A credit card may be the last thing that someone with credit issues wants to look at, let alone use. Unfortunately for consumers aiming at a higher credit score, merely letting time work does not, in fact, work and a credit card represents the most efficient means of attaining credit improvement.
Sure, the economy has been rough recently and the Great Recession led to a spiral of declining credit scores for multitudes of consumers—FICO, the most influential credit score agency, found that around 25% of Americans have bad credit after the recession. However, it’s now time for these people to confront their credit issues, and this is a fight that cannot be won without effort.
The good news is that bad credit can be improved. To do so, one must muddle past negatives on a credit report—like foreclosure and bankruptcy—with positive information. As mentioned, the easiest tools with which to do this are bad credit credit cards. This fact may surprise and even frighten consumers who developed bad credit precisely because of credit card missteps, but it’s true.
What are Secured Credit Cards?
Secured credit cards are undoubtedly the best and easiest option for pure credit improvement because they are cheaper than unsecured credit cards for bad credit and have less associated risk. To open a secured credit card, you need to place a refundable security deposit that acts both as your credit limit and as protection for the issuer against default. Lenders face risk when giving credit to people with less-than-exemplary records of paying their bills and thus need inherent safeguards within the terms of credit cards. A secured credit card’s security deposit provides this without the need for exorbitant fees. Similarly, secured credit cards allow their users to expand their credit limits over time by adding to their security deposits—an important capability because credit bureaus like to see high amounts of available credit.
One of the best secured credit cards with which you can rebuild your credit is the Orchard Bank Secured Credit Card because it is cheap and provides favorable rates for purchases—it has no first year fee, a $35 annual fee thereafter and a 7.9% APR. Therefore, if you plan on making purchases with your secured credit card, place a security deposit on this Orchard Bank® Card.
There is also some good news for those people tentative to use credit cards in approaching the uphill battle of credit improvement. A consumer does not even have to make purchases with a credit card in order to garner credit benefit—just maintaining a credit card at zero balance and in good standing contributes positivity to his or her three major credit reports monthly. This means that you can improve your credit merely by opening a credit card and locking it in a safe, for example. Thus, if you are uncomfortable actually using a credit card or do not want the stress of making on-time payments, look into opening a Public Savings Bank Classic Secured Visa® Credit Card. As long as you do not make any purchases with this card, the only fee you will ever have to pay is an initial one-time set-up fee of $75.
Still, there are caveats to the general recommendation for using a secured credit card to improve bad credit. Some people need an emergency line of credit (i.e. a loan) as a feature of their credit improvement credit card. For this purpose, unsecured credit cards for bad credit are the best fit, and fortunately the new credit card law (CARD Act) has made such cards relatively less expensive. The CARD Act prohibits fees totaling more than 25% of a card’s starting limit. Even after credit card companies reacted to this change by instituting initial processing fees of $25-45 and annual fees of around $75, unsecured credit cards are still far less expensive than they were—when credit limits were consumed by up to $200 in fees. While there are myriad options for unsecured credit cards, a popular choice is the First Premier® Bank Classic Credit Card.
Various alternatives are available to you if you wish to improve your credit, but each requires initiative and discipline. As long as you exercise both, however, your credit card history will become less of a factor in your credit future.
This guest post comes from Odysseas Papadimitriou, CEO and Founder of CardHub.com, an online marketplace for credit card offers.