Bad credit is tough to bounce back from. It makes it difficult to manage your finances effectively and affordably, denies you lines of credit, delivers you high-interest rates and can make it hard to get your hands on a credit card. But there are still credit cards available for those with less than stellar credit and a new credit card can boost your credit score if you use it the right way.
The benefits of opening a new credit card
Even if you already have a credit card, you can use a new one to boost your score.
Consolidate debt with low-interest offers
Credit card issuers offer no-interest introductory periods to attract customers to their services. If you qualify for an offer like this, use the chance to consolidate any other unsecured debt you’re carrying. Transfer balances are especially useful if you’re carrying debt on high-interest credit cards, but make sure to pay off the balance before the introductory period expires so you can avoid hefty interest charges.
Take advantage of different perks
Different credit cards have different perks. Reserve certain cards for certain purposes, as one card might score you rewards points at grocery stores while another might help get you cashback while fueling up. Use your cards wisely.
Diversify your credit to boost your score
With only a line or two of credit, most of your available credit is concentrated with just one or two financial institutions. Creditors like to see variety, and they expect to see some revolving, unsecured credit. A new credit card can help you get there.
Improve your credit utilization
The amount of available credit you use can dramatically impact your credit score. This is known as total credit utilization, and you should aim to keep it under 30 percent. A quick way to improve it is by opening a new credit card and increasing your overall credit limit.
How to work toward getting a new credit card when your credit sucks
As helpful as a new credit card can be, getting one when you have bad credit can be difficult. But it doesn’t have to be. There are options you can explore if your credit isn’t in great shape.
Open a secured credit card
A secured credit card provides a low-risk way to obtain a credit card account. It’s the best option for those with no credit history or bad credit. Card issuers provide high-risk customers with secured credit cards because each card is protected by a cash deposit.
For example, if you’re approved for a card with a $500 credit limit, you need to pay your bank $500 in order to receive your card. Your deposit covers your balance if you ever default on the payment.
A secured card looks and acts just like a normal credit card. The credit card payment is due every billing cycle, just like an unsecured credit card. You can make minimum payments or submit a larger payment to reduce your total card balance (probably a better idea since secured cards typically have a higher interest rate.
Use a rent reporting service
If you’re a renter, your rent payments probably aren’t helping your credit score because most landlords don’t report payments to the bureaus. Rent reporting services like Rent Reporters or Rental Kharma send the bureaus records showing you’ve paid your rent. Read the fine print because your landlord might need to verify your payments.
Take out a credit builder loan
Think of a credit builder loan as the inverse of a regular loan. With a credit builder loan, you make payments on the loan, but they go into a bank account. After the loan is paid off, you get your money. Local credit unions or online banks often have this option for their clients.
Be sure to always make on-time payments as your payment history determines 35 percent of your credit score.
Consider a co-signer
A family member or friend who has good credit can choose to cosign for you. A co-signer accepts responsibility for making payments if you fail to do so. Be careful, though. If you miss payments, you’ll take down the credit score of the person who helped you.
Become an authorized user
When someone adds you as an authorized user to their credit card, you’re allowed to use the account but are not responsible for any of the payments. Parents often add their children as authorized users to help them establish credit. This can help you build credit faster.