Posts Tagged ‘bad credit’

With lenders tightening their standards, and with new credit card rules, many are finding that it is not as easy as it once was to get a credit card. Indeed, proof of income is needed, and for the best credit cards you will need a credit score that is at least fair to good. If you do not meet these qualifications, you may need a co-signer to get a credit card.

What is a Co-signer?

A co-signer is someone who accepts responsibility for the loan or credit card if you cannot pay. If you do not have good enough credit or a high enough income to qualify for a credit card or some other type of loan, a co-signer will vouch for you, taking on the responsibility for the loan. This person should have good credit and sufficient income.

When someone co-signs for a loan, it means that he or she is basically taking on the debt. You should still make your payments on time, but if you don’t, the creditor can come to the co-signer to fulfill the debt. Additionally, the co-signed debt shows up as part of the co-signer’s debt burden, so their debt-to-income ratio rises. A co-signer is taking on risks when he or she backs you up, agreeing to pay on the loan if you default. If there is a chance that you will default, or if there are doubts about whether you are responsible enough to pay on time, you may have a hard time convincing someone to co-sign for you, since most of the risks are taken on by the co-signer.

Choosing a Co-signer

If you are responsible but you do not have established credit or a full-time job, you might be able to convince someone to co-sign for you. This person is usually a relative, often a parent. You might also find a very good family friend to co-sign on a credit card for you. When looking for a co-signer, you should find someone who has good credit, a low debt-to-income ratio, and who is not planning major purchases for at least six months. This is someone who is likely to handle the debt well, and who can afford to co-sign for your credit card.

Once you have your credit card, you should show your appreciation to your co-signer by using it responsibly, paying on time, and in full.

Jean Marquit

If you are drowning in credit card debt, or have collection agencies calling you at work and at home, it’s understandable if you feel overwhelmed right now. However, you can get your credit card debt under control, eliminate it, and show the credit card companies that you can handle credit responsibly. Here are some useful tips for getting out of credit card debt for good.

Work with the credit card issuer

If you sense that you won’t be able to make next month’s credit card payment, proactively contact the credit card issuer yourself. Explain your situation to the company and ask for a lower monthly payment, a lower interest rate, or both. Most credit card companies are reluctant to resort to a collection agency to collect on their debts, since this results in your debt being sold to an outside agency for pennies on the dollar.

Pay more than the minimum

If you ever hope to reduce and eventually eliminate your credit card debt, you must pay more than the credit card’s minimum monthly payment. Even if the additional amount is only $100, every little bit of extra cash helps you on your journey to getting out of debt.

Transfer your balances

Many banks and companies offer zero or low annual percentage rate (APR) balance transfer credit cards to new credit card holders as a promotional incentive. Usually, balances from other credit cards can be transferred to these new cards. If you are able to obtain such a card, transfer as much of your high-interest credit card debt to it as you can. Then, try to pay off this debt before the promotional period ends.

Use only cash

Once you start paying off your credit cards, it is easy to fall back into the routine of using them to make purchases. If you do this, you will never be able to reduce your credit card debt. The solution is to use only cash when you make purchases. Using cash also makes you more aware of how much money you are actually spending on various items.

Once a credit card is paid off, destroy it

It is very tempting to go back to using credit cards that are no longer “maxed out,” especially if the cards have a very high spending limit. Once a credit card is fully paid off, destroy it. This will prevent you from sabotaging your own efforts to stay out of debt.

Keep one or two credit cards

Credit cards do make certain purchases easier (e.g., hotel reservations); however, there is no reason why you should keep five or more credit cards. One or two low-interest credit cards should be sufficient; the rest should be destroyed or made unavailable (e.g., placed in a safe deposit box) for use only in an emergency.

File for bankruptcy

If you simply cannot reduce your credit card debt by cutting back on purchases and even taking on an extra job, the best resort may be to file for bankruptcy. Granted, your credit will be ruined for seven years, but you’ll be able to start fresh. This may be your best option if you see no other way to pay off your credit card debt, or your credit card issuers refuse to consider a mutually beneficial debt payment plan.

Hally Z.

There are many ways you can get a credit card, even if you have bad credit.

Open checking and savings accounts. When you’re starting on the long road to obtaining credit cards, you will want to begin in a very obvious place: your local bank. Open a checking account and keep it in good standing. Add a savings account at the same bank, even if you only keep $10 or $20 in it.

Place utilities in your name. When possible, transfer some household utilities to your name including the cable and electric bills. Having a phone in your name is also beneficial for your credit score and report.

Comparison shop. Shop around for the best interest rate and terms before applying for a credit card. Do not cast a wide net and apply for multiple credit cards at once in hopes that one will bite. Instead, compare each credit card’s annual percentage rate (APR), up-front fees, rewards programs or cash back bonuses, as well as convenience of payment methods. Also be aware of:

• APRs: The U.S. Federal Reserve Board advises consumers to pay attention to the different APR terms of each credit card, as credit cards sometimes offer an introductory APR that will increase after a designated length of time.
• Low credit limits: Look for a card with a low credit limit or one that is within your monthly budget. You want to be able to pay off the entire balance each month before the due date. When you have bad credit, you may not be offered a high credit limit in the beginning anyway.

Gas cards. Set achievable credit card goals when you have bad credit; apply for a gas station credit card with the Visa or MasterCard logo. Gas credit card limits are typically set low in the beginning and they come with some sweet cash-back reward deals.

Department store credit cards. Department store credit cards may be easier to get when you have both bad credit and steady employment. Apply for a department store credit card when it has a special such as a 10 percent discount on your first purchase made with the card. Spend no more than you can afford to pay off when the credit card bill comes.

Bank credit cards. After you’ve shown financial responsibility by paying off your gas card or department store card bills on time, apply for a bank credit card such as a Visa, Discover, American Express or MasterCard. Be aware that with bad credit, the initial interest rate may be high, but you should be paying off the balance monthly and avoiding the interest rate anyway. If you have no luck with a bank credit card, consider a secured credit card, or have a family member co-sign the credit card application.

Pam Gaulin

One of the best New Year’s resolutions you can make is vowing to get your financial house in order. Reviewing your credit report is a great way to do this and to kick off the year right.

Viewing your credit report is completely free; you are legally entitled to one free report from each of the three credit agencies: Experian, Equifax and TransUnion. Thanks to the Fair Credit Reporting Act, you can see the credit information that potential creditors and employers may use in making decisions about you.

Here are some things to look for when reviewing your credit report at the beginning of the year.

Collection accounts

Your credit report may give you some small surprises such as that $56 bill for medical lab work that was never mailed to you. Review your collection accounts and find out how old they are. Check with an attorney or consumer credit reporting agency and see what the statute of limitations are on the collection accounts. Pay off any of the accounts that are still within the statute.

Late payments

Late payments can drive your credit score down fast. When reviewing your credit report at the beginning of the year, look at your payment history. If you only have one late payment for the entire year, call the creditor and see if they will remove that late payment one time as a courtesy. Some creditors will do this, and it will help your credit score. If you notice a pattern that indicates that you may not be paying off your bills in a timely fashion, sign up for automatic drafts. But only sign up for these services if you know you will have adequate funds in your account on the date you agree to let the creditor take the money.

Accounts you don’t recognize

If you see any accounts you don’t recognize, contact the creditor for more information. It may be an old account you forgot about, or it could be an indication that someone used your financial information.

Some experts recommend looking over all three credit reports at one time, as different agencies may report different accounts. Others recommend spacing out your free credit reports over the span of one year. If you can afford to purchase additional credit reports through the year (they are usually around $10 to $30 each), try to review all three credit reports every four months.

Meg C.

Click to read part 1 of 5 Tips to Increase Your Credit Score

When it comes to money management, there is plenty of talk about adopting a cash-only philosophy. Unfortunately, this really only serves a purpose for debt management/reduction. In the case of credit repair, which typically is the next step after all debts are managed or eliminated, a cash-only lifestyle will do nothing for your credit. If you want to repair or increase your credit score, you must use credit. The trick, however, is how you use credit to increase your credit score.

#3: Pay Debts on Time

Consistently paying your debts on time will do wonders for increasing your score. In fact, payment history accounts for about 35 percent of your credit score. One of the easiest ways to make sure you pay your debts on time is to enroll in automatic bill pay with your lenders and credit card company. You can also set up recurring payments through your checking account via online banking.

#4: A Tenth is All You Need

Just having a credit card alone is not enough to increase your credit score — you have to use it. With the economy the way it is, many banks are adopting the practice of closing dormant accounts. So, in other words, if you don’t use it, you lose it. But, the key to this is to use your credit card wisely. Set a maximum spending target of 10 percent of your available credit.

Each month make a purchase on your credit card(s). Use the card for a night out featuring dinner and a movie or fill up your car’s gas tank using your credit card once a month. Don’t use your cards for big ticket items like a plasma screen TV. Just be sure to keep your purchases under 10 percent of your available credit and you should be able to either pay off your balance each month and on time.

#5: Diversity is Key

Spread your debt out by diversifying how you use and manage it. Begin paying down loans by increasing your loan payments a little each month. If you have more than one credit card, distribute the 10 percent target across all cards. For instance, if you have three credit cards, strive to use at maximum 3 percent of the available balance on each so that you stay under the 10 percent cap you placed for yourself.

These tips will help repair and increase your credit score significantly over time. Just remember not to use credit, don’t overextend it (10 percent is key) and diversify your debt usage. Making the required payments on time every month along with these three things will boost your score. Be patient, because credit repair and increasing your credit score does not occur overnight — you have to stick to it. These changes will hopefully become a lifestyle change for your spending that will keep your credit in good standing permanently.

ShawnTe Pierce

When managing your finances to get out of debt, using credit or applying for new credit is not a wise decision. Face it — if you are struggling to pay your bills on time or even pay them at all, acquiring a new bill will place you further into debt. Not to mention the fact that it will further damage your credit score in the process. However, once your finances are in order, you can begin increasing your credit score by using your debt and credit cards wisely.

#1: Transfer Credit Card Debt

If you have outstanding credit card debt and are in the processing of fixing your personal finance so you can adequately pay your bills, transferring this debt is an option you should look into. Ideally you would want to transfer your credit card debt into an installment loan. Do not confuse installment loans with lines of credit, such as home equity lines of credit and secured lines of credit. These two types of credit are revolving debt, the same form of debt as credit cards, and may pose the same repayment issues your credit card caused you. (Also see Balance Transfer Pitfalls.)

Typically installment loans have a lower interest rate than your credit card. These loans tend to be secured debt, which means something you own is used as collateral with the financial institution in case you fail to repay your obligation. You can also obtain an unsecured installment loan; however, the interest will be much higher than the secured loan. With both secured and unsecured installment loans, you know what you need to pay each month based upon the repayment schedule you are given.

#2: Obtain a Credit Card

Using an existing credit card or obtaining a new credit card will put you on a faster track to increasing your score. In fact, obtaining one of the big four credit cards will make a huge difference. If you do not know what the big four are, they are the four major credit cards virtually every retailer accepts: American Express, Discover, MasterCard and Visa.

In addition to having a credit card by one of the big four, it is best to have one that is unsecured. However, if your credit is bad, you may only qualify for a secured credit card. With a secured card your limit is determined by the amount you deposit into the account. Most secured credit cards require a minimum deposit of $200.00. If you only qualify for a secured credit card, make sure it reports monthly to Experian, Equifax and TransUnion. Another matter to check into for secured credit cards is to make sure they will convert to an unsecured card within 18 months of regular timely payments.

These are the first steps to helping you repair your credit and increase your credit score. Just remember to get your finances under control first, and make use of installment loans to aid you. Then make the transition to getting a credit card or to begin using the card(s) you already have to increase your credit score.

Click to read part 2 of 5 Tips to Increase Your Credit Score

ShawnTe Pierce

Bad credit credit cards can be…bad.  When applying for one, beware of offers that require payment before acceptance.

If one has bad credit but needs a credit card—to buy airline tickets, make hotel reservations, rent a car, shop online, etc—there are options. With a secured or prepaid credit card, a deposit is made to the account and a credit line equal to the amount is available. Since it’s prepaid, the credit is not really credit. But the cardholder is given flexibility to use the card instead of paying cash, as well as make reservations or provide security deposits.

There are also credit cards specifically for people with bad credit. But before accepting one of these bad credit credit cards, the applicant should understand the terms and conditions.

The bad is in the fees

With some bad credit credit cards, there is an acceptance fee and a monthly participation fee. For example, for a $200 line of credit, you could be charged an acceptance fee of $144 and a monthly participation fee of $6, leaving you with a $50 line of credit to start. Basically, the new cardholder receives the card already owing $150. Beware of bad credit credit card issuers that charge you a fee before you accept the card. This is illegal and the Federal Trade Commission has ordered a crackdown on telemarketers offering “guaranteed” credit cards with upfront fees prior to acceptance.

In addition to fees, bad credit credit cards may carry a higher interest rate. Consumers should carefully review the credit card agreement and be sure to understand all the terms and conditions before accepting it. Under the federal Truth in Lending Act, credit card issuers are obligated to provide certain information in all credit card offers they make.

Schumer knows

The Schumer box should appear with every credit card offer. All card issuers are required to have this box–it outlines the fees and rates of cards. The information to be provided must include the APR (annual percentage rate of interest), the different rates that are charged (purchases, cash advances and balance transfers), as well as all penalty rates and the actions that trigger them. If the interest rate is variable, the information in the Schumer box must explain how the rate is calculated.

Other information in the Schumer box includes finance charges, annual fees, fees for credit insurance, the minimum payment required, how an outstanding balance is calculated, credit limit, the grace period and the name of the company offering the credit, which may not be the same as the company doing the marketing.

The best use of a bad credit credit card is to help someone rebuild their credit. To do so, the cardholder’s history with the card–such as amount charged and payments made–should be regularly reported to the three major national credit bureaus: Equifax, Experion and TransUnion. But in order to repair credit, one must be sure to not to repeat the behavior that causes bad credit.

Kevin Hagen