Rebuilding Credit Cards

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You may ask how to rebuild credit when your history is bad and issuers are not eager to see you as an applicant. The answer is very simple: apply for the right card. There are credit cards that work well for rebuilding credit - secured cards, shopping credit and prepaid cards. Here is the difference:

• Secured cards can be used to make purchases anywhere MasterCard, Visa, American Express, or Discover credit cards are accepted. They require you to put down a security deposit to activate the card - usually between $200 and $2,000. That deposit will become the base for your credit limit, insuring that if you default the card issuer will not take a loss. Your line of credit can usually be raised after you show responsible credit cards use. Your security deposit is fully refundable if you close your account and have paid off all your purchases in full.
• Catalog cards or shopping cards do not require a security deposit, but you can only use them to make purchases from their catalog or at the company website like fingerhut.com or thehorizonoutlet.com. Here you can find a wide variety of merchandise, from clothing to electronics - even furniture and appliances. These cards usually have high APRs, but if you use them to make purchases that you can pay off in full each month, you won't pay any interest.
• Prepaid cards are alternative to cash and can be used like general credit cards. But they do not give you a line of credit and don't help you fix your credit in a traditional way. No credit reports will be sent to the credit bureaus and credit performance won't be reflected in your credit report. However, they help in a way you may not consider. They give you the opportunity to acquire a habit of making on time payments and staying within available funds. In other words, using a prepaid card you are laying the foundation of your future excellent credit history.

First two types of cards - secured cards and shopping cards - typically report to major credit bureaus so your credit history will reflect your credit performance. In a due time you will be able to repair bad credit, which will enable you to apply for additional credit cards. The last one does not send reports, but can be considered as a base for responsible credit use in the future.

Things you should know to rebuild credit

Credit scores fall on a scale generally from 300 to 850. If your credit score has fallen below 640 or so, you are no longer considered to have good or average credit. You may have trouble qualifying for many unsecured credit cards. Your credit score won't improve overnight, but with the right credit card, responsible use, and some time, you can lift your score out of the credit basement. Here are some important things to know about giving your credit score a makeover:

Find the right card - Whether you go with a shopping card or a secured card, the first step is to find a credit card that will help you rebuild your credit. Prepaid cards, while they can be very useful for people who need a card and have a low credit score or no credit history, do not report to credit bureaus. That means they will not have any effect on your credit history and cannot help your credit score.

Keep it manageable - No matter what type of card you get, keep your purchases small and manageable so you can easily pay them off each month. Carrying a balance will result in interest charges that can be steep. Most cards for people who are repairing credit carry high APRs, so you want to avoid carrying balances from month to month and accruing interest. Don't buy things you cannot afford or you can get in over your head.

Always pay on time - Making payments when due is the most important you can do to show responsible use. Missing due dates also means late fees will be added and it can result in a rate hike if you get slapped with a penalty APR. Know when your payment due date and set up text or email reminders so you do not miss it. If you can, set up automatic payments so at least the minimum payment will come right out of your bank account every month. It is vital that you make on-time payments when you are trying to repair your credit.