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Oct 12, 2009

Why You Need a Credit Card

If you are trying to rebuild your credit, you may think that your best option is to get rid of all your credit cards, or to avoid buying items on credit in the future. However, nothing could be further from the truth; in fact, if you don’t have any credit cards at all, you might find that it takes longer to repair your credit. Even if you’re getting out of debt and paying other bills on time, without a credit card, rebuilding a positive credit history can be difficult at best.

Your credit score is not determined by any one type of credit. Loans, credit cards, and other financial obligations all play a role. In general, credit cards are an important aspect in boosting credit scores because credit cards are an ongoing gauge of how well you pay back your debts, how you manage debt, and how responsible you are when it comes to spending. If you can maintain low balances, pay your credit card bills on time each month, and maintain a solid history of repayment, your credit scores will rise.

Getting rid of credit cards in an attempt to boost your credit scores will backfire. A better option is to choose one or two cards with a decent interest rate, and keep those accounts open and current. You don’t need to charge much – it’s actually better if you keep your purchases anywhere from 10% – 30% of your overall credit card limit. This demonstrates to creditors that you can be responsible with the credit you are given. It also makes it easier for you to pay off the credit card in full each month, which is another way to rebuild your credit scores.

If you have several credit cards, you may wonder which cards are best to keep, and which accounts (if any) you should close. In general, keep your credit card account open if:

You’ve had the card for several years. Having a long credit history is more beneficial than having a short one.

You have a balance on the card. Canceling an account while you still have a balance can wreck havoc on your available-credit-to-debt ratio.

The interest rates are low. Lower interest rate cards can not only save you money, but they can make it easier for you to stick to your repayment goals as well.

When should you cancel a credit card? In general, if the interest rate is high, or if the credit card company uses double-billing, it’s probably a good idea to get rid of that card as soon as the balance is paid off. The only exception to this is if the credit card is one with a long credit history. You don’t want to cancel your oldest cards, so in this instance, your best option would be to charge a very small amount on the card each month, and then pay it off again as soon as possible to avoid the extra interest hit.

If you are trying to rebuild your credit, you don’t currently have a credit card, and don’t think you can qualify to get one, try a secured credit card instead. With a secured card, you put down a deposit for a specified amount (usually anywhere from $200-$500) and in exchange you receive a credit card with a limit equal to the deposit. Charge only a small amount on the card, and then pay it off each month – this will let you build your credit, even if you don’t initially qualify for a regular credit card.

Regardless of which route you choose, getting and maintaining a credit card account is an essential part of any credit repair plan. Don’t assume that all credit is “bad” credit. If you want to be successful in increasing your credit scores, you’ll definitely need a credit card – just be sure to pick one that’s easy to manage, and don’t let the balances get out of hand.

Posted in available credit to debt ratio, credit cards, credit history, rebuild credit, repair your credit | No Comments »



Sep 8, 2009

Avoid Credit Card Scams and Rebuild Your Credit

If you’re trying to rebuild your credit, you’re not alone. But with the current economic problems facing many Americans, there has been a corresponding upswing in the amount of scams designed to lure those in need of a quick credit fix. So, how can you avoid getting scammed when searching for a credit card to rebuild your credit? For starters, avoid any of the following:

1.    Offers with vague terms. Be wary of credit card offers with wording such as ‘rates as low as __%’ or ‘credit limit up to ___.’ Chances are, most will not qualify for those teaser rates and credit limits, and the card you end up with could be too limited to be worthwhile.

2.    Offers with excessive fees. Likewise, avoid any credit card that offers a low credit limit, but charges high fees to issue the card. Some of these cards have fees totally more than 80% of the initial balance. If you pay off these fees, you’ll still take a hit on your credit rating because the initial debt will be seen as excessive, even though you haven’t actually charged a dime.

3.    Offers that allow you to pay off an already charged-off debt with your new card. While this may seem like a great deal, all too often it turns out to be a scam. Instead of getting your charged-off debt satisfied, along with a new credit card, you’ll find yourself making payments on that old debt for months or even longer before the company will give you an actual credit card. Meanwhile, your credit scores have little or no improvement.

While there are many scams out there, getting a credit card from a reputable bank or finance company can be an important first step to rebuilding your credit. Some of the best places to get that new credit card include:

1.    Your bank. If you have a good relationship with your bank, and a direct deposit account, you may be able to qualify for a credit card even if your credit scores need improvement. Getting a secured credit card from your bank can also make it more convenient to pay the card back on time, as you can set up automatic payments.

2.    A credit union. If you can open an account at a credit union, you may find that you get better interest rates and have more options when it comes to qualifying for a card.

3.    Store cards or gas cards. Although the interest rates on these types of cards are generally higher, you can still rebuild your credit if you are careful about paying off the balance each month. Store cards are generally easier to qualify for, as well. Just be sure to keep your spending in check, and only buy what you can afford to pay off each month.

Credit cards are a necessary component to a healthy credit score. By carefully choosing the right credit card from the start, you can give yourself the best possible opportunity to rebuild your scores and get your financial health back on the road to recovery.

Posted in credit card offers, credit scores, credit unions, rebuild credit | No Comments »



Jan 5, 2008

Credit Repair After Bankruptcy

Many consumers believe that after filing bankruptcy their financial lives are ruined. One of the biggest myths about bankruptcy is that you can’t get credit for 10 years. The truth is the bankruptcy will generally stay on your credit report for 10 years (unless you are able to get it removed) but you will still be able to start rebuilding your credit immediately.

You can dispute a bankruptcy on your credit report the same way you can any other listing. If you are fortunate enough to get the bankruptcy removed, you will be able to start repairing your credit much easier. However, if you don’t change your spending habits and make some lifestyle changes, removing your bankruptcy will only delay your financial misery and you will be back where you started.

Learning from your mistakes and living below your means is the only way you will ever attain financial peace. Learn how to make a budget and stick with it. You should probably only get a couple credit cards strictly to rebuild credit. Discipline yourself to use them for nothing but credit rebuilding.

When you are ready to start rebuilding your credit (which should be immediately) you will need to start small. Don’t expect lenders to give your high credit limits right away. You may have to start off with unsecured credit cards with high interest rates. That’s why I suggest keeping a balance of only $50-$100 and ONLY using these credit cards to rebuild your credit.

While you are adding positive trade lines, it is important to also try to remove bad credit from your credit report. If you use both methods correctly, you should have respectable credit scores within 6 months to a year. At that time, you will be able to get better interest rates and should consider transferring any balances from the high interest cards to the new lower interest cards. Just remember, the best thing you can do for your financial future is learn how and why you got yourself into this situation and how you’re going to avoid it from happening again.

Posted in after bankruptcy, bankrutpcy, budgeting, credit, credit report repair, dispute bankruptcy, improve credit scores, rebuild credit, remove bad credit, unsecured credit cards | No Comments »