If you're having a hard time getting approved for credit, chances are your credit score is low. This could be due to negative information on your credit report or a lack of credit history. Fortunately, you have some options to build your credit. A new credit card can build your credit and systematically increase your score to a level that is high enough for lenders to consider you favorably.
Credit Card Basics
A cardinal rule in establishing and maintaining a good credit score with credit cards is to make timely payments. Doing so also avoids late fees and penalty interest rates. Paying your balance in full each month will shield you from finance charges. Although rewards and cash-back perks are tempting, they can entice you to spend more than you can afford, especially since the interest will often offset the rewards. Keeping your purchases to a minimum and maintaining your credit card balance below 20 percent of your credit limit will ensure you have a low debt-to-credit ratio, which can raise your score.
Secured Credit Cards
A secured credit card is an option if getting a regular credit card proves difficult due to a low credit score. Designed to help you establish and build credit, secured cards are issued by banks, credit unions and other financial institutions that require you to deposit an amount as collateral, in case you default on payments. If you qualify, you will be offered a secured credit card with a limit that ranges between 50 percent and 100 percent of the security deposit. The issuing institution will report your monthly payments to the major credit bureaus. After time, your deposit will be released to you as you graduate to a regular credit card.
Store or Gas Credit Cards
Some department stores and gas stations offer credit cards that can be a good starting point for establishing credit. Although relatively easier to qualify for than regular credit cards, they tend to have low credit limits and high interest rates. When applying for one in order to build credit, make sure the issuer will report your monthly payments to the major credit bureaus. In normal circumstances, if the card carries the logo of a card network such as Visa, Discover, American Express or MasterCard, they can be used almost anywhere credit cards are accepted. Otherwise, they may be used at the particular store or gas station chain only.
High Interest Unsecured Cards
An online search for an unsecured card for people with bad credit will provide you with many options from various banks and other commercial institutions. These cards typically charge high interest rates, annual fees and upfront fees in most cases, so make sure you are conversant with the terms before applying. Their annual percentage rates and fees will usually depend on your credit score. If your sole intention is to establish and build credit regardless of the high fees, then they may suit your purposes.
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