Maybe You Re Not The Worst Thing Ever Sheet Music Building Credit With Credit Cards

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Building Credit With Credit Cards

When people get bad credit from friends, family, or idiots on TV, they say, “…first thing: cut up those credit cards!” Couldn’t be more wrong. Credit repair, like life, is often negative, and the role of credit cards in rebuilding your credit score cannot be overwhelming. Let me present you with the worst case scenario.

For our scenario, let’s say you have a credit score of at least 500 and have a lot of bad debt. The last thing you want to do is cancel an existing line of credit for two reasons. First, if you close them, they will still report as debt each month, but they won’t show any available credit and you will need to show as much credit as possible. Even a $289 store credit with a $300 cap is better than $289 owed on a closed account. The second reason we don’t want to close a line of credit that’s still profitable is because with bad credit like this, you won’t be able to open a new account for a while, so it’s better to use what you already have. Paying down a $289 debt to $149 will have a huge impact on your credit score, possibly pushing you past the 500 credit score you “dropped”.

In the worst case scenario, you have no checking account and are clean enough to work, so a credit card is a must if you want to rebuild your credit for the rest of your life. There are cards that will accept someone with a valid social security number, but the cost is high. A typical “worst case” card will offer a guaranteed approval, but your line of credit will only be $300 and the card application fee will be more than $240, which is applied directly to the card. That way, you’ll have a legitimate credit card that reports good monthly payments to the three major credit bureaus, but you’ll immediately have a fat balance. The key is to pay it off immediately so that you have a balance of more than half the card’s maximum credit line, or less than $149 on a card with a $300 limit. This may seem like a very predatory lending practice, but you are “buying” a credit extension because you haven’t signed up for a loan. Paying off credit card balances on time can dramatically improve your credit score within 3-6 months.

After you’ve had a ‘worst case’ card for 6 months, it’s no longer a ‘worst case’ if you find yourself delinquent or default on any new debt. You can now apply for a better card that starts with some credit. To get a “phased” card, you usually need a job and a line of credit for 6 months. It comes with a “worst case” card. If you can transfer the balance from your first card, the new one is great, but you don’t want to cancel your first one, even if it seems silly to pay monthly and annual fees to keep a card you’ll never use. You’ll keep all of these cards until you really rebuild your good credit. This new card should have a reasonable fee, but you’ll pay $60-$100 in setup fees and have a very high interest rate. You shouldn’t be using this card anyway, so the interest rate doesn’t matter, just get the loan.

After you report good payments with low balances on both cards for about a year, you’ll see your credit score improve dramatically. The reason is that the formula credit bureaus use to determine who should give a loan is based on who already has credit. The more unused credit that lenders want to give you. At this point, you should start trading high-fee predatory cards for good zero-annual-fee cards.

Building credit through bad credit isn’t the only way to improve your credit, and it’s one of the most important steps you can take if you’re in a really deep hole.

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