Having bad credit may be much more common than you initially thought but you’re not alone if you fall into that category and you still have options. Some financial institutions will offer specialized credit cards for those with weaker or bad credit ratings for example.
This is a good thing because having issues with your credit and not having pathways to resolve them can hamper future financial plans. Without access to credit, it is much harder to handle unexpected burdens in the future, such as medical expenses. The only avenue to be thought of was high-interest predatory-style loans to obtain credit, but that has changed in recent years.
“2009 was not just when the financial crisis hit, but also had the silver lining of creditors being more open to those with bad credit.” So said Michael Steinberg, who works at Wells Fargo as a Credit Analyst.
Let’s take a look below to see what’s possible.
Why even apply for another credit card?
First, you may find yourself already with a credit card and think that’s already enough, so what’s the point of another one? Yet a fresh credit card can be just the ticket towards rebuilding your credit down the line.
Debt consolidation with offers of low to no interest rate
As a promotional method to attract new customers, there are, at times, offers to be able to receive a credit card that will provide these intro rates for a set amount of time.
Steinberg goes on to say, “For those who are able to get this offer, it’s a great way of debt consolidation, compared to other secure debt, because you can consolidate and pay low to no additional interest for a set period.”
Do keep in mind to have the plan to pay off that debt during the promotional period, or interest will start to accrue.
Maximizing the benefits of these cards
Credit cards tend to come with a variety of different benefits. For example, some offer better rewards for groceries, others for gas. So make sure to maximize these options to generate the highest amount of rewards.
These days you want to have your credit risk spread across different institutions. So having only a couple of types of credit can be detrimental. For example, only having a mortgage and an auto loan can look bad to lenders.
Rob Walsh, who works at RBC as a risk manager, added, “Creditors want to see a variety of debt types, so another credit card helps that diversity.”
Credit utilization that’s optimal
Another credit card will also help to increase what is known as your total credit and its utilization. That is the amount of credit you can borrow versus how much already have. The best ratio is to keep it up to 30% at any given time. Just make sure not to max out that new credit card anytime soon as that will not improve your utilization.
What does a credit card look like for those with bad credit?
Even though it may be tougher than if you had excellent credit, options are still available for those with poor credit.
Going the secured route
This option is where one puts down a security deposit with funds that will then equate to the line of credit which is on the card. There’s less risk to the credit card issuer, and if a payment is missed for any reason, the secured funds are available to be used.
“A secured card is an ideal method of rebuilding your credit by just using it a few times a month and paying it off in full every time,” Walsh added.
Remember that the initial deposit is about $200, and there could be an annual fee.
A credit card designed for Subprime credit
These work a bit differently than secured cards as they will have a much deeper review of the applicant and their creditworthiness for such a card. There will also be much more when it comes to costs for the card, even a monthly fee for the card, as well as set-up fees and other ancillary charges. You may also experience extremely high-interest rates for such cards as well.
Cards that are unsecured
These are quite similar to those subprime cards but tend to fall between secured and subprime cards. In fact, these cards are typically given to a person who had a secured card initially but used it properly long enough to get their deposit back. Of course, this also means their credit score is headed in a positive direction.
A Credit card from a retail store
There’s always the possibility of getting a retail store credit card. But, unfortunately, they can only be used at that retail store and have very low limits, with very high rates of interest and possibly other fees. Yet they still get reported to the credit reporting companies, so using them and paying them off properly will help improve your score.
Know that this is all about getting your credit back in order
Now that you know credit cards are possible even if your credit score isn’t the top bracket it’s also a path to better financial health. You should always find out what the market is offering and make the best advised decision based on the individual situation that will work best for you.