3 Types of Credit Cards to Help Rebuild Your Credit Rating

There are a number of different types of credit cards that will help you make regular debt payments to rebuild your credit score. The important thing to remember is: having a card is not enough. You have to flex your credit by purchasing with your card and paying down your balance. Running up a large bill will prevent you from recovering effectively. But purchasing wisely, making your payments and closing your balance each month will allow you to watch your credit score creep up over time.

#1 Secured Credit Cards

If you have a very low credit rating, you may not be eligible for most credit card offers. However, you can reduce the risk you pose to a lender by offering to secure the card against an asset. You do not need to have a large asset, like a home, to do this. Your savings account may be used if your bank offers credit cards, for example. The bank will provide you with a card up to a certain percentage of the total funds you have in your account. If you default, you will lose all of the asset, however, not just the portion you owe.

#2 High Interest Credit Cards

If you want to take on less risk, then you may opt for a high interest card option. Your financing will cost you more when your interest rate is high. But, if you manage your credit well and pay down balances, then the interest rate will impact your costs to a very small degree. It is not uncommon for credit card rates to rise sharply if your credit drops. Since you will likely have an adjustable rate card, keep a close eye on your credit and your interest rate. Avoid spending when rates are at their highest.

#3 Home Equity Lines of Credit

If you own your home, you can use the equity you have to receive a credit card. This is only possible if you have built up enough of an asset base in your residence, meaning you have partially or fully paid off your mortgage. Collateralizing your home will add a second lien holder. This means you are actually placing your home at risk when you borrow in this way. If you default, your credit card company can purchase your primary mortgage, foreclosing on your home even if your mortgage is in good standing. This risky option is best only if you can manage your credit effectively.

Not Prepaid Cards

It is important to note that prepaid cards have no affect on your credit. This option allows you to place money into an account. The card is directly tied to the account, simply withdrawing funds you have already put in. Prepaid cards are a great idea for a person who cannot get a credit card but needs plastic in order to reserve a hotel or plane ticket. However, for all of their benefits, prepaid cards will simply not have any effect on your overall credit score, even if they are well managed.

Improve Your Credit Score - Free Consultation