- Secured credit cards a viable option for rebuilding your credit score without the risk of default. Secured credit cards allow you to place money in a bank account to secure your credit card. With a secured credit card, your credit limit is equal to the amount of money you deposit into the account. Money deposited cannot be withdrawn unless your account is in default.
Activity on your secured credit cards is reported monthly to the three major credit bureaus. Though your balance is secured, defaulting on your credit card and withdrawing the money set aside to secure your debt has an adverse affect on your credit score. Keep your balances paid in full to avoid negative effects on your score. - A number of banks offer credit cards to consumers with bad credit. For example, Orchard Bank and First Premier Bank both extend credit to these customers. However, both banks offer cards with high fees. First Premier Bank's credit card for bad credit started with a 79.9 percent interest rate that was later reduced after customers repeatedly defaulted on their credit card agreements. As of February 2011, First Premier Bank charges 49.9 percent interest on credit cards for bad credit consumers.
- One major downside to credit cards for bad credit consumers is that most cards offer low credit limits but hefty fees. For instance, most First Premier Bank customers have a credit line of $300, but annual fees total $100. Compare available credit cards for bad credit consumers before making a commitment to a card. Annual and membership fees are often charged to your card before you receive it, which limits the amount of credit you have available and raises your credit utilization ratio. This ratio measures the amount charged to your credit card relative to the amount of available credit. The lower your credit utilization ratio, the more your credit score increases each month. According to Bankrate.com, a good credit utilization ratio is 30 percent or below.
- Be prepared to pay to play when rebuilding your credit. High fees and interest rates are a staple feature of cards for bad credit consumers. However, bad credit is not permanent. As long as you maintain a positive payment history, keep your balances low and keep a good relationship with your creditors, your credit score will improve over time. Order a copy of your credit report annually to keep track of your account histories, and verify that all information is accurate. If you find inaccurate information, credit bureaus are required by law to remove any information that could lead to a hike in your score.
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