It might sound like a weird strategy to obtain a new credit card for rebuilding your credit, but some cards can actually play a key role in boosting your credit score and increasing your borrowing options as needs arise. The only way to repair a bad credit history is to make positive moves in the present and future; you can’t erase a poor credit record no matter how much you might want to.
For that reason, getting a new credit card and being faithful to pay it off can lead to a rapid improvement of your credit rating. Once you begin to climb, you can then apply for other credit cards that have more reasonable repayment terms.
What Credit Cards Help Rebuild Credit
The trick is to find companies that offer credit cards to consumers who have poor credit. Unfortunately, more and more people fall into that category, but that also means that more companies are exploring how to do business with them and offer credit cards to help them rebuild their credit.
A few banks offer credit cards to rebuild credit, usually with low credit limits that begin around $300, and with interest rates that hover between 17% and 25%. These unsecured cards are not a bad option for a steady rebuild of a credit rating if you don’t mind swallowing the interest rates for awhile.
Other lenders offer secured credit cards, which require a security deposit (sometimes as low as $50) but no credit check. The deposit that you put into your account is used in case you default on your payments. There are several good options with such secured cards. Shop around for the one with the lowest fees, that reports to credit bureaus and that can be switched to an unsecured card once you have proven faithful with it for a period of time.
Even though stores and other retail outlets will constantly try to persuade you to open a credit card account with them, you should only opt for this option if you have no other choices. Such cards are not used as often as regular credit cards, and their interest rates are sky high.
You also want to avoid cards that have annual fees of $100+. Given the low credit limits of cards available to those with low scores, a $125 annual fee can be the equivalent of 25% interest before the real interest rate even kicks in. There’s enough competition in this segment of the market to eschew annual fees of more than $25-$50.
A final option to ignore if you want to boost your credit score is prepaid cards. You might think that using one wisely demonstrates your credit-worthiness, but the credit bureaus do not share your opinion, and they will not note your prudent use of the card. In other words, they do nothing to help your rating.