There is good news for people with bad credit. Unsecured credit cards can help meet expenses without excessive financial penalty. If you want to better your credit score, a credit card can be your ticket out of financial pain.
Bad credit doesn’t have to be an endless killjoy when it comes to navigating loans, applications for housing and cars, and other aspects of life that weigh your credit score and history. The process of using revolving debt like unsecured credit cards to improve one’s score is as follows:
1. Find out your score through any of the three credit reporting agencies.
2. Apply for a card with favorable terms.
3. Budget card spending and payment plan to boost your credit rating.
Check Your Credit Score and Determine Your Current Credit Rank
A credit rank categorizes your score from poor to exceptional. Credit scores below 670 are considered poor or fair. With this knowledge, apply for an unsecured card.
When deciding which card to use, consider how many applicants with similar scores to yours have the card. If a card is advertised for “less than perfect credit” or similar euphemisms, feel free to look further into things like interest rates and annual fees, if any. Remember that fees may in some cases be worth the money depending on your particular situation.
Card Issuers Profit Based on Interest
When charging expenses to a card, don’t get carried away. Your credit will not go up simply by virtue of having or even using a credit card. The key is to show to the card issuer and others that can pull your credit report. You must show that you can maintain payments based on your spending.
In a perfect world, you would pay back the full balance each month before the due date. This would avoid any interest or late fees. Realistically, circumstances dictate that such perfection is not always feasible. If so, it is fine to have an unpaid balance each month as long as that balance is obviously within the spending limit of the card and is adequately repaid to at least the minimum-payment level.
More on Minimum Payments
these are determined by the card issuer and are often stated as a small percentage of the outstanding balance due. Note that all payments prioritize interest and fee payments, so a minimum payment would do the least towards paying down principal that reflects better on the borrower. It is here that a cardholder looking to get higher credit should spend within limits to avoid excessive interest cost that doesn’t whittle down outstanding balance due.
Unsecured cards for people with sub-par credit are great for specific types of purchases. For instance, limiting card use to only gas or similar small regular payments make it much easier to forecast spending. The card issuer will charge interest on unpaid principal, but with improving credit rank, the cardholder can usually leverage their better score for lower rates or simply for a better card.
To further maintain financial discipline, arrange a payoff schedule for when you plan to catch up on card balance due and pay off the entire debt owed to the card issuer. This exercise forces the cardholder to view the credit card as a measure to meet necessary expenses while boosting their credit for future benefit. Viewing the card as an ATM with little consequence is not as beneficial to cardholders.
To more accurately determine payment schedule, a cardholder would benefit from a realistic assessment of income as well as expenses. Diving into how much money comes in over time helps the cardholder budget for all the necessary expenses they may come across. Credit cards do not exist in isolation and have to be integrated into an overall plan to improve your credit.