Friday, December 30, 2016

How to Get a Credit Card with Bad Credit Scores

Most Americans don’t have an impressive credit report, due to which, it becomes difficult for them to get a credit card. A credit card is essential, but if you have bad credit, then it’s difficult for you to get one.

In this article, I’ll discuss the difficulties faced by people, who apply for a card with a bad credit history, and what options are available to them. 

Give explanations

The credit scoring system is called FICO score. FICO doesn’t consider all aspects related to your financial life when it assigns you a score. 

For example, if the card issuer sends the balance statement to the credit bureaus before you pay off the debt on your card, your credit report would show the outstanding debt.

Since there’s hardly any scope for an explanation, you should create the opportunity yourself by adding a statement to all three credit bureaus. Explain in that statement the reasons behind the not-so-impressive credit. 

Try convincing the issuer. If an issuer is convinced that the bad credit is not necessarily indicating that you are unreliable, then you may get a card.

Unsecured cards

There are agencies, specialized in providing unsecured credit cards to people with a bad credit history. There are risks associated with such cards. 

Interest rates are high, not paying the outstanding balance promptly may hamper your credit score, and a slew of fees are associated.

The fees associated with an unsecured card are a one-time processing fee, annual fee, application fee, etc. The fees can add up and you may have to pay a truckload of money.

Hence, proceed with caution when it comes to unsecured cards.

Prepaid credit cards

Nine out of ten who apply for such cards, get it. However, you may wonder whether a prepaid card can be called a credit card in the truest sense. The truth is, it’s not. It’s more like a debit card. 

Unlike a standard credit card, which generates a line of credit whenever you make a purchase, a prepaid credit card requires you to have a deposit account with a bank.

When you buy something, money from your account is drawn. There are two problems with a prepaid credit card. The first is you need a substantial amount of money to put in your bank account. 

Secondly, the card won’t help you to rebuild your damaged credit history. You can use it only for transaction purpose.

Secured credit card

A secured credit card is similar to a regular credit card. The cardholder needs to deposit a sum of money. The deposit is to secure the credit limit funds. 

The credit limit can be the same as the money you deposit in the bank. Or it can be a percentage of that money. It depends on the card issuer.

Having a secured card works in your favor and improves your score. The issuing organization will keep a close watch on your credit score. If the score increases, you’d get a reward; your credit limit would increase too. 

Don’t get too carried away if it happens to you because it’s actually a reminder informing you that you are on the right track, and keep doing what you are doing. 

The setup cost for secured credit card is normally higher than unsecured cards. You may not have to face troubles from collection agencies, but you won’t be able to withdraw money because the funds could be used in case of overdrawn credit limit.

Refinance your debt

This is a solid defence against the debt. Remember, the key reason your credit score dipped is debt. 

Refinancing your debt at a lower interest rate helps you polish your credit history, and makes your candidature for a new card strong.

Start looking for such companies. If you are lucky you’ll find agencies, which offer refinancing option at an interest rate, as low as 4.24%.

Such agencies are called marketplace lenders. They are rivals of credit card companies. Credit card companies seem to have the upper hand. 

They are good at marketing and people with decent to good credit can easily have cards. But the advantage of marketplace lenders is the low interest rate of the refinance option.

With the help of such an agency, you can improve your credit report, and then apply for a credit card, or a debit card, or maybe a charge card.

What do you think of this article? Do you have bad credits? Have you been trying to get a credit card for a while? What new can you add? Let us know in the comment section.

Tina Roth is an experienced personal finance blogger who loves blogging about personal finance and money management tips. You can visit here personal finance blog to find more about her writings.

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