3/25/2014 3:45 PM ET|
5 ways to use a card to repair bad credit
Credit cards often get you into your bad credit mess in the first place, but under certain circumstances they can also get you out.
You really can use a credit card to rebuild credit.
After lawsuits and medical bills, credit cards are one of the leading drivers towards bad credit. So it comes as at least somewhat of a surprise that credit cards can help on the back end of all that debt accumulation.
"It might sound a little crazy to suggest you can use a credit card to rebuild your credit history," Beverly Harzog, a nationally regarded credit card expert, consumer advocate and author of a new book, "Confessions Of a Credit Junkie."
"But as long as your bad credit problem doesn't stem from out-of-control spending," she says, "a credit card is one of your best tools for getting back into the good graces of the credit gods."
How so? Herzog offers the following strategies:
Harzog advises consumers with bad credit to get back in the game with a secured credit card. "With a secured credit card, you make a deposit into a bank account and that 'secures' the card for you," she says. "The card issuer gives you a credit card and you use the card just like a regular credit card. It doesn't say 'secured' on the card, so there's no stigma attached to it."
Just make sure you get a secured card that actually reports card payments to credit agencies.
Don't apply for too many cards
Don't go into "panic mode" when you mount your good-credit campaign. "People tell themselves tell themselves that they need a lot of new credit cards to prove they're a good risk," she says. "This approach often backfires because they don't have good enough credit to get approved for the cards they're applying for."
Herzog says that every time you apply for a credit card, the process dings your credit score by between two and five points.
Don't overspend with your new card
Harzog advises consumers to get acquainted with an industry measuring tool called a credit utilization ratio. "That is the amount of credit you have used compared to the amount you have available when you add up all of your credit limits," she says. "The standard advice is to keep your ratio below 30 percent.
Pay on time -- always
Creditors and lenders love consumers who pay their credit card bills on time every month, and so do credit agencies. "Paying your bill off every month makes you look very responsible," Harzog says. "If you keep your balance low, paying the entire balance shouldn't be difficult to do."
Payment history is huge
It represents 35 percent of your entire FICO credit score, she adds.
Harzog also advises that consumers don't close unused credit cards. When a consumer closes a card, he or she loses the available credit linked to the card. That affects the credit utilization rate and can knock your credit score down.
Credit cards can ruin -- and rebuild -- a credit score. Use the tips above to nurture your score back to a healthy level.
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After a bankruptcy a decade ago I immediately got another card. By basically following what the article said I was able to rebuild my credit. It was a low limit card but I used it only for gas and paid it off every month.
My credit score improved to a decent level and was able to use credit again. Except after the crash in '08, just having the BK on my record killed most chances for credit. The BK is gone off my report now so I don't have to worry about it any more but I learned my lesson about getting in over my head in debt. My wife lost her job last week and that showed me I could have been more prepared but I'm glad that I don't have so much debt now that with a few adjustments to the budget we can make it on my income alone without too much trouble.
The surest way to cure the bad debt credit card situation is to bring back 19th century debtors prison. Let that word get out and you'll be surprised how quick people change that buying with no money habit.
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