Category: Credit Score

If you have bad credit, it’s critical that you have and use three to five credit cards. The only way credit bureaus will reward you with a high credit score is if you prove that you can responsibly manage debt. This means: Having at least three credit cards, keeping them active, keeping a low balance (below 30 percent of the limit), and paying your bills on time every single month.
But how can you get credit if you have bad credit?
If you need credit cards, we have researched the best secured and subprime credit cards out there. One of these cards is specifically for people with credit scores that fall below 580. And here are a list of cards for people with scores below 550. That said, I encourage you to keep reading so you can learn about the different types of credit cards we offer on our site.
Secured Credit Cards
There are several ways you can get a credit card, even if your score is low. The first is through secured credit cards. Secured credit cards work like this: Before the card is activated, you will pay a deposit that is usually equal to (but sometimes greater than) your limit. Then, you use the account as you would any other credit card. But here’s the catch: You will also pay the bill, just like you would any other credit card. These aren’t prepaid credit cards. The credit card company will keep your deposit and you will pay your bill.
So imagine that you have a secured credit card with a $1,000 limit. Just to open the account, you will make a $1,000 deposit (at least). Now imagine that you charge $300 to the card. The secured credit card company will not apply the balance to your deposit. You will need to pay the bill, just as you would any other credit card. If you don’t pay the bill in full, you will incur interest, and if you miss payments, your credit card will suffer. If you eventually default, the credit card company will keep your deposit, but only after they have attempted to collect on the debt, and turned you over for collections. If you always pay your bill on time, the deposit will be refunded when you close the account, or when the credit card transitions from a secured to a traditional card.
In short, secured credit cards require you to pay now, buy later, and then pay again, whereas traditional credit cards allow you to buy now, pay later. If you make payments on time and learn how to build credit, you can eventually request that the secured credit card be transferred to a traditional credit card, at which point the bank will refund your deposit. The deposit will also be refunded if you close the credit card account, so long as you have no balance at the time.
Though secured credit cards might not seem like that great of a deal, they are a lifesaver for people who desperately want to increase their credit scores. People with bad credit often cannot qualify for traditional credit cards, so secured credit cards allow them to build their credit scores. Second, many businesses require that their customers have credit cards. For instance, most cell phone companies won’t give you a phone without a credit card—secured or otherwise.
As I mentioned, if you pay the bill on time and keep your utilization rate (the percentage of the balance held against the limit) under 30 percent, then a secured credit card will help your credit score just like any other credit card would. And as your credit card score begins to improve, you can contact the credit card company and ask if it can switch the card to unsecured. While secured credit cards have high interest rates and force you to set aside a sizable amount of money as a deposit, they are an attractive way to rebuild your credit. Use them in the right way—with careful purchases and repaying your debt on time—and you’ll soon be back in the good graces of your credit card company.
This takes us to subprime credit cards.
Subprime Credit Cards
We used to discourage people from getting subprime credit cards. And honestly, we still think that you should try to get a secured credit card before you get a subprime credit card. (We’ll explain why in just a minute.) But we currently recommend a subprime credit card, so we’ve obviously changed our tune. And here’s why …
If you are in financial distress, you might be unable to come up with the requisite deposit to qualify for a secured card. And the truth is: You need credit cards. You need credit cards if you want your credit score to increase, and you probably need credit cards to qualify for some utilities. So by all means, apply for secured credit cards if you have no other options. But keep in mind: Secured credit cards usually come with high fees and high interest rates. Sometimes, the limit is so low on subprime credit cards that you have reached (or exceeded) a 30 percent utilization rate in the first month, just because of the fees.
So if you apply for subprime credit cards, I want you to think of them as tools for reaching a 720 credit score. Keep them active by charging a tiny, tiny bit each month—like a $3 snack at the gas station. The interest rates will be sky high, and I don’t want you to find yourself in a scenario where you are stacking more and more interest on top of a growing pile of debt.
Okay, one more way to get credit cards is by having a family member add you as an authorized user to an existing credit card.
Authorized User Accounts
I encourage you to read our article about authorized user accounts, but I have one additional thing to add. Authorized user accounts are a great way to increase your credit score—and fast. But they should never—never, never, never—be used as a source of credit. Never.
Did we make it clear? Using a family member’s credit card could hurt your relationship with your family. So protect yourself and your family member by getting yourself added in name only. If your family member abuses the account, you can have your name removed, and your score will be no worse off. But if you abuse the account, your family member’s score could drop permanently, and your relationship could be irreparable.

People already know that bankruptcies, foreclosures, repossessions, and collections will hurt their credit scores. And it’s no big secret that late payments are one of the causes of bad credit. But I bet you don’t know about some of the things that hurt credit! Today’s blog is about the the dirty little secret that will hurt your credit score. Here is is …
Credit card companies often omit or inaccurately report credit card limits, and this causes your score to drop. About half of all consumers are missing at least one credit limit on their credit reports. And in other instances, credit card companies intentionally report a lower limit than you have. Why does this hurt your credit score? Well, the credit-scoring system places a lot of  weight on something called a utilization rate. The utilization rate represents your credit card balance as a percentage of your limit. If your limit is $1000 and your balance is $300, you have a 30 percent utilization rate. If your balance increases to $500, your utilization rate would increase to 50 percent. In other words, you would be utilizing 50 percent of your available limit.
The credit-scoring formula responds more favorably to people who have a utilization rate that is no higher than 30 percent.
Now let’s imagine that you have a $300 balance on a credit card with a limit of $1000. Your utilization rate is 30 percent. Good news for your credit score, right? Not so fast. If the credit card company is only reporting a $500 limit, you will appear to be carrying a 60 percent utilization rate because the credit-scoring bureaus will think you are using $300 of a $500 limit. And this hurts your credit score.
There are a lot of theories as to why the credit card companies do this. One is that credit card companies buy lists of borrowers whose limits are, for example, more than $10,000. The companies then send credit card offers with enticing interest rates to the people on these lists. Their goal is to encourage borrowers to switch cards. Your credit card company does not want your name on that list. They want to make sure that you remain a loyal customer. In an effort to keep you as a client, some experts say credit card companies report a lower credit limit than you actually have, or they do not report your limit at all. This makes you less appealing to other credit card companies. This might be good news for their client list, but it is bad news for your credit score.
Are you a victim of this scam? If so, take the following steps:
1.     Pull your credit report from www.my720ficoscore.com.
2.     If the credit card companies are inaccurately reporting any credit limit of yours, immediately begin the process of correcting this mistake. Remember, if you cannot get this mistake fixed, you can and should fight back!