If you have a bad credit or no credit score, you might already feel the impact – your loan applications (car loans, mortgages, credit cards, etc.) get rejected a bit too often, you are paying too high interest rates, and more.
Believe it or not, there are credit card offers specifically made for people with bad or no credit score – in fact, according to North Shore Advisory Inc, those credit cards are designed to help you establish your credit history and build your credit score.
Credit cards for bad credit usually come with a small credit limit. If you can make regular payments and avoid past dues at all cost, you can start seeing improvement in your credit score. You are becoming more credit-worthy in the eyes of lenders, and they will be willing to lend you larger amount of loans, as well as reduced interest rates.
But before you decide to apply for a credit card, make sure that you don’t have too many open credit accounts in your credit history. Otherwise, applying a credit card would only worse your credit track record.
First step…
Check your credit score with the three major credit bureaus: Equifax, Experian, and TransUnion. You can get your free credit score once a year – use it wisely to check for errors in your credit history and fix them to allow you to see your “true” credit score. Be sure to limit your credit score request once a year from each of the credit bureaus to avoid penalties in your credit score.
You should use this opportunity to know what your current situation is and use it as a starting point in your credit score building endeavor.
Pick the right card
There are credit card companies offering different type of credit cards – you need to pick the right one for you. If you are a student, a student credit card that requires no co-signer or income proof might be the right one for you. Just be aware that although such credit card is good as your first card, it carries a higher interest rate. You can also access credit cards with rewards and incentives, but always keep in mind that the trade-off for all the benefits you enjoy is higher interest rates.
Whichever credit card you choose, please be sure that it is the right one and the best fit for your personal finance plan.
Dream big, start small
In your credit score building endeavor, you should start small. Consider opening a credit card account and use it at least once a month to purchase items; be sure you have the cash to pay for your purchase. The idea is to use your credit card and repay it on regular basis. Each time you pay for your credit card balance, it will show up on your credit history and will make an impact on your credit score. However, don’t max out your purchase to the card limit, to demonstrate that you are a sensible credit user.
Lenders will also consider the frequency of your payments – this way, using your credit card, for example, once a year and paying off the total balance on a given month will have a miniscule effect on your credit score. Remember, your credit score determined by the last three years of your credit history, and patterns of payment is what lenders want to see from your credit history.
Manage your credit “clutter”
Paying the balance on regular basis is only a part that determines your credit score. You would also want to de-clutter your credit. If you have plenty of open accounts, close those that you don’t use – having too many credit cards are not advisable. Other than easier credit management, reducing your open credit account will increase your eligibility for more benefits, such as a bonus when you are taking a car loan.
