To understand the state of personal finances in the US look at the recent figures of total credit card debts that have crossed the $1 trillion mark earlier this year. It shows that people are using credit cards much more to increase their buying powers. While the debt figures might seem quite alarming, it is good business for credit card companies who have reaped the benefits of higher credit card usage. At the same time, it is an excellent opportunity for consumers who want to improve their credit score by making timely payments and settling bills in full. Some companies are aggressively marketing legacy credit cards that urge you to improve your credit score with this credit card. However, it is essential to choose the right credit cards by looking at the terms and conditions that should not bind you in knots.
Millions of Americans suffer from bad credit, and the blame goes to the wrong choice of credit cards as the terms and conditions are difficult to comply with. You have to ensure that there is nothing in the terms and conditions that could weaken your prospects of building a good credit score. It does not make any sense to use credit cards just for availing credit because the real benefit lies in improving the credit score. While it sounds good to bargain for credit card terms that look after your interests well, you would be at the receiving end if you have poor credit that robs you of your bargaining power with credit card companies. In such cases, your options are very limited, and you have to accept whatever comes your way.
With the objective of rebuilding your credit score, you do have a choice to decide how you would like to go about it. You must avoid paying very high card fees and have the determination that you would not remain in bad credit forever. You can even continue to receive credit card rewards without waiting for your credit score to improve. How you can evaluate credit cards for bad credits will become apparent on reading this article. Here are the points to check.
Credit card usage reporting
Remember that you are using your credit card for rebuilding your credit score and might have taken a disciplined approach in using it responsibly. You are making full bill payments on time every month but find that your credit score remains unaffected. Indeed, this is a reason to worry and when you investigate you find that the credit card company did not report your account activity to the credit bureaus. All your good behavior in improving credit score goes waste.
Before selecting the credit card, ensure that the company reports all credit card activities to the credit bureaus namely Equifax, Trans Union, and Experian. Credit scores are drawn up by extracting data from all three credit bureaus, and you must have a file with each one of them to ensure that your excellent work reflects in all the files.
Credit card fees
The cost of using credit cards should be reasonable so that you do not land up paying too high credit card fees. Usually, there are three types of fees levied by credit card companies – annual fees, balance transfer fees and late fees.
- Annual fees – Although many credit cards do not charge any fees, the average yearly price of $30 is quite reasonable when you are using secured credit cards. Anything higher should mean that you must either negotiate for a lower rate if the situation permits or not select the card at all, provided you have some alternative.
- Balance transfer fees – The acceptable fees for transferring the balance from one credit card account to another is between 3% and 5% of the assigned amount. However, if you have a good credit score, you could get the fees waived. Try to adhere to the range preferably keeping it as low as possible.
- Late fees – According to the guidelines of Consumer Financial Protection Bureau, credit card companies cannot charge more than $27 for a first-time offense and after that $38 towards late fees. The hidden cost of late payment is that your credit score takes a hit.
While some credit card companies charge processing fees and maintenance fees in addition to the above, a good credit card company would not be doing this.
Retaining older accounts
Although you might be looking specifically for a credit card for bad credit, it should not come with conditions that force you to close the account once you are done. Maintaining old accounts is right for your credit score because the length is the credit history, better are the chances of preserving your track record of excellent performance.
Therefore, it is important to consider what kind of exit clause accompanies the credit card for bad credit. That should help to work out suitable exit strategies that work in your favor. Choose from any one of the following.
Move from secured credit card to unsecured credit card
You would always like to get back the security deposit that you have to pay for obtaining a secured credit card. Moreover, you would want to get it back without closing the account. Talk to the card issuing company to ascertain if they allow graduating to an unsecured card once you have satisfactorily used the credit card for bad credit. Some companies do this automatically after evaluating the transactions for one year as there is an automatic transition from secured to an unsecured credit card.
No annual fee for an unsecured card
As you would be maintaining the account even after meeting your target of overcoming bad credit, it would be an additional expense if you have to pay annual fees for keeping this card open. If you can find an unsecured credit card without annual fees, it would just be great.
Since the fastest way to build credit score is to use credit cards, do the arithmetic well to work out the cost of maintaining cards to pick one that becomes your weapon in fighting bad credit.
