Credit where credit is due

by Darwin on July 29, 2011

If you have bad credit, chances are you’ve written off the idea of getting a credit card or loan. Most companies require good credit history for applicants to be approved, but options do exist for the rest of us.

As with any credit card, it’s important to do your homework. Compare different credit card rates and never settle for an unfair deal, no matter how bad your credit is.  Click here to see some of your options.

Whilst you won’t be able to get the best competitive deal, credit cards do exist that help build up your credit. These credit-builders are perfect for people with bad credit or even those who haven’t established credit.

Bad-credit credit cards will come with a higher annual percentage rate (APR), so it’s important to pay off the balance every month. Doing this will show lenders that you can manage your debt responsibly.

The key to paying off your balance each month is to never spend more than you can afford. Work out how much money you can pay on the bill and spend within that limit.

Think of these cards as second chance cards. Treat a bad-credit credit card like a trial period of rebuilding and proving to yourself that you won’t fall into old bad habits.

These types of cards will not come with interest-free offers or 0% introductory periods. The APR will be high from the beginning, so never use a card like this to take on more debt than you can safely pay off in a month. Doing so will further impact your credit score negatively.

Another option for rebuilding credit or bouncing back after a bankruptcy is to sign up for a secured credit card. Applicants with poor credit are more likely to be approved for one of these cards because it’s not a risk to the credit card company.

A secured credit card works much like a debit card. You pay a deposit into a special account and that becomes your credit limit.

If you charge more than you can afford, the interest rate can really hurt because it’s much higher than a traditional credit card, so you must shop responsibly. The spending limit will also be lower, since it’s based only on how much money you put into your account.

Even so, secured credit cards will rebuild your credit if you use them wisely. Always get a copy of your credit report annually to make sure your efforts are paying off.

Consider your financial situation before applying for a high risk loan. Although the interest rates will be phenomenal, a high risk car loan will reestablish your credit if you make your payments on time.These high risk loans are relatively easy to come by and won’t require good credit. With any financial service, research your options first.

There is also the option of having someone co-sign a loan for you. Many people are not comfortable with this idea, especially if the applicant has had a poor credit history.

The benefit of getting a co-signer is that your loan will come with a significantly lower interest rate than what you can qualify for on your own. This will save you a lot of money in the long run. If someone you know is willing to co-sign, make sure they know any risks involved. This is a trusted agreement, so don’t let your co-signer down.

Above all else, be patient. It takes time to rebuild credit and you’re certainly not alone. Manage your finances responsibly and you’ll be back on track in no time.



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