It’s a lot easier to get bad credit than fix it, but you’ve probably figured it out already. Getting a new loan is key to rebuilding a bad credit score.
Start with a secured credit card
However, near-credit mistakes can be nearly impossible to overcome, especially when new creditors and lenders are unwilling to give you a second chance. What do you do when you need to re-establish a loan but can’t get a credit card? You can get a secured credit card.
What is a secured credit card?
A secure credit card works like a regular credit card. Swipe your card to make a deductible purchase. You pay the balance by making monthly payments or at once. The most important difference with a secured credit card is that you are required to make a deposit against the credit limit on the account. A security deposit is provided in case you do not pay by credit card.
A secured credit card credit limit is 50% to 100% of the security deposit you make. For example, if you make a $ 500 deposit for a secured card, your credit limit will be between $ 250 and $ 500.
Be smart in choosing a good secured card. Secured credit cards usually have fees that regular credit cards do not. These include application fees, processing fees and annual fees. Beware of high fee cards, as they can greatly reduce your deposit and ultimately limit your credit.
Best secured credit cards have low fees and good interest rates.
Use secured credit to change your credit history
Most bad credit is the result of a bad payment history. You can show better payment habits, even when you can’t get a loan in the traditional way, by getting a secured loan. You cannot prove your renewed ability to make timely payments until you receive a new credit card.
Before applying for a secured credit card, make sure that the creditor reports to at least one of the three major credit bureaus. Otherwise, the card will not benefit you in terms of re-establishing your loan as future creditors will not see your good payment history. If the card issuer does not report your payment to the major credit bureaus, it will not be included in your credit report or reflected in your credit score.
Once approved, remember that your intention for a new secured credit card is to build a positive credit history. However, do not use the card to create debt. Instead, use your secured credit card to make small purchases that you can pay in full each month. If you can’t afford to pay for the purchase, don’t charge it.
Switching to unsecured credit
Many credit card companies convert their secured credit card to unsecured card after one or two years of timely payment. Even if you cannot convert your secured credit card, you can obtain an unsecured credit card approval from another creditor after 12 months of payment on time.
If you apply for a credit card and get an origin, avoid putting in additional applications. This makes you desperate for credit. Instead, make timely payments on your secured card and reapply within six months.
You will receive a letter from the credit card company explaining why you were declined and you can use this information to decide what to do next.