You might be thinking that you’ll never be able to get approved for a credit card if you have a bad credit score, but there are many credit cards designed to help people build up their credit scores. It’s never too late to improve your credit score, and credit cards are a great way to do that. There are many options in the market, so doing your research is key.
What Happens When You Have Bad Credit?
Your credit score is a 3 digit number between 300-850 that reflects your credit history so lenders can get an idea of how trustworthy of a borrower you are. There’s a lot of factors that can affect your credit, such as your payment history, amount of total debt, age of your credit, or new credit applications. If you frequently are late on payments, have a lot of debt, or are always applying for new lines of credit, your score will be lower.
It’s important to always check your credit score and understand what you need to do to maintain and improve your credit. However, it can be a slippery slope, and a lot of times, you find yourself suddenly in the pit of a bad credit score. If this does happen to you, don’t worry because there are ways to climb out of bad credit.
And one way is to apply for a new credit card.
How Can Credit Cards Help Improve Your Credit?
There are quite a few ways that credit cards can help improve your credit score. When you first apply and get approved, you can start creating your payment history. You’ll want to make sure you always pay off your credit card bills each month, so you need to responsibly use the credit card and ensure that you do not overspend what you can’t pay off. The longer healthy payment history you have, the more your credit score will improve and banks will trust you more.
Opening a new credit card will also increase your total credit limit, which can improve your credit score. Your Credit Utilization Ratio is the total amount of debt you owe divided by your total credit limit. For example, if you have a balance of $1000 on one credit card that has a limit of $5000, your Credit Utilization Ratio is 20%. Say you open up a new credit card that also has a limit of $5000. Your new credit limit is now $10,000 and you still only have a balance of $1000 that hasn’t been paid. Your new Credit Utilization Ratio is now 10%, and the lower the ratio, the better it is for your credit score since it shows that you are responsible at managing your credit by not overspending and regularly paying off debt.
Credit cards also expand your credit portfolio, meaning that it adds to the different types of credit, like mortgages, car loans, or business loans, that you may also have. Lenders appreciate more well rounded borrowers who have multiple types of credit.
What To Consider When Applying
If you have bad credit, don’t think that there’s no way out. There are many credit cards out there that are designed for people with lower credit scores. With that in mind, it’s important to consider the following when doing your research on which credit card to apply for.
1. No Required Credit History - There are quite a few credit cards out there that don’t require any previous credit history,or if you have a few negative marks on your credit score. Check to see if the card you’re interested in requires previous credit history.
2. Allows Previous Bankruptcies - A lot of credit cards will often reject you if you have declared any bankruptcies in the past, but there are cards out there that do allow previous bankruptcies. If you have a previous bankruptcy, be sure to check if the card you want to apply for allows them.
3. Allows Refundable Deposits - Some credit cards out there will let you place a refundable deposit down in order to establish a new line of credit. The amount of the deposit depends on your credit worthiness. You’ll be able to get your deposit back depending on how responsible you are when using your new credit card.
You might be tempted to apply to many credit cards to increase your odds at getting approved, but remember to not do this! Each time you apply to a new credit card, a hard inquiry is made that temporarily lowers your credit score. Lenders will see every hard inquiry you make, which only decreases your chances of getting improved. Be sure to do your research before applying, so that you can successfully get a new credit card to start building up your credit score as soon as you can.
Resources:
1. https://www.thesimpledollar.com/credit-cards/bad-credit/best-credit-cards-for-bad-credit/
2. https://wallethub.com/credit-cards/bad-credit/
3. https://www.nerdwallet.com/best/credit-cards/bad-credit
