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How to Use a Bad Credit Credit Card to Boost Your FICO Score

Dec. 16, 2014
Credit Cards
How to Use a Bad Credit Credit Card to Boost Your FICO Score
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Have you ever heard the phrase, “Rome wasn’t built in a day?” This adage can certainly be applied to a FICO credit score: If you have poor credit or none at all, you’ll need to start somewhere, and a bad credit credit card can be a great place to begin.

With poor or no credit, you’ll likely have a tough time getting approved for regular credit cards, car loans or a mortgage, since lenders see you as a higher-risk borrower. Signing up for a credit card for people with bad credit, paying it off on time each month and keeping a low balance proves you are a responsible borrower, which can lead to a FICO score boost in no time.

What is a FICO score and how will a credit card for bad credit increase it?

Your FICO score determines your creditworthiness, which affects whether you’ll get approved for a loan and the interest rate you’ll pay on that loan. Scores range from 300 to 850, and the higher your score, the more trustworthy you are in the eyes of the lender.

The best way to improve and maximize your FICO score is to first know exactly what it’s composed of.

Payment history: This is FICO’s most heavily weighted category, making up 35% of your score. Late or missed payments will negatively affect your score, whereas consistent on-time payments will improve it.

Remember that you don’t have to wait until the credit card bill is actually due to make a payment. Instead, it could be wise to make multiple payments throughout the month, which lowers the amount you owe and ensures you never miss a minimum monthly payment.

If you fear you may forget when a payment is due, you can always set up automatic online bill payments, or email or text message reminders.

Credit utilization: The percentage of available credit that has been borrowed makes up 30% of your FICO score.

It’s generally a good idea to keep credit usage on all credit accounts below 20%. So, if you have a bad credit credit card with a $1,000 limit and it’s your only card, try not to hold a balance higher than $200. This shows lenders that you don’t max out your accounts and you can handle debt responsibly.

Length of credit history and new credit: The length of credit history (15%) and new credit (10%) make up a combined 25% of your FICO score.

Opening too many new accounts in a short period of time will negatively affect your score, as it could suggest that you are in financial trouble and need to take on new debt just to keep up with the bills.

For this reason, signing up for one bad credit credit card is likely a better idea than signing up for several. Also, try to keep old credit accounts open instead of closing them, since the length of credit history makes up 10% of your score.

Types of credit used: Your credit mix makes up 10% of your FICO score. Lenders generally want to see that you’ve handled different types of accounts responsibly, so it’s great if you’ve had positive experiences with both revolving credit lines (credit cards) and installment type accounts (home and auto loans), instead of just one type of credit.

If you have poor credit or none at all, a bad credit credit card can support you in your effort to improve up your FICO score — but results will ultimately depend on the borrower’s individual actions, not the plastic.

Male high jumper image via Shutterstock.