The Bad Credit Conundrum

Posted December 15th, 2011 in Credit Cards by Jeremy Waller

The following is a guest post from one of our readers

Bad credit can make it difficult for someone to qualify for new lines of credit or even, in some cases, land a much-needed job, which is a worrisome catch-22. How can you go about rebuilding your credit if there aren’t any lenders willing to take a chance on you?

The good news is that credit cards for bad credit do exist and they have helped many credit scores begin that slow ascent back to healthy levels.

How Do These Types of Credit Cards Help?

Commonly referred to as “bad-credit credit cards”, the types of cards for which consumers with poor credit can qualify do not have those tempting 0% introductory offers, nor do they come with incredibly low interest rates.

Bad-credit credit cards will generally have higher interest rates because they are used as a means of rebuilding credit. Borrowers with bad credit are considered riskier than those with great scores, so any type of loan will come with higher interest rates regardless of the financial product. The best thing to do is to shop for these credit cards online by using comparison tools to get the best interest rate and credit card terms for your situation.

Even if the interest rate is higher than you would like, you can easily avoid paying interest, which actually helps improve your score faster. The simplest way to do this is to only charge amounts to your card that you can afford to pay off at the end of every month before the interest has a chance to accumulate. Not only will you avoid interest, but your pristine repayments will be reported to the credit bureaus, bumping up your score.

Never charge more to your credit card than you can comfortably afford to pay in full each month. Maintaining this strict habit for as little as six months may allow you to qualify for mainstream lower-interest rate cards.

An alternative is a secured credit card, which requires a certain amount of money down as a security deposit in order to establish a borrowing limit. The borrowing limit is essentially the security deposit, so you never have to worry about spending more money than you have and your payment history will be reported to the three major credit bureaus. Secured cards come with additional fees that will end up costing more than the security deposit, as well as interest rates, so compare products before making a final decision.

Anyone with poor credit can benefit from these types of cards. Bad-credit credit cards can boost your credit score more quickly than personal loans or other types of financial products. As long as you use the credit card regularly and pay off the balance on time, you can overcome the bad credit conundrum.

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