The first indication you have a credit problem may appear when you apply for a credit card. Bad credit may come as a shock to you. You know you have made a few payments late but you may not realize that consistently paying only the minimum on credit cards can be detrimental to your credit rating.
Your credit can also be viewed as bad credit through no fault of your own. Years ago, we assumed that anyone turned down for a loan or credit card was someone who didnt pay their bills. Thats not always the case today and people who apply for a credit card with bad credit can be found in all social classes.
In the past two years, many credit issuing companies have reduced credit lines of tens of thousands of consumer accounts. If you had a credit limit of $10,000 available to you on a credit card and a debt on that account of $5000 with regular payments made, that would be considered a positive by the credit rating agencies.
However, if your lender reduces that credit limit to $5200 your credit rating will be damaged even though you have made timely payments on the account. Thats due to the percentage of the available credit that you appear to be using. To someone looking at your credit report and to the agency issuing your three digit credit rating number, you appear to be using all of the credit available to you.
When your credit debt is at the upper limit provided by your lender, you are considered a high risk of default. You may think this is unfair and it is. However, it is also the reality of credit in this current economy. Lenders were aware of new credit restrictions that became law in February 2010. They spent the year prior to the activation of the new laws to position themselves for profit and to reduce risk exposure.
Interest rates have been rising drastically even for those who pay on time. Credit lines have been reduced and often cut in half to the detriment of credit holders. Innovative new fees have been added to replace the hidden fees now prohibited by law.
How Can You Repair Your Credit Rating?
If you are turned down for a loan, mortgage or credit account the first step to take is to obtain a copy of your credit report from each of the three major credit bureaus. If you find an error on the report, notify the credit agency and they will have to investigate that item. This may take months before it is corrected and you may be required to submit supporting documentation.
The credit bureau guidelines have not always kept up with the changes in the credit marketplace. A reduced credit line puts you in a higher risk category with the rating agencies and is reflected by a lowered credit score.
If you close out accounts after paying them off, that may be counted as a negative rather than a positive. If your interest rates increased significantly the rating agency may view this as an indicator of your personal risk rather than an economic indicator of market conditions.
How Can yYou Apply for a Credit Card With Bad Credit?
Secured credit card accounts are designed to provide a credit card to those who cannot quality for accounts through the major credit issuing banks. Secured cards are available from a relatively low number of regional and specialty banks that require you to deposit a specified amount of cash into a savings account held by the lender.
This money guarantees the lender against the chance that you will default on your payments. You will be able to use the card to make purchases although the limits set on these accounts are seldom greater than $500. This is the most optimal option if you want to apply for a credit card with bad credit.
Why Apply for a Credit Card if You Have Bad Credit?
Bad credit does not correct itself. The black marks in your file will eventually lose some importance as time passes with no more negative entries by the credit rating bureaus. However, to counteract the effect of bad credit it is necessary to add good credit to your file.
Eventually, a good payment record will eliminate the negative affect of the credit problems and relegate bad credit to the distant past. You cannot override bad credit unless you are able to establish some type of credit account where the lender reports regularly to the credit bureaus.
When you know how to apply for a credit card with bad credit, the only steps left to take are to carefully compare the offers to choose the secure credit card with the least amount of fees. Choose only a lending company that reports monthly to credit agencies and look for offers that may be converted to standard credit accounts in time.