If you have a bad credit rating, credit card use may seem out of reach. It’s not. Bad credit does keep you from being accepted by a major credit lender but there are programs designed to help you rebuild your credit rating.
Fixing the Bad Credit
If you have been denied a loan or turned down when you applied for a credit card, the first step is to obtain a copy of your credit report. By law, you can get a free credit report once each year from the major credit rating bureaus.
Before addressing the problem you need to understand what that problem is. If there is incorrect information on your credit report there are steps to take to remove that bad information.
You would need to contact the credit bureaus in writing to challenge the black mark on your credit file and might need to provide proof that the item listed is incorrect. The credit bureau will then contact the company or person that made the report and require them to verify their information. If the bad credit item is clearly wrong the credit bureau will remove it though it often takes several months to make the change.
If the information in your credit file is correct and clearly shows you have bad credit due to collections, late payments or other problems, you will need to find ways to rebuild your credit.
Bad credit can be overcome in time with a record of timely payment and obligations met. Unfortunately, many people with bad credit may think there is nothing they can do except pay on a cash basis going forward. This does nothing to improve their credit.
Using Pre-Paid Debt Cards
Anyone can obtain a pre-paid debit card with a Visa logo on it that will be accepted by merchants online and offline. These cards are widely available. The credit line available is not truly credit but is the amount of money you paid to the card in advance. The prepaid debit cards are useful if you make purchases online as you determine how much money is on the card and this limits identity theft and overcharging by merchants.
The prepaid debit card, however, does nothing to help your credit rating as these accounts are not reported to the credit rating agencies. There is no reason to make reports as the card can only be used to the limit of funds you deposited on that card.
If your goal is to fix your bad credit by establishing a good payment history in the future, you can apply for a secured credit card. Like the prepaid debit cards, a bad credit rating credit card requires payment in advance but that is where the similarity ends.
Orchard Bank provides one of the best secured credit cards and almost anyone can obtain this card. The credit line will depend on the amount of money you pay up front. Those funds are deposited in a savings account that is used to guarantee the credit line. Your credit line will often be a percentage of the amount you deposit rather than the full cash amount.
The bad credit credit cards carry a lower spending limit than standard credit accounts but the best lenders report monthly to the credit bureaus. If you obtain a secured credit card you might provide $500 to secure the account. That credit card may then have a spending limit of $300-400. The $500 you paid remains in an interest bearing savings account and will be used only if you fail to meet your payment obligations when using that credit account.
There are fees associated with these accounts such as fees to open the account, to manage the account, annual fees, etc. These fees are the price consumers pay when they need to rebuild a damage credit file. To overcome a bad credit rating, credit card use is essential and secured credit account is the place to start correcting a bad payment record.