Credit cards are often seen as an easy way to ruin a credit score, but they are also one of the best ways to rebuild a credit score. However, this should be done with some care.
Credit scores, or credit ratings, are important for almost everyone. Most people are aware that a poor credit score will hurt their chances of getting credit cards and unsecured loans, but it can be even more important than that. Credit scores are also the bottom line for mortgage lenders when considering a borrower for a home loan, meaning that buying a house could be out of reach for someone with a truly poor credit score.
Credit scores are also increasingly utilised by insurers, rental companies, and employers as a way of vetting a person’s reliability, to determine if he or she can be trusted with goods or money. For all these reasons, it’s a good idea to repair a poor credit score as soon as possible, and credit cards are one of the best ways of doing so.
Unfortunately, there’s not a lot of credit on offer for people with a bad credit score, making this a catch-22 situation. But there are ways around this, one of which is a secured credit card. Secured credit cards are cards secured against either a cash lump sum deposited with a bank or on a house with some equity outstanding. Banks offerring secured credit cards will approve whoever applies with the necessary money. These banks will report the new credit action to credit bureaus, which will go some way to repairing damaged credit.
There are also a number of cards that do not need security and which are designed for people with poor credit ratings. However, the fees and interest rate will be considerably higher than standard credit cards.
Because credit agencies take account of a person’s pattern of recent behaviour, it can take twelve months of positive credit behaviour to counterbalance the previous poor score. When received, the credit card should be used several times, with repayments made promptly and over a period of several months, to confirm the changed pattern. Also, it’s important to keep the credit card spending within limits.
