Tips for using your credit card to rebuild bad credit
Unfortunately, as millions of Americans know, bad credit is a fact of life. Of course, it is more than an inconvenience: Bad credit can make it hard for you to gain access to credit cards, get a loan, or even get a job.
Thankfully, millions of Americans also know that it is very possible to rebuild your credit, provided you use every tool at your disposal. It may sound counterintuitive, but people can use credit cards to rebuild bad credit. It requires discipline, focus, and self-restraint, but there is no question that it can be done.
If you have bad credit, you may reflexively recoil at the idea of using a bad credit card, fearing that using it will somehow further damage your credit. As long as you use your credit card responsibly, the use of your credit card is a good thing for your credit.
One of the more important factors when it comes to using your credit card is building a long history of on-time and full payments. Never using your credit card prevents you from doing this. As such, you should use your credit card for ordinary purchases, instead of paying in cash or with a debit card. As long as you track your spending and live within your means, you should be able to pay off your credit card in full by the end of every month. This will allow you to build a positive credit history and improve your score.
Of course, if you have a bad credit history, using your credit cards requires a change in mindset. Remember, a credit card is not free money – it is money that you have to pay back! As such, be wise with how you spend.
Don’t Open Too Many
If your credit is bad, odds are good you won’t have the ability to open many cards to begin with. However, even if you have that chance, don’t. Opening too many credit cards at the same time can result in numerous hard inquiries, and this can sink your credit score. The decrease will not be permanent, but if you have bad credit, you can’t afford to lower your score for any period of time.
Pay Them On-Time – or Sooner
On-time payments are a huge factor when it comes to improving your credit score. Indeed, a late payment or a payment that goes into collections can be devastating for your score. As such, always make sure that you track your payments and make them on-time. This is not only good for your credit score but can save you wasted money in expensive fees.
Even better: Set your credit card up for automatic payment. You should be able to do this online, and it will allow the credit card company to pay your account, using your bank balance. You can set the card to pay the full balance, minimum balance, or an amount of your choosing. You can also always modify the amount later if you find that you need to do so.
Credit cards don’t make constant reports to credit rating agencies. As such, if you can, find out just how often these reports are made. From there, make sure to make extra payments as you are able. This will ensure that the credit rating agencies see lower utilization scores. This, in turn, will result in a higher score. A higher credit score can then result in lower interest rates and more beneficial credit cards.
Get A Secured Credit Card
A secured credit card is a type of credit card that is specifically made for people with bad credit. They are credit cards that come with fees and interest rates, and you swipe them for payment, just like any other card. You have a credit limit and interest rates that you pay if you don’t make a payment within the specified month.
What makes a secured credit card different is the deposit. Secured credit cards require a deposit, and your credit limit is usually a certain percentage of the deposit. This way, if you are delinquent in a payment, you lose your deposit. These cards also usually come with additional fees and interest rates.
How can a secured credit card help you rebuild your credit? A secured credit card works like any other credit card, and the payments you make and the credit you use are reported to the credit rating agencies. As such, making on-time payments and having low utilization rates can help you improve your credit score.
Ask For A Higher Credit Limit
As noted above, it is important to keep your credit utilization rate as low as possible. Paying your bills on time and not overspending is a great way to do this. However, there are other ways. If your credit limit is low, and your credit has begun to recover, you can ask for a higher credit limit. If granted, this will result in a better credit utilization rate.
Of course, this requires discipline. A higher credit limit does not mean you can spend more money, and if you are worried about your own self-control, it may not be worth the ask.
Above all else, don’t let your credit usage get too high without making a payment. Doing so risks running up your debt to income ratio too high. This measure isn’t tracked on a regular basis, but you do want to be sure that you never have too much credit debt, particularly as you start approaching your credit card’s maximum.