. |
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Retail or gas credit card - these
cards can help with credit repair as your
day-to-day spending is channeled through the
card. The problem with these cards is few
report your payment history to a credit
bureau. |
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Unsecured cards are also available
for those with bad credit. Credit limits are
similar to secured cards.
The drawback are the high fees. Unsecured
bad credit cards will have set up fees,
transaction fees, so you pay a small amount
every time you buy plus an administration
fee to keep the account active.
Interest rates are also higher than standard
or premium credit cards. Expect to pay up to
30% APR. |
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Repairing your credit...
If you have started rebuilding your credit, you must
make every effort not to slip back in bad debt.
Important points to watch that can destroy your
credit score are:
Don’t miss card payments:
Paying your debts on time is one of the most
important factors for a credit provider. They want
to see that you are reliable and that you can manage
your finances. Don’t forget missed payments stay on
your credit profile for seven years and drag down
your credit score.
Make paying your bills a priority. You can switch
payment dates to suit when your pay check hits your
bank account, and don’t forget to watch your
calendar for payment dates that fall on weekends or
holidays, because they could be taken early.
Manage your credit:
How you use your available credit is also important.
Credit providers like to see you using your account,
but not paying your balance off every month nor
running up to your credit limit all the time.
Make sure you spend some money each month, but stay
within your comfort zone. Paying bills like rent,
your mortgage or other living costs with a credit
card is a good indication that you are living beyond
your means.
Budget your finances:
Draw up a monthly budget by listing all your main
living costs, like paying for your home, taxes,
electricity, food and travel to work.
Take this total away from your monthly income after
taxes. This tells you how much you have to spend
each month.
Budgeting is a key tool for managing your finances
and credit. Many borrowers get in to financial
difficulties by spending the same money twice - once
as cash from their checking account and another as
credit.
If you do this, sooner or later, the time will come
when your spending money is taken up repaying credit
- and that’s when missed payments start showing on a
credit profile because you just do not have enough
money to pay everything.
No financial history:
Someone can lack a financial history for a number of
reasons - young adults straight out of high school
or college, ex pat workers or shoppers who just
prefer to pay cash.
Credit providers mark down the credit scores of
customers without a financial history because they
are an unknown quantity. Remember, a credit score is
an indicator of whether some will repay their
borrowings - and not having a financial history
damages that rating.
Taking out a secured card and diverting some monthly
spending through the account will increase your
chances of picking up a better credit rate by
filling in some of the blanks.
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