By this time hopefully you are settling into the New Year and effectively managing your finances or looking for new ways to improve your current bad credit situation. You may have been looking closely at what to spend your money on in 2015 & another area of improvement that may be your focus is trying to rebuild your credit. Let, 2015 be the time for you to step up your game and get your credit back in shape.
One such method of trying to rebuild your credit score, perhaps can be to look at switching to a different type of credit card. Typically, there are two types of cards that are more geared to individuals who are dealing with poor credit, yet still need some additional credit. In addition to having the credit resources, these cards may also be an effective method of boosting your credit score and improving your overall financial circumstances.
The two credit cards, I am of course referring to are Secured Cards and Low Interest Rate Cards. Taking a closer look at these cards will hopefully shed some light on which card may be more suitable for your financial needs and credit score building agenda.
Secured Credit Cards
This first card type is commonly offered to borrowers who have accumulated a lot of debt and have lower credit scores. Typically these offer a lower credit balance, yet sometimes can have higher interest than other cards. How a secured card works is that the borrower will be required to pay a security deposit that protects the lender against any risk. Meaning, if a card owner can not meet the payments, then the bank or lending group can use the funds deposited to cover the costs. While of course borrowers are required to pay their bills on time, otherwise interest can grow and other penalties can be in cured. In this case, a more effectively payment method will reflect a monthly schedule of paying off the card in full, so that borrowers can still access credit, yet will not add more outstanding interest charges to their overall debt load.
Overall Benefit to Bad Credit Borrowers:
In the event individuals with bad credit will not be approved for other cards, it is more likely that they will be able to obtain a secured credit card as most card applicants are, as long as they have the necessary funds to make the deposit. Additionally, for those applicants that are looking to establish a credit history from scratch, this card can also be one in which the approval rate is higher and also manageable at the same time.
With a lower balance, credit card users in this scenario may be able to mange these payments with more ease than other cards with larger balances and bigger monthly payments. By making these payments on time, in full and with consistency – all signs can point towards a higher credit score in a few months’ time.
Low Interest Rate Credit Cards
As opposed to secured cards, low interest rate cards carry just that, lower interest rates. Cards like these may be more difficult to obtain if a borrower’s credit score is poor or if they do not have a credit history at this time. However, there are credit card companies and lenders who will offer these cards types to borrowers in these circumstances. If not, sometimes card users may need to prove that they can make their credit card payments on time for a consistent period of time, for example 6 months and then a low credit card option can be obtained. Overall, these cards are geared towards individuals who are more likely to carry a balance from month to month, as opposed to paying off the amount in full each time.
Overall Benefit to Bad Credit Borrowers:
Borrowers with poor credit and higher levels of debt can switch to a card with lower interest rates can mean the world of difference to their credit. If they are unable to pay off the balance in full, which was likely the case before – however the difference here is that they won’t be adding higher interest charges to each month’s amount. Even if credit card users are using their credit card regularly and making monthly minimum payments, they can improve their debt levels.
This method can help borrowers keep their credit card debt in check, as well as improving their credit score. Being able to make the payments with a higher level of consistency, month after month, year and year can help borrowers see their credit rating’s rise and also opening up more opportunities for future loans.
I want to conclude by stating “to each their own”. Both options may be more appropriate for borrowers with different repayment strategies and priorities. Each card, in their own right can help you improve your credit, so aligning your needs with your credit management plan will be a key decision in this process. Lastly, borrowers can also ‘shop’ around for different card options for both of these credit card styles. Rates will vary among secured cards as well as low rate cards – so taking your time and finding the right plan among each of these card categories is also an important consideration.