If your credit is not something you’d brag about to your friends and family, you may consider a credit card for people with bad credit. Keeping a credit card for poor credit in your wallet has a few benefits that can improve your financial outlook.
1. Rebuild your credit
If your credit is damaged but you’re working hard to repair it, a secured credit card can help you rebuild you credit score.
A secured credit card for people with bad credit is backed by a cash deposit — often in the amount of $250 or $500 — that is usually equal to the credit limit. This is generally used by those with bad or no credit to prove their creditworthiness before upgrading to an unsecured card.
After obtaining a secured credit card, be sure to pay your bill on time every month. It’s also an excellent practice to pay off the full amount each month, if you can. When you pay on time, your payment will be reflected in your credit report, demonstrating to lenders that you are a responsible cardholder.
To get the most out of a secured credit card, make sure the card issuer reports your payments to all three credit-reporting companies — Experian, Equifax and TransUnion — ensuring that your efforts to improve your credit are recorded.
2. Move up to an unsecured card
If you’ve been using your secured credit card for a while and have been making timely payments, your credit score has likely improved, giving creditors a good reason to approve you for unsecured credit. Your secured credit card issuer may also start giving you unsecured credit on your card, providing you with more spending power. But be sure to check out the interest rate going forward, as it could be high.
3. Learn to manage your money
There’s probably a reason your credit is less than desirable, and poor money management could be a major factor. If this is the case, a credit card for people with poor credit can help you learn money management skills. You’ll be more careful about what you charge with a secured credit card and make the monthly payments on time.
If you are determined to rebuild your credit, you will also pay off your balance in full ach month to avoid the high interest rates that often come with a secured card.
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