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What Is the Best Credit Card Option for Someone with Bad Credit?

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What Is the Best Credit Card Option for Someone with Bad Credit?

It is important to understand that all plastic is not created equal. Because of this fact many consumers become very confused when trying to choose which type of credit card is best for them. Consumers with no credit or bad credit really only have 3 options to consider when deciding which credit card is best for them: the prepaid debit card, the unsecured subprime credit card, or the secured credit card. Here are a look at the pros and cons of all 3 card types.

Prepaid Debit Cards

When a consumer purchases a prepaid debit card she has the ability to load her own funds directly onto the card. The cards are relatively easy to find - they are available at gas stations, retail stores, and Western Union stores - and literally anyone can purchase them. A consumer does not fill out an application to receive a prepaid debit card, she simply buys it. Once the card is purchased and loaded with funds, it acts just like a gift card. A consumer can use all of the funds available on the card (minus any fees) and then either reload the card or trash it.

Although prepaid debit cards are easy to find and even easier to obtain, there are plenty of reasons to think twice before choosing to use a prepaid card. First, prepaid debit cards do not offer any credit building opportunities for consumers. Why not? The reason prepaid debit cards offer zero credit building opportunities is because prepaid credit cards are not included on credit reports. Ever. Period. If you have heard differently, you have heard wrong. Additionally, prepaid cards do not offer the same fraud protections available through traditional credit card accounts. If a consumer has a prepaid debit card stolen which was loaded with $200 then it is as if she just lost $200 in cash. Finally, although prepaid cards do not offer fraud protection or credit building opportunities, they can still be loaded with fees.

Unsecured Subprime Credit Cards

Another plastic option which is available to consumers with no credit or damaged credit is the unsecured subprime credit card. Unsecured credit cards are the most common type of credit cards. They must be applied for, an approval must be granted, and (if a consumer is approved) a credit limit is assigned to the account. Unlike prepaid debit cards, unsecured subprime credit cards do offer credit building opportunities since they typically report to all 3 of the major credit bureaus each month - Equifax, Trans Union, and Experian. Plus, if a consumer is approved for one of these accounts, she does not have to put down a large deposit in order to secure her new line of credit.

Unfortunately, the primary draw back when it comes to these types of credit cards is the fact that they are usually loaded with high interest rates and incredibly high fees. It is not uncommon for an applicant to be approved for an unsecured subprime credit card only to receive a card which is practically maxed out as soon as it is issued due to all of the initial fees associated with opening the account. CLICK HERE to read more about how high balances on credit card accounts are bad for credit scores.

Secured Credit Cards

The best option for consumers with bad credit or no credit is, without question, the secured credit card. Secured credit cards, like unsecured subprime credit cards, offer great credit building opportunities when managed properly. However, secured cards typically offer this credit building opportunity without the often astronomically high fees associated with unsecured subprime credit cards. They are actual credit cards, unlike prepaid debit cards, which usually report to all 3 credit bureaus.

When a consumer is approved for a secured credit card she is required to make a deposit with the issuing bank which will be equal to the credit limit on the card. For example, if a consumer makes a $300 deposit then she would receive a secured credit card with a limit of $300. The deposit, however, is not the same as loading funds onto a prepaid debit card. If the consumer charges $25 on her secured credit card then she is responsible to pay the funds to the bank as they are not merely deducted from her initial deposit. Secured credit cards also typically offer very easy qualification standards so it is relatively easy to qualify for a secured card even for consumers with no credit or damaged credit.

How to Choose

Regardless of which type of plastic you choose it is important to do your research first. Comparison sites like GreatCredit101.com allow consumers to view the rates and fees associated with multiple cards before they ever apply for an account. 

michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 

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How to Rebuild Your Credit After Bankruptcy

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How to Rebuild Your Credit After Bankruptcy

Filing for bankruptcy protection from creditors certainly has a long list of benefits. Bankruptcy can stop creditors from suing, it may put a stop to wage garnishments, and it can even grind foreclosure proceedings to a halt -  at least temporarily. However, while bankruptcy has its list of benefits it also has a very significant downside. In the majority of circumstances, filing for bankruptcy is likely to utterly destroy a consumer's credit scores.

While it is completely true that filing bankruptcy is virtually guaranteed to have a severely credit score impact, it is not true that consumers who have filed for bankruptcy cannot begin to rebuild healthy credit again once the bankruptcy has been discharged. Even though the evidence of the bankruptcy filing will remain on a consumer's credit report for 10 years in the majority of cases, consumers can still begin taking steps to improve their credit scores even while the bankruptcy is still present on their credit reports. Here are 3 simple tips which can help your credit to begin recovering after a bankruptcy.

1. Check your credit reports for errors.

In 2013 the Federal Trade Commission estimated that there were around 40 million mistakes present on consumer credit reports. Mistakes on credit reports are not unusual. Consumers who have recently had a bankruptcy discharged are no exception to the rule.

If a consumer has filed bankruptcy then he should check both the public records section of his credit reports to ensure that the bankruptcy itself is being reported properly and he should review each of the individual accounts which were included in his bankruptcy for errors as well. Should a consumer discover credit reporting errors (i.e. a discharged bankruptcy being reported as "filed," duplicate listings of a single bankruptcy, accounts reporting late payments after the bankruptcy was filed, accounts reporting balances after the bankruptcy was discharged, etc.) then it will unfortunately take some work to correct the errors.

A consumer can opt to dispute any errors he discovers on his own or he can also hire a reputable credit repair professional for assistance. Either way, it is extremely unlikely that credit report errors will fix themselves so ignoring the problem is not a solution.

2. Hone your credit management skills.

Many consumers file bankruptcy due to a financial catastrophe caused by an illness, job loss, or even a death. However, there are many other consumers who file for bankruptcy due to financial problems brought about by irresponsible credit management habits. In other words, these consumers spent more money than they earned.

For consumers who find themselves in the 2nd category, here is the first piece of advice I have to offer - shake it off! While that advice may sound a bit cliché, it is still worth following. Living in guilt over past credit mistakes is not going to undo those mistakes. However, obsessing over past mistakes might keep you from moving on and making positive changes in the future.

Consumers looking to hone and strengthen their credit management skills should start by drawing up a written plan for how to handle their finances - aka a budget. CLICK HERE for a free copy of the HOPE4USA Budgeting Worksheet to get started. It can also be helpful for consumers to have an accountability partner who can help to check up on their new commitment to manage money better.

3. Re-establish current credit.

One of the smartest strategies that a consumer can employ to begin recovering from a bankruptcy is to re-establish positive credit card right away, especially in the form of credit card accounts. Of course positive accounts will not completely overshadow the fact that a bankruptcy was filed; however, beginning to show positive credit management habits post bankruptcy can go a long way towards counteracting the impact of the bankruptcy upon the consumer's credit scores.

Many consumers will wonder, "What bank is going to approve me for a credit card with a bankruptcy on my credit reports and bad credit scores?" The answer is a bank which offers secured credit cards. When a consumer opens a secured credit card the issuing bank will require the consumer to make a deposit with the bank equal to the amount of the credit limit on the card. For example, a consumer would make a $300 deposit to receive a secured credit card with a limit of $300. Due to the fact that the account is "secured" with the consumer's own funds these types of credit cards can often be qualified for easily in spite of low credit scores and credit blemishes like discharged bankruptcies. 

credit-expert-michelle-black

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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Credit Cards: Evil Traps or Useful Tools?

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Credit Cards: Evil Traps or Useful Tools?

Your credit scores are arguably the most important numbers in your life. After all, credit has an impact upon you when you apply for a mortgage, try to finance a vehicle, open a new utility account, and credit may even impact you when you apply for new insurance policy. In fact, building healthy credit scores is so important that you should consider it to be one of your top wealth building priorities. Building healthy credit scores is right up there on the financial importance scale with becoming debt free and saving for retirement.

In order to establish healthy credit scores, you have to prove that you are capable of managing credit responsibly. One of the best ways to prove that you can manage credit responsibly is to open credit card accounts. However, for many people it can be very intimidating to have open credit cards. If you have ever made credit mistakes in the past or if you have ever overextended yourself financially and found yourself underneath a crushing load of debt then it is understandable why you may be a little gun shy where credit cards are concerned.

It can be very tempting to avoid credit cards all together if you have ever made credit card management mistakes in the past. Unfortunately, avoiding credit cards might have negative repercussions where your credit scores are concerned. What you need to remember is that credit cards themselves are not evil. A properly managed credit card offers customers a lot of great benefits. Here are a couple of the best ones:

1. Fraud protection –
If someone steals your cash, you have no reliable way to get your money back. If someone steals your debit card, your personal money could be at risk (at least temporarily) while the bank investigates the unauthorized transactions. If someone steals your credit card then the bank’s money is on the line, not your own.

2. Credit Building Possibilities –
If you keep a $0 or very low balance on your credit cards and you always make your payments on time, you have the potential to receive a credit score boost from your well-managed credit card accounts. The longer you manage your credit cards properly, the better the impact may be upon your credit scores.

Consider the Facts

People who are determined to live a “plastic-free” life with a cash only payment mentality often wind up paying more money in the long run than those who have credit cards but manage them properly. Remember, credit cards are not evil or bad. Racking up a ton of credit card debt by overusing your credit cards is definitely a horrible idea. However, excessive credit card debt can absolutely be avoided if you manage your accounts properly.

Properly managed credit cards can be a powerful tool to help to build your credit scores. An individual with no credit scores (or low credit scores) will likely pay more for car insurance, home insurance, and utility deposits. Plus, while it would be nice to pay cash for a house, most of us have to take out a mortgage to in order to purchase a home. Without good credit scores you can expect to either be turned down for a mortgage or to perhaps pay a higher interest rate and down payment. A higher interest rate on your mortgage could cost you tens of thousands of extra dollars over the life of the loan.

The truth is that bad credit happens to good people all the time. Just because you have low credit scores does not mean that you are a horrible person. Low credit scores simply mean that either you have made credit management mistakes in the past or that you have been the victim of unfortunate circumstances. Either way, you deserve a second chance and you can absolutely make a plan to begin rebuilding healthier credit again today. However, swearing off the use of credit cards is not a good strategy.

If you need help developing a plan developing a plan to begin rebuilding healthier credit, CLICK HERE to schedule a no-obligation analysis with a HOPE Credit Expert.

CLICK HERE to check out some great reviews for secured credit cards. It is best to do your research BEFORE you apply.

michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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Why Credit Avoidance Is a Bad Strategy

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Why Credit Avoidance Is a Bad Strategy

The title of this piece alone is enough to ruffle the feathers of the die-hard believers in the cash-and-carry lifestyle. So, before I even begin with my explanation of the many ways that swearing off credit can come back to bite you, let me begin by stating that you can still live a debt free lifestyle while building a solid credit score. Don't believe me? Has your favorite financial guru told you otherwise? Before you shake your head and move on to the next item in your newsfeed, take 5 minutes to hear me out. Trust me, you will be glad that you kept reading.

Your Credit Score Is NOT Your Debt Score

Despite what you may have heard, credit scoring models do not reward consumers for going into debt. In fact, the truth is quite to the contrary. The idea that you have to carry a lot of debt in order to have good credit scores is completely false. It is 100% possible for you to be debt free and still have very good credit scores.

Credit scoring models like FICO pay a lot of attention to a consumer's debt load. Many consumers find it surprising that a whopping 30% of their FICO credit scores come from what is known as the "Debt Category" of their credit reports. Credit scoring models are constructed so that the more you owe, the worse it is for your scores. This fact is especially true when it comes to credit card debt. However, if you have credit cards with zero balances you will be heavily rewarded in the credit score department. Having credit card accounts which you keep paid off shows the credit scoring models that you are a good credit risk. Conversely, charge up more credit card debt than you can afford to pay off in a month and not only will you waste money on interest fees but your credit scores will also suffer.

Credit Matters In More Ways Than You Think

If you have experienced a financial disaster, bankruptcy, illness, or just plain bad financial decision making in the past then the idea of swearing off credit all together and adopting a cash-and-carry lifestyle can be tempting. Deciding to close your accounts and never again apply for another credit card or loan is a drastic decision, but plenty of people have proven that it is possible to live a life free from these traditional "trappings" of the credit world. However, what followers of this cash-and-carry lifestyle fail to consider is the fact that pretending their credit doesn't matter can cost a lot of money in the long run.

Thinking that your credit will only have an impact on your life if you intend to apply for a credit card or a loan is completely unrealistic. Like it or not, we live in a very credit driven world. Here are just 7 of the negative consequences to not having good credit.

Without good credit:

  1. It can be hard to qualify for an apartment.
  2. Getting a cell phone contract can be very problematic.
  3. Higher insurance premiums are probably in your future.
  4. Getting a job or a promotion may be difficult.
  5. Security deposits on utility accounts are higher.
  6. Receiving a security clearance for a job could be very tough.
  7. Qualifying to purchase a home might be impossible.

The Truth About Credit "Temptation"

Again, I agree with those who believe that debt is bad. Excessive debt will waste your hard-earned money, it will lower your credit scores, it can be bad for your marriage, and it can cause you a lot of worry and stress. However, the idea that swearing off credit cards in order to avoid the temptation to go into debt is an overly simplistic approach to a complicated problem.

The root of the problem which people who are afraid of credit need to address is the fact that having credit cards is not what caused their financial and credit problems. Problems of this nature are almost always caused by poor money management habits. Saying that credit cards cause people to go into debt is like saying that spoons make people fat.

Closing your credit card accounts is not going to eliminate the temptation to over spend. In fact, for the person who has truly mastered proper money management habits, the temptation to charge more than he/she can afford to pay on a credit card is no greater than the temptation to spend too much on a debit card. Cutting up your credit cards is simply not the answer to your financial problems.

If you have made credit or money mistakes in the past, you are not alone. Don't allow the mistake of your past to define you. Instead of feeling defeated and ashamed you can challenge yourself to try again.

You should not allow let fear or misguided advice cause you to believe that a life free from the world of credit is your answer. After all, in reality there is no such thing as leading a life which is unaffected by your credit. You can embrace this knowledge or you can try to hide from it. Either way, your credit is always going to have a big impact upon your life.  

michelle-black-credit-expert

Michelle Black is an 12+ year credit expert with HOPE4USA, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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3 BIG Myths That Can Hurt Your Credit

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3 BIG Myths That Can Hurt Your Credit

3 Big Myths That Can Hurt Your Credit

Let's face it, there is a lot of bad information floating around the internet about the subject of credit. Credit myths abound and blindly following information or advice from someone who is not truly qualified to give credit advice can cause some serious damage to your credit scores - not to mention it could cost you a lot of money. Even many financial "gurus" give alarmingly bad advice on their television programs, radio shows, and in books which can backfire on the consumers who follow the bad advice. Here are 3 big credit myths which you need to be aware of in order to avoid getting burned.

Myth #1: Closing Unused Credit Cards Will Help Your Credit Scores

Closing unused credit cards can potentially cause your credit scores to take a nose dive, though perhaps not for the reason you may think. You may have heard the idea that closing a credit card account causes you to lose the value of the age of the account, thus lowering your credit scores. Thankfully for consumers, this idea is a complete myth. Closing credit cards does NOT cause you to lose the value of the age of the card (at least not until the card has been closed for a full 10 years). In fact, closed credit card accounts even continue to age on your credit report.

However, closing a credit card account does have the potential to have a negative impact upon your balance to credit limit measurements - aka your revolving utilization ratio. When you close a card you no longer have access to the credit limit on the account. Therefore, especially if you owe a balance on the card which you close, it will appear to the credit bureaus that you owe more than you are authorized to use on the card which will have a very bad impact upon your credit scores.

Even if you do not owe money on the card you close it could still very likely harm your scores to close the account. Credit scoring models also care about your aggregate revolving utilization ratio (the relationship between the balances on all of your credit cards and the limits on your open credit cards). Closing an unused credit card will cause the limit on that account to no longer be included in the calculations for your aggregate revolving utilization ratio thus raising your aggregate utilization ratio if you have a balance on any credit card account. If your aggregate utilization ratio goes up, your scores will almost certainly go down.

Myth #2: You Should Carry a Balance On Your Credit Cards

Many people believe that it is wise to carry a balance on your credit cards from month to month in order to earn higher credit scores. This is another stubborn credit myth which simply refuses to die. In reality, credit scoring models reward consumers who do not carry any debt, especially those who carry zero credit card debt.

Having open credit cards on which you do not revolve balances from month to month is a huge plus in the credit score department. Consumers who only charge what they can afford to pay off on a monthly basis show the credit scoring models that they are responsible and a low credit risk for future lenders. Plus, as an added bonus, consumers who pay off their credit card balances every month do not waste a lot of money on interest fees.

Myth #3: Checking Your Credit Reports Will Lower Your Credit Scores

Whenever you or anyone else obtains a copy of your credit report a record of the credit pulled, known as an inquiry, is placed on your credit report. Some inquiries do have the potential to lower your credit scores, but when you pull a copy of your own credit report it is impossible for that inquiry to harm your scores. In fact, if you wish you can check your own credit reports and credit scores 500 times a day and it will not harm your scores in anyway whatsoever.

It is wise to be very selective about allowing a lender to pull your credit reports so that you do not have an excessive number of "hard" inquiries which do have the potential to lower your scores. However, you should never feel nervous to check your own credit reports and scores. Don't forget, every consumer has the right to access a free credit report from each of the 3 credit bureaus annually at annualcreditreport.com. If you want to access your credit scores from though, it will cost you a separate fee from each credit bureau. Check out GreatCredit101.com for cheaper options to access all 3 of your credit scores. 

michelle-black-credit-expert

Michelle Black is an 12+ year credit expert with HOPE4USA, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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