How To Know If a Bad Credit Credit Card Is Right for You

If you have a low credit score, you may think you have to take what you can get when it comes to credit cards. In reality, however, there are a number of credit cards for people with bad credit. No matter what your credit score, it’s a bad idea to apply for the first credit card offer that comes along.

Is the bad credit credit card you’re considering the right one for you? Ask yourself these four questions before you apply:

Is it secured or unsecured?

Most credit cards you encounter are unsecured. Secured cards are similar — in that you can use them to make purchases and receive a monthly bill — but opening the account requires a few extra steps. You’ll make a deposit with your lender, and then you can use the card to borrow as normal — usually up to the amount of your deposit.

If you can get an unsecured card, you should. But if you qualify only for secured cards, ensure that the issuer will transition you to an unsecured card after you’ve built a solid payment history.

What’s the interest rate?

If you have poor credit, the cards available to you will have interest rates on the higher side, but that doesn’t mean you have no choice at all. Compare the rates for available cards to get the best deal. And remember that your interest rate matters only if you run a balance on the card. If you already have poor credit, this is the last thing you should be doing.

Are there rewards?

Most rewards credit cards are out of reach for people with bad credit, but this isn’t always the case. If you want rewards, you may have a few card options. Just keep in mind that many bad credit credit cards with rewards also have an annual fee. Weigh the amount you’re likely to earn against the price you’ll pay for the card before springing for a rewards card.

Are there benefits for using your credit responsibly?

Beyond cash back rewards, some credit cards for poor credit offer perks that can help with credit repair. Look for cards that recognize on-time payments with credit limit increases. Having a higher credit limit can lower your credit utilization ratio, which can then give you a credit score bump — as long as you don’t take advantage of the opportunity to spend more.

The bottom line

Bad credit credit cards may not have all the bells and whistles that credit card commercials have taught you to expect, but they’re still credit — and credit is important. No matter what card you qualify for, use it as an opportunity to build up your score by making full, on-time payments. And when you do qualify for the best credit cards, don’t necessarily close your old one. Having a long, responsible history with a credit account works wonders for your credit score.

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Will a Bad Credit Credit Card Hurt My FICO Score?

Applying for a credit card for people with bad credit won’t hurt your credit score—at least not any more than applying for another credit card would. Here’s why.

What are bad credit credit cards, anyway?

Bad credit credit cards are actually useful tools for rebuilding your credit score, also known as your FICO score. The approval process is easier than for other types of cards, because the card issuer is accustomed to dealing with people who have hit a rough patch financially. And getting approved for any credit card at all gives you a chance to prove that you’re trustworthy.

If you’re looking at cards for people with bad credit but you’re still having trouble getting approved, try applying for a secured credit card. Issuers of these cards require a refundable deposit as an extra guarantee that you’ll use your card responsibly, and secured cards sometimes have lower annual fees and lower interest rates than unsecured cards for people with scores below 630.

If you pay your bills on time and keep your credit utilization ratio—that’s the percentage of your available credit you’re actually using—to 30% or less, your credit score shouldn’t suffer from the fact that you’ve applied for a card designed for people with poor credit.

But applying for any credit card at all causes your score to drop a little bit, and bad credit credit cards are no exception.

How new cards affect your credit score

Every time you apply for a credit card, your credit score slides by about 5 points, and every little bit counts when you’re already in bad credit territory. Applying for a lot of new cards all at once can take an even bigger toll, because research shows that customers who apply for six or more cards in quick succession are more likely to declare bankruptcy, according to FICO.

New cards also hurt your score because they bring down the average age of your credit accounts, and 15% of your credit score comes from the length of your credit history. Accounts that have been open for a long time boost your score, while accounts that were opened recently bring your score down.

The bottom line: Think carefully any time you open a new credit card, whether or not it’s a card specifically for people with poor credit. All cards have a similar impact on your credit score.

The important thing for your credit score is how you use your cards: whether you pay on time, whether you keep your balances low and how long you keep the cards open. The rest is just details.

The post Will a Bad Credit Credit Card Hurt My FICO Score? appeared first on NerdWallet Credit Card Blog.

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How To Know If a Bad Credit Credit Card Is Right for You

If you have a low credit score, you may think you have to take what you can get when it comes to credit cards. In reality, however, there are a number of credit cards for people with bad credit. No matter what your credit score, it’s a bad idea to apply for the first credit card offer that comes along.

Is the bad credit credit card you’re considering the right one for you? Ask yourself these four questions before you apply:

Is it secured or unsecured?

Most credit cards you encounter are unsecured. Secured cards are similar — in that you can use them to make purchases and receive a monthly bill — but opening the account requires a few extra steps. You’ll make a deposit with your lender, and then you can use the card to borrow as normal — usually up to the amount of your deposit.

If you can get an unsecured card, you should. But if you qualify only for secured cards, ensure that the issuer will transition you to an unsecured card after you’ve built a solid payment history.

What’s the interest rate?

If you have poor credit, the cards available to you will have interest rates on the higher side, but that doesn’t mean you have no choice at all. Compare the rates for available cards to get the best deal. And remember that your interest rate matters only if you run a balance on the card. If you already have poor credit, this is the last thing you should be doing.

Are there rewards?

Most rewards credit cards are out of reach for people with bad credit, but this isn’t always the case. If you want rewards, you may have a few card options. Just keep in mind that many bad credit credit cards with rewards also have an annual fee. Weigh the amount you’re likely to earn against the price you’ll pay for the card before springing for a rewards card.

Are there benefits for using your credit responsibly?

Beyond cash back rewards, some credit cards for poor credit offer perks that can help with credit repair. Look for cards that recognize on-time payments with credit limit increases. Having a higher credit limit can lower your credit utilization ratio, which can then give you a credit score bump — as long as you don’t take advantage of the opportunity to spend more.

The bottom line

Bad credit credit cards may not have all the bells and whistles that credit card commercials have taught you to expect, but they’re still credit — and credit is important. No matter what card you qualify for, use it as an opportunity to build up your score by making full, on-time payments. And when you do qualify for the best credit cards, don’t necessarily close your old one. Having a long, responsible history with a credit account works wonders for your credit score.

---

Couple using credit card image via iStock.

The post How To Know If a Bad Credit Credit Card Is Right for You appeared first on NerdWallet Credit Card Blog.

Source Article http://ift.tt/1y39EC7

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Will a Bad Credit Credit Card Hurt My FICO Score?

Applying for a credit card for people with bad credit won’t hurt your credit score—at least not any more than applying for another credit card would. Here’s why.

What are bad credit credit cards, anyway?

Bad credit credit cards are actually useful tools for rebuilding your credit score, also known as your FICO score. The approval process is easier than for other types of cards, because the card issuer is accustomed to dealing with people who have hit a rough patch financially. And getting approved for any credit card at all gives you a chance to prove that you’re trustworthy.

If you’re looking at cards for people with bad credit but you’re still having trouble getting approved, try applying for a secured credit card. Issuers of these cards require a refundable deposit as an extra guarantee that you’ll use your card responsibly, and secured cards sometimes have lower annual fees and lower interest rates than unsecured cards for people with scores below 630.

If you pay your bills on time and keep your credit utilization ratio—that’s the percentage of your available credit you’re actually using—to 30% or less, your credit score shouldn’t suffer from the fact that you’ve applied for a card designed for people with poor credit.

But applying for any credit card at all causes your score to drop a little bit, and bad credit credit cards are no exception.

How new cards affect your credit score

Every time you apply for a credit card, your credit score slides by about 5 points, and every little bit counts when you’re already in bad credit territory. Applying for a lot of new cards all at once can take an even bigger toll, because research shows that customers who apply for six or more cards in quick succession are more likely to declare bankruptcy, according to FICO.

New cards also hurt your score because they bring down the average age of your credit accounts, and 15% of your credit score comes from the length of your credit history. Accounts that have been open for a long time boost your score, while accounts that were opened recently bring your score down.

The bottom line: Think carefully any time you open a new credit card, whether or not it’s a card specifically for people with poor credit. All cards have a similar impact on your credit score.

The important thing for your credit score is how you use your cards: whether you pay on time, whether you keep your balances low and how long you keep the cards open. The rest is just details.

The post Will a Bad Credit Credit Card Hurt My FICO Score? appeared first on NerdWallet Credit Card Blog.

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4 Bad Credit Myths

Having poor credit is bad enough. Between being limited to credit cards for people with bad credit and getting unfavorable terms on loans, there are plenty of legitimate reasons to be concerned about a low score.

Unfortunately, relying on misinformation can keep people with substandard credit from taking steps to improve it, or from getting the best deals possible on loans and credit cards. Have you fallen for one of these bad credit myths?

Myth 1: All credit inquiries damage your score.

Monitoring your credit score is a great idea, and it won’t damage your credit. As long as you pull a report from each credit bureau only once a year—or if you’re denied a job because of your credit—it’s free to access.

The kinds of inquiries lenders engage in when deciding whether or not to give you credit can have a temporary negative effect on your score. But don’t let this discourage you from shopping around for loans. As long as your auto or home loan applications take place within a short period of time, such as 14 days, the inquiries will all count as one, according to the Consumer Financial Protection Bureau.

Myth 2: Credit repair agencies are a good way to improve your credit.

If your credit could be better, you may have been tempted by companies promising to strike negative items from your credit report. Don’t believe them. Unless information is incorrect or outdated, there’s no way to have it removed, and any true errors a credit repair agency can fix, you can also find and dispute yourself—for free.

Myth 3: Paid debts are removed from your credit report.

Settling an old bill is a great step toward financial security, and can provide a welcome respite from collections calls. However, even paid debts can impact on your credit. Lenders report most negative information—like late payments—to credit bureaus for seven years and report bankruptcies for ten. You can ask your lender to stop reporting on a paid account, but there’s no guarantee they’ll say yes.

Myth 4: You can’t get a loan with poor credit.

There’s no question that having good credit is a plus when applying for loans. You’ll have your pick of lenders and receive favorable rates. But having bad credit doesn’t mean that you won’t get a loan—just that you might have to work harder for it.

Try applying for a loan at a bank or credit union at which you already have an account. Credit unions in particular tend to be flexible. If you can make a large down payment or if your credit is on the mend, you may have some room to negotiate. Just watch out for lenders offering unrealistic terms—they’re probably too good to be true.

The bottom line

No one needs good credit card information more than people who struggle with credit. So if you’re hoping to graduate from your bad credit credit card, make sure you’re going to the right sources for your facts. Government agencies like Federal Trade Commission and the FDIC are great places to start your research. And if a credit repair company is trying to get your business, look them up on the Better Business Bureau before handing over your money.

---

Image via iStock.

The post 4 Bad Credit Myths appeared first on NerdWallet Credit Card Blog.

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Read More

4 Bad Credit Myths

Having poor credit is bad enough. Between being limited to credit cards for people with bad credit and getting unfavorable terms on loans, there are plenty of legitimate reasons to be concerned about a low score.

Unfortunately, relying on misinformation can keep people with substandard credit from taking steps to improve it, or from getting the best deals possible on loans and credit cards. Have you fallen for one of these bad credit myths?

Myth 1: All credit inquiries damage your score.

Monitoring your credit score is a great idea, and it won’t damage your credit. As long as you pull a report from each credit bureau only once a year—or if you’re denied a job because of your credit—it’s free to access.

The kinds of inquiries lenders engage in when deciding whether or not to give you credit can have a temporary negative effect on your score. But don’t let this discourage you from shopping around for loans. As long as your auto or home loan applications take place within a short period of time, such as 14 days, the inquiries will all count as one, according to the Consumer Financial Protection Bureau.

Myth 2: Credit repair agencies are a good way to improve your credit.

If your credit could be better, you may have been tempted by companies promising to strike negative items from your credit report. Don’t believe them. Unless information is incorrect or outdated, there’s no way to have it removed, and any true errors a credit repair agency can fix, you can also find and dispute yourself—for free.

Myth 3: Paid debts are removed from your credit report.

Settling an old bill is a great step toward financial security, and can provide a welcome respite from collections calls. However, even paid debts can impact on your credit. Lenders report most negative information—like late payments—to credit bureaus for seven years and report bankruptcies for ten. You can ask your lender to stop reporting on a paid account, but there’s no guarantee they’ll say yes.

Myth 4: You can’t get a loan with poor credit.

There’s no question that having good credit is a plus when applying for loans. You’ll have your pick of lenders and receive favorable rates. But having bad credit doesn’t mean that you won’t get a loan—just that you might have to work harder for it.

Try applying for a loan at a bank or credit union at which you already have an account. Credit unions in particular tend to be flexible. If you can make a large down payment or if your credit is on the mend, you may have some room to negotiate. Just watch out for lenders offering unrealistic terms—they’re probably too good to be true.

The bottom line

No one needs good credit card information more than people who struggle with credit. So if you’re hoping to graduate from your bad credit credit card, make sure you’re going to the right sources for your facts. Government agencies like Federal Trade Commission and the FDIC are great places to start your research. And if a credit repair company is trying to get your business, look them up on the Better Business Bureau before handing over your money.

---

Image via iStock.

The post 4 Bad Credit Myths appeared first on NerdWallet Credit Card Blog.

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4 Ways to Know if a Balance Transfer Credit Card is for You

Is the interest rate on your credit card debt sinking you deeper into a financial hole? A 0% APR balance transfer credit card offer can provide a ladder to help climb out of the abyss.

Simply put, these balance transfer offers can help save on interest payments that make it tough to pay down credit card debt quickly. But, like all tools in your financial arsenal, they must be treated with care. Will a balance transfer help or simply kick the can on your credit woes further down the line? Here are some questions you need to ask:

Do you have a good credit score?

Most cards that offer 0% promotions require a FICO credit score of 690 or higher. In fact, the best offers are usually only available to those with a score of over 720. A lower FICO score will greatly limit your options for balance transfer credit card offers. That’s just the way it is.

So know where your credit score stands before you begin.

Does the cost of balance transfer make sense?

Even with a “0%” offer, most balance transfer cards charge a one-time balance transfer fee. Typically, this fee is 3% of the total charges you’re moving onto the card.

In general, if it will take you less than six months to pay off your credit card balance, doing a balance transfer doesn’t make sense. Otherwise, price out the offer carefully against what you’re paying in interest on your current card to see how much you’re really saving. Or, use NerdWallet’s tool to figure out the true cost of your balance transfer. This will help you decide if moving forward with this refinancing option is right for you.

Nerd note: There is one card on the market that waives its balance transfer fee under certain conditions. If you have excellent credit, be sure to check it out.

How long can you take advantage of 0% interest payments?

All good things come to an end. If you get a 0% interest credit card, the first move you should make is to note on your calendar when the promotion ends; it’s often somewhere between six and 15 months.

Let’s be honest: Credit card issuers are betting that the bulk of your debt won’t be repaid before the 0% APR period ends. Prove them wrong. Plan to use the 0% period to double-down on paying off as much of the balance as possible.

Also, read the fine print once the card arrives. Have they given you 0% rates on both the transfer balance and future purchases on the new card? No matter the advertised rate, be vigilant about what the company actually sends you in the mail.

Can you make your payments on time?

Once you make the switch to a 0% card, it’s crucial that you make your payments on time. Many cards have penalties that void the 0% deal the moment you miss a payment. This could cause your APR to spike to a rate that’s way higher than what you were paying before, so proceed with caution.

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The post 4 Ways to Know if a Balance Transfer Credit Card is for You appeared first on NerdWallet Credit Card Blog.

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