If rebuilding your credit is a top priority, having a good credit card is an important step toward achieving it.
“Instant approval credit cards,” also referred to as guaranteed approval credit cards, seem appealing because they don’t require a credit check. But with these kinds of cards, you tend to end up with a bunch of hidden fees, a card that doesn’t report your activity to the national credit bureaus (which means they won’t help your credit), or a prepaid card, which isn’t a credit card at all.
If you’re trying to get back on the right track, you’re better off with a secured card that doesn’t impose punishing fees but reports your payment activity to the credit bureaus. Here are some tips to get you started toward better credit, plus a couple of secured credit cards that are worth considering.
Rehabilitating your bad credit
Regardless of how you got to this point, know that there’s a way out, starting with these four steps.
1. Check your credit report
A 2013 study by the Federal Trade Commission found that a quarter of American consumers discovered errors on their credit report. Even if your credit score is in the dumps because of some past mistakes, there may be incorrect information on your report making it worse. Checking your credit report will also show you all outstanding accounts that may be delinquent or in collections, so you can know where to start.
You’re entitled to one free credit report every year from each of the three major credit bureaus: Experian, TransUnion and Equifax. You can order your report at AnnualCreditReport.com.
2. Pay on time
Your payment history comprises 35% of your FICO score, making it the factor with the biggest influence on which direction your score goes from here. If you’ve fallen behind on payments, avoid missing more payments because you’re trying to catch up. Instead, focus on paying your current bills on time.
3. Pay off debt in arrears
Once you’re making on-time payments, direct your efforts to paying off delinquencies and collection accounts. This may feel like a lost cause because you’re already in a hole credit-wise, but the longer your accounts are delinquent, the more negative the impact will be on your credit score. You may also face legal ramifications if you default on your debt.
4. Be wise about credit card applications
If you’re ready to start developing good credit habits, a secured credit card can help. Be careful about financial institutions you’re not familiar with or cards that boast instant approval and no credit check to entice you to apply. If you’re unsure, don’t hesitate to do a little extra research.
A couple of secured credit cards to consider
OpenSky® Secured Visa® Credit Card
The OpenSky® Secured Visa® Credit Card is unique among secured cards because it doesn’t require a credit check. You can score a credit line of $200 to $3,000, depending on how much of a security deposit you put up, and the card reports your activity to all three credit bureaus. The ongoing APR is 17.64% and the annual fee is $35.
US Bank Secured Card
If you’re looking to transition to a better credit card in the future, the US Bank Secured Card is a solid choice. If you establish consistent good credit behaviors with the card, you can transition to an unsecured credit card more quickly than if you have a secured card from a small bank or credit union. The ongoing APR is 19.24% and the annual fee is $29. The US Bank Secured Card reports to all three credit bureaus.
The bottom line
Getting your credit score back on the right track won’t be easy, and applying for the wrong secured credit card can make it even harder. But if you combine good credit habits with a solid secured card that reports to all three bureaus and doesn’t charge a slew of fees, you can be on your way to better credit in a matter of months.
Updated December 3, 2015.
Image via iStock.