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Credit Card Options When You’re Rebuilding Your Score

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Many consumers are eager to use credit cards to help make the purchases in their day-to-day lives a little easier to afford. But if you have bad credit, you probably know that this isn’t always possible.

During the recession, many lenders significantly tightened their standards for who they would grant credit cards to, but even as those requirements are becoming broader, it’s not always easy for some people to obtain a new credit card. Fortunately, there are options they may be able to tap to both make payments easier to handle and simultaneously reestablish their credit standing.

A good option is a secured credit card, which is line of credit that’s set up by making a one-time payment to a lender. That payment will establish the credit limit on your new card, and experts recommend that it shouldn’t exceed more than a few hundred dollars. After all, the purpose of this card is to reestablish your credit, so you’ll want to keep your limit low enough that you’ll be able to pay it off in full every month.

Once you have this card, you should use it sparingly, so that you can properly reestablish your history of making on-time payments while simultaneously keeping your debt utilization ratio—meaning the amount you’re borrowing versus what your total limits are—relatively low. Despite a popular myth, lenders want you owing as little as possible, so keeping your balance close to zero is a great idea when you’re trying to build your credit.

Once you’ve had your secured credit card for a few months, and have been using it responsibly, begin exploring your other options. Secured cards, because they carry lower limits and typically higher-than-average interest rates, should be viewed as credit card training wheels. Finding a new card with a slightly higher limit and more affordable rate will help you boost your spending power once you’re comfortable with using credit again, but should still help to prevent you from running up too much debt.

As always, when looking for any type of line of credit, you should be careful to review a number of options, rather than signing up for the first one you find, to make sure you’re getting the best possible deal.

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