If you’re dealing with bad credit, then you know it all too well. Bad credit is not only a huge burden, but it truly impedes several areas of your life – especially your finances. In emergency situations where you need extra cash, a line of credit is nice to fall back on.
With a poor credit score though, you probably won’t be able to access one and if you do, you’ll face exorbitant fees, incredibly high interest rates as well as other related costs.
You’ve probably thought of applying for a credit card in the past, but held back due to bad credit. Well, you’re in luck! Due to the 2009 financial crisis, many creditors have widened their application requirements and are more willing to work with clients having a poor score. But how can a credit card help your credit score? Let’s take a look!
Advantages to Applying for a New Credit Card
It is a wide spread myth that opening a new credit card when you’re already struggling financially or have bad credit is a bad idea. To the contrary, a new credit card can actually help improve and boost your credit, even if you already have one. Here are 5 reasons why:
1. Different Cards, Different Advantages
If you have the convenience of owning more than one credit card, then you’ll equally benefit from the advantage of using specific cards for specific purposes. Use your credit cards wisely and apply them where you’ll obtain the best rewards. For example, certain cards are great at the gas station while others will triple their rewards if used at the grocery store!
2. Diversify Credit Availability
When it comes to applying for a loan, most lenders look for variety. In other words, simply having a car loan and mortgage payment just won’t cut it in certain situations. If you only have one or two lines of credit stemming from one or two financial institutions, then creditors can only verify your creditworthiness in a couple places which can be rather risky. The best remedy to this situation is to have a little revolving, unsecured credit by applying for a new credit card.
3. Oversee High-Interest Payments
If you’re looking to apply for a new credit card, then it is highly recommended your time, do your research and keep your eyes open for a credit card offering a low interest rate. Let’s face it, even if the percentage is only somewhat lower, you can really save tons of money!
Many times, when having more than one line of credit, we come to the conclusion that we owe a lot of debt due to the high interest. Another factor to look for is low interest rate cards that allow you to transfer existing debt at little to no cost!
4. Boost Credit Utilization
Many individuals don’t know that available credit has a huge impact on credit score. What is available credit? It’s the amount of credit you DON’T use on your card. In other words, your credit utilization should be kept at approximately 30% or less. If your credit utilization is terribly high and negatively affecting your score, one solution is to open a new credit card. By doing so, you’ll increase your available credit and thus decrease credit utilization.
It’s important that you don’t overuse your available credit on this card either – keep it under 30%!
Credit Card Options for Individuals with Bad Credit
If you’ve had a difficult time applying for a credit card with a poor credit score in the past, the following tips will help clarify your options:
Apply for a Secured Credit Card
A secured credit card is a safe and near risk-free option for individuals with a bad credit score. This type of credit card is secured by a deposit – which is the equivalent to the available line of credit. This is a good solution because if you fault payment, then your security deposit will be used. With this type of card, your balance can never exceed that of your security deposit.
Depending on the credit card company you’re applying with, you’ll typically need to provide anywhere from $75 to $300 as a deposit. In order to improve your score with this type of card, try using it minimally and paying it off in full on a monthly basis.
Apply for a Subprime Credit Card
Although many people are often directed toward a secured credit card as a first option in the case of bad credit, it isn’t the only available solution. Today, many credit card companies offer specific cards for people with poor – or even non-existent – credit scores. Here are a few more applicable factors:
- Assume high subprime credit fees;
- Accept 30% interest rates or higher;
- Pay for maintenance, processing and monthly service fees (as well as any other applicable charges).
Apply for an Unsecured Credit Card
Although lesser heard of, there are unsecured credit cards for individuals with bad credit. To sum them up simply, they’re very much like subprime credit cards in that they’re very expensive with high interest rates and other related charges.
Many people qualify for an unsecured card after using a secured one for a certain period of time. This second step in the process can continue to improve your credit score until it has increased to the point of qualifying for a better option.
Apply for a Retail Credit Card
Don’t get discouraged if you’ve been refused for the latter options. You can still try applying for a retail credit card, which can be used in specific stores and provide certain rewards or returns. Typically, a retail credit card has a low credit limit and high interest rates and therefore must be used wisely. Because they report to credit bureaus on a regular basis, this type of card continues to improve your credit score when used accordingly.
Your Credit Score, Your Credit Card
No matter what type of financial situation you may be in, independent of your credit score, there are credit card options available to you.
If you’re looking to apply for a new credit card, remember to perform thorough research, compare different cards and their advantages, take a look at their reward programs, rates, fees and other important factors that will help determine whether it’s the right card for your needs.
You can save time and simplify the application process: View all your options simultaneously by researching your credit card online. Stop fretting about your poor credit score and start working toward improving it today!