You may be worried about how to obtain a credit card when your damaged credit file from the past seems to follow you wherever you go? Understanding this is an issue requires knowing why your credit is damaged and how bad credit can be repaired.
We have come to think of our personal credit rating as a measure of our worth. This perception may be true for some but others had bad credit due to circumstances beyond their control.
Our money is a factor in who we are and thus our ability to manage personal finances may be viewed as evidence of our personal responsibility or of our lack of control.
What Causes Bad Credit?
The reasons for having bad credit vary widely. The reasons most often encountered include:
Lack of Responsibility
There are always those who don’t take money seriously. If they have money, they spend it. To this person, the due date on a bill is seen as a suggestion rather than a deadline.
For some, lack of financial responsibility is a life choice. Others have never learned to manage money and fail to see the connection between having money and using credit.
Shopoholics and Status Seekers
We may think of women when we see the word “shopoholic” but men also suffer from this emotional affliction. For these people, the “buy” is exciting.
Some of them will buy items on sale only because there is a sale. Others buy every new tool that comes into the store, or buy more clothing for babies and children than the child could possibly wear in a year.
You may shop to excess to fill an emotional need or to cure boredom. Shopping can be a weapon, too, when a spouse charges every credit card to the limit after an argument at home.
Financial experts say consumers who have bad credit due to buying more than they could afford were simply out of touch with their own financial reality.
Credit cards were freely given out by lenders prior to the economic meltdown. This led consumers to see themselves as having buying power that was far in excess of their earning power.
Self-indulgence and owning “stuff” was on its way to becoming an Olympic event in the U.S. When interest rates were raised by lenders without warning or reason, it was a wakeup call for many shoppers.
It was a crisis for others who had already accumulated more debt than they could pay. The increased APR led to minimum payments that were doubled or tripled and to a rising credit debt default rate.
Bad Credit Due to Emergency
One medical emergency can ruin your financial health. The cost of emergency care, medical care and prescriptions has risen by double digits year after year.
Millions of people do not have health insurance. Those who do are often surprised at how little of the medical expenses are covered by their insurance provider.
The crisis is magnified if the medical emergency involves the main breadwinner of the family. It does not take long for high medical expenses combined with decreased income to ruin a good credit rating. It can take years to build a good credit file and that file can be ruined in a few months.
Loss of employment is also a crisis that can lead to bad credit. When funds are severely limited, you will pay out only as much as you must to continue your lifestyle.
You may pay your mortgage on time every month but if you fail to pay those credit card bills each month, you will end up with bad credit.
How to Get a Credit Card with Bad Credit
If your credit is damaged due to a medical emergency or a temporary job loss that has now been resolved, you may be able to obtain a credit card if you find a lender willing to examine the reasons for bad credit and balance that with former good credit.
This is becoming more difficult to do as lending institutions become larger and more automated. The best possibility for approval is to have a good long term relationship with your local bank branch.
If you really need to obtain a credit card, you now have options that were not available a few years ago. There are sub-prime lending institutions that have recognized the potential profit in granting credit to those with bad credit.
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There is a weakness in our credit reporting system that has not been addressed until recently. A good credit rating takes time to create and depends on timely payment of all of your obligations.
The increasing number of consumers with bad credit is leading to greater understanding by banks of the need for interim or sub-prime credit cards.
These accounts provide a vehicle you can use to improve your damaged credit. The fees and interest rates may be high and the spending limits much lower than you used to have.
If you obtain a credit card with bad credit, you can use that new sub-prime credit account monthly and pay it off monthly to establish a good payment record that will, in time, balance the bad credit in your file and improve your three digit credit score.