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Using Credit Cards for Bad Credit Responsibly

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Many Americans saw their credit ratings fall precipitously during the recent recession and are now looking to rebuild their standing by obtaining credit cards designed specifically for consumers who have had a troubled borrowing history.

These bad credit credit cards are a good idea for those who need access to a line of credit but have no other credit alternatives. However, for those who do get them, and use them as a means to reconstruct their damaged credit scores, it’s important to keep in mind that these cards shouldn’t be used forever. There are a number of reasons for this.

First, these cards tend to have high interest rates and fees. Because consumers obtaining these cards typically have rocky borrowing histories, lenders protect themselves by adding higher interest rates to any balance carried from one month to the next, and typically charge sizable annual fees, meaning that borrowers can end up paying a sizable amount of money just to keep the account open.

Further, lenders may be reluctant to extend large amounts of credit to those who have defaulted in the past because of the cost of writing off large balances, and thus limit their exposure by keeping limits on bad credit accounts to a few hundred dollars. This also means that borrowers who do carry a balance are in far greater danger of maxing out the card in a shorter period of time.

For these reasons, those who have hit rocky patches in the past where their credit is concerned might want to think about the true cost of using a bad credit credit card for any longer than the time it takes to restore their damaged credit with a strong payment history and proper account management, such as keeping balances as low as possible.

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Once borrowers have built their credit scores back up to a good level, they should seek a new line of credit with more favorable terms. A bad credit credit card should only be used as a stepping stone to new and better offers, because of the many shortcomings these accounts can present. However, they should also be seen as an invaluable way for borrowers to get their credit back on track.

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