If you have bad credit, it can feel like you're stuck in a maze. You'll have a hard time getting a loan or other credit because of your poor credit history -- but you'll need to build a good credit history if you can ever hope of improving your credit score.
Being responsible with a credit card is a good method for rebuilding your credit, but getting approved for a card when you have a crummy credit score is difficult. But is it hopeless? No, there are options.
Step 1: Be realistic
Credit card commercials wow consumers with low interests rates, and perks like cash back and discounted concert tickets. But remember, you have bad credit — so no soup for you.
You'll be lucky to get a card with a high interest rate, and your only reward will be points toward a better credit score.
You can check your credit score and credit report at myFICO.
Step 2: Explore your options
Department stores and other retailers often have more relaxed standards for credit applicants. If your score is decent enough to be accepted, you might be able to get a store charge card.
Sure, these cards usually have low credit limits and might work only at specific stores, but they're a great way to reestablish credit.
Secured credit cards are another good option for applicants with poor credit. These cards are offered by banks, which require you to make a cash deposit.
The deposit amount becomes your credit limit, so if you don't make your payments, what you owe on the card is deducted from your deposit. But if you use the card responsibly, your deposit money will be returned, your credit will improve and you'll be offered a regular credit card.
Step 3: Beware of hazards
A person who has bad credit is at risk of being victimized by predatory companies dangling what are called subprime credit cards.
These cards can come with super-high interest rates (we're talking 30%!), lots of fees, low credit limits and painful penalties if you're late with a payment or go over your limit. Subprime cards can be relatively easy to get, but it's also easy for them to put you in a spiral of debt.
Other companies offer products that won't do much for your bad credit. Prepaid cards are technically not credit cards at all. You pay a deposit, and it goes on the card. Your purchases come directly off the deposit amount.
There is no debt to pay back, so there is no benefit to your credit score. The main reason to have a prepaid card is if you don't have a bank account and want to make electronic purchases.
Step 4: Stick to your plan
Whichever solution you choose, don't relapse into bad financial habits. Remember your goal of rebuilding your credit score. Make purchases small enough that they can be paid off monthly.
Little by little, you can revive your credit score!
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