Has your credit score taken more hits than a car in a
demolition derby? If so, you may be tempted to get a
credit card and try to rebuild your credit with a solid,
systematic track record of on-time payments.
Done correctly, this could possibly be a smart solution,
but for too many people credit cards have been a one-way
ticket to financial ruin.
For this reason I'm opposed to credit cards almost
universally. However, if you've made the decision that
credit card use is how you want to improve your credit
standing, here's how you can do it without risking your
entire financial future.
First of all, don't buy into the notion that an unsecured
credit card is a good idea. Your credit report has already
taken a number of hits, so you've already established a
track record - and it's not one of which you're terribly
proud. Take the moral and economic high road: go for the
gusto with secured plastic.
Here's how it works:
Your credit card lender will open a credit card account for
you, secured by a "security" deposit equal to your credit
limit. These companies will typically advertise credit
limits as high as $10,000, but the reality is most credit
limits are $500 or less. The reason? Most people can't
afford to deposit more than $500 in order to gain an equal
amount of credit.
This is fine for you because it will keep your spending in
check, while guaranteeing that your credit card account
will be paid off if you default on your card member
agreement.
You need to keep in mind that you're going to have to come
up with money on a monthly basis to pay off any purchases
you've made with your credit card. The money may be in the
bank, but your card issuer is going to pretend it doesn't
exist unless you don't live up to your promise to make
timely payments on the account.
These accounts do have a cost: Most have annual fees - some
as high as $150 per year. They may charge you monthly
membership, program, or participation fees. If you opt to
carry a balance from month to month, you'll also pay
interest on a credit card backed by a savings account that
doesn't pay you interest. The cost can be substantial over
time, but if you're responsible with the account it will
improve your credit. It won't happen overnight, but it
will happen.
There are a few steps you can take to try to minimize your
costs: after you've established a consistent record of
on-time payments, you can request that the credit card
issuer reduce or eliminate the annual fee. The monthly
fees are another area you can try to get reduced as well.
There's no guarantee your credit card issuer will go along
with it, but it never hurts to ask.
It'll take some time, but your credit score will begin to
inch back up as you make your payments on time. It doesn't
take much effort to hurt your credit rating, but correcting
the damage after the fact can take quite awhile.
Do you still want to pursue a higher credit rating with
plastic or have you concluded it's more trouble than it's
worth?
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Darrin Roseborsky is a Refinance Specialist with OMAC
Mortgages, seminar speaker and president of the Roseborsky
Group and HomeRefinanceCoach.com. Darrin can help you
maximize your equity properly and help you find options
that make the most sense for your situation! Learn more
about how it works at: http://www.homerefinancecoach.com
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