A lot of people come to us looking for ways to improve their credit. And one of the biggest mistakes people make when they are looking to improve their credit is that they stop trying to build new, good lines of credit. They focus 100% of their time on trying to remove the negative.
I’m not saying that you shouldn’t remove the negative information. If you can, by all means, put some time into removing those trade lines. You will see a big increase in your score. But you shouldn’t ignore the other pieces of the puzzle. Meaning it will take more than just removing negative items to get your credit score back into the 700s!
How to build credit with credit cards for bad credit
The easiest way to rebuild credit is to start off with a credit card. The 2 main types of credit cards that are used for rebuilding are:
- Unsecured credit cards for bad credit with no deposit – these credit cards are just like their name states. Unsecured – meaning no collateral required. For people with bad credit – meaning the credit score required for approval is lower than a normal credit card.
- Secured Credit Cards – these cards are the ones most credit repair consultants use for rebuilding credit. And we will go into the reasons below. But they require a security deposit which is also your credit limit.
The application requirements.
The application process for both of these types is very easy. Both of these types of cards cater to people with bad credit. To apply for an unsecured credit card, you need to meet these basic requirements:
- Over 18
- Employed or some sort of verifiable income
- Minimum credit score will vary. You need to read the fine print. We have seen some bad credit cards have a required credit score as low as 570 and some as high as a 625!
And both of these cards can be used to rebuild your credit.
Secured credit card approval is much easier. They are also known as instant approval and guaranteed approval credit cards since so many of them don’t even credit check.
Why do credit repair companies love secured credit cards?
As their names imply, secured credit cards come with a deposit requirement. This security deposit is used as your credit limit. Most require a minimum security deposit of $200. And on some..not all… you can make a deposit of up to $5,000.
Why do we recommend them heavily to our clients?
- most secured credit cards have no application fee
- the interest rates are low since the line of credit is secured
- some allow you to add to the security balance so you can increase your credit limit
- most report to all 3 credit bureaus
- after 2 years of on-time payments, you get your security deposit BACK and your credit card becomes unsecured
- most secured credit card companies approve ANYBODY that can pt down the security deposit. Including people straight out of bankruptcy!
- Secured credit cards are sometimes called instant approval or guaranteed approval credit cards
Credit issuers love secured credit cards because if you fail to pay your bill. They just take it out of your security deposit and close your account.
Because of the required security deposit. Even our clients that routinely get turned down for credit get approved. You can use secured credit cards to jump-start or rebuild your credit history.
When to use unsecured bad credit credit cards
I recommend unsecured credit cards for bad credit when my client doesn’t have the money for a security deposit. The benefits of unsecured credit cards for bad credit are:
- no security deposit required
- depending on the issuer, they accept very low credit scores
- they will report your payment history to the credit bureaus
But there are some cons to using the unsecured bad credit cards. Namely:
- the credit limits granted are low. Usually between $200 – $500
- the credit issuers charge a lot of fees. And they put them on the credit card. So if you are issued a $500 credit limit and they have $250 in fees. When you get the card you have $250 available credit.
- that fee is something you pay back over time, but its a fee. Not a deposit so it’s not returned to you. Unlike the security deposit is returned to you when you apply for a secured credit card
- interest rates tend to be higher than what is charged by secured credit card lenders.
So which one is best? Unsecured Credit Cards Or Secured Credit Cards
Well, it depends on your situation. If you have the money for a security deposit. IMHO a secured credit card is best. But if you don’t have the money for a security deposit, then choose an unsecured credit card for bad credit.
It’s best to start rebuilding credit by whichever means you can. One part of what makes up your credit score is the length of time you have had credit and the diversity. Having one or 2 credit cards will go a long way towards getting your credit back in shape.