The Great Recession has left consumers with financial scars. Many people lost their jobs, got into debt or saw their credit scores fall like the stock market during this time of economic difficulty. But now, as America begins to rebound, it is time for consumers to lick their wounds and hit the road to financial recovery. This can be accomplished in various ways, depending on the exact nature of one’s monetary malady. For those people looking to rebuild their credit standing, the answer is, perhaps surprisingly, use of a credit card.
Upon hearing this, you might be questioning why credit restoration is even necessary and why use of a credit card is suggested for achieving it. After all, irresponsible credit card use may be the exact reason your credit took a hit in the first place.
So why even think about using a credit card ever again?
Well, because your credit score so often represents you. Without a good credit score you may find it difficult to get a loan, purchase or rent a property, buy or lease a car or even get your desired job. Additionally, use of a credit card is the cheapest, most efficient way to rebuild credit. In order to improve your credit score, you must infuse your credit reports with a steady stream of positive information that will help muddle the existing negative factors that pulled your score down. A credit card can accomplish this in one of two ways. First, you can use your credit card to make regular purchases, which you then pay for in full every month. This will demonstrate responsible use to the credit bureaus. Alternatively, you can open your credit card account, lock your card away and benefit without ever making a purchase because simply having an open credit card in good standing and at zero balance adds positive information to your major credit reports each month.
Which Credit Card to Use – Get Secured
Ok, so a credit card is one way to go, but which one to choose? At the end of the day, secured credit cards are one of the best tools to rebuild bad credit. This kind of card offers guaranteed approval and is often the cheapest option available because of the refundable security deposit that you are required to place when opening it. This deposit protects the issuer from default, negating the need for an expensive fee structure. It also serves as your credit line, meaning you cannot spend more than you can afford with a secured credit card.
The right secured credit card for you depends on your individual needs. Here are out picks for the top secured credit cards currently on the market:
Discover it® Secured Credit Card – The Discover it® Secured Credit Card is the only secured card we know of that doesn’t charge an annual fee. As if that weren’t reason enough to sign up, you can also earn rewards! With this card, you’ll earn 2x points on your first $1,000 in dining and gas purchases every quarter, plus 1x points on all other purchases. Read here to learn more about the Discover it® Secured Credit Card.
Citi® Secured MasterCard® – Another great option among secured credit cards is the Citi®Secured MasterCard®. For an annual fee of only $25, you can build or repair your credit over time. Like the other card we mentioned, this card does report to the three credit reporting agencies, which is what you need to happen if you hope to improve your credit by using your card responsibly.
Getting a secured credit card is not the only option available to consumers with bad credit. An unsecured credit card for bad credit would be helpful for consumers who need an emergency line of credit in addition to a vehicle for credit restoration. However, while the new credit card law (CARD Act) made these cards more consumer friendly, they still have a costly fee structure designed to protect issuers from the risks associated with the bad credit demographic.
Consumers often get unsecured credit cards for bad credit because they want to begin improving their credit standing immediately but don’t have the requisite funds for a secured credit card’s security deposit. This course of action is ill-advised because not only are unsecured credit cards for bad credit costly, but being unable to wait to get a secured credit card also illustrates a lack of discipline that is unacceptable from someone looking to build his or her credit. Therefore, waiting until you have enough money to open a secured credit card is recommendable.
No matter what credit restoration avenue you pick, choosing to improve your credit standing is the right course of action. While you may be hesitant to use a credit card again or may think that you can live with a low credit score, having the foresight to recognize a credit score’s importance is crucial. As long as you use your credit card responsibly, your credit score will rise and you will have the freedom to buy a car, rent a property, or get a mortgage should you choose to do so. Ultimately, you must not limit your future options by failing to act now because doing so would be regrettable.
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