Rebuilding credit after a bankruptcy or another negative...
If you are looking for an instant approval card offers, usually you want to skip a credit check and prefer easy options without a credit pull. This leaves you with a choice of many so called after bankruptcy prepaid cards that are specifically targeted on high-risk borrowers with damaged credit. Be aware that often these products can be a dangerous combination of very high costs and hidden fees and are not helping you in building a credit at all.
Another quick option is a store card that is easy to get and issued instantly. The major drawback of store cards is that they are also not very useful in building a credit.
There is a more meaningful way to address your financial needs and fix your credit score along the way. If you lack patience, you can just skip to the section with the list of cards needed.
First, it is always good to know where are you standing. Everyone has a right to get a free credit report once a year. Just go to https://www.annualcreditreport.com and order a free credit report from all three major credit agencies.
It is important to check if your report is accurate. You should clean up everything that is outdated and incorrect. It requires patience, but it will pay off later.
Removing all errors from a credit report is a multi-step process that will take up to 30-60 days:
After your report is finally fixed, it is time to start working on rebuilding a credit.
That is one of the fastest routes to improve your credit score in a short time.You can skip several first steps depending on your credit situation.
If your credit score is less than 500, your first option is a secured card. It will help you to establish a basis of your credit, and give you a usable card in hand.
Main considerations when choosing a secured card are:
$25 annual fee
$0 first-year fee
reports to credit agencies
24 days grace period
unsecured card offer after 12 months
After a 6 month of proper use (read about that below) of your secured card you may check your credit score and see if you are ready for a 'real' unsecured credit card (and proceed to the next step)
If your credit is at least in a 500-530 range (a typical credit score after personal bankruptcy) you can apply for one of the high-risk credit cards. It is a good starter product that will help you to get a your credit score off the ground, start reporting your credit and build a good basis.
After 6 month of responsible use of the card, check your credit score again, it should be ready for a second credit card (and proceed to the next step).
With a credit in a 600-650 range you are ready to apply for a Capital One Platinum card. This product is a first real credit card from a major bank that you can afford with bad to average credit.
Same applies to people with no previous credit history – Capital One Platinum is a good started card for newcomers and people with no credit.
In a 6-12 month timeframe, you are usually ready to apply to one of the following credit cards as your second card. You can close your secured or Credit One card at that point if you like.
Now you are on a good track to a good to excellent credit score if you keep following the rules of a proper card use.
Remember that your credit card is a tool hat helps you building a better credit and it requires good timing and a discipline.
First, you should never carry a balance on any of your cards. You should get a rule to pay your bill before the deadline, it is better to pay the same day when you got a statement.
Your credit card utilization ratio is one of the most important metric in your credit score formula. You should be using only 7-10% of your available credit limit. For example, if your credit limit is $300 (a typical limit for a low credit score products), you should never be using more than $20-$30 of your credit limit every month.
How can you achieve this? Just refill your credit card before the day of the report on the card. You should refill it with the full sum of your credit limit minus 7-10% of it. In our example, if in the current month you have spent $200 on a card with a $300 limit, you should refill your card with $170-$180 before the card report strikes.
If the above course of action to boost your credit doesn’t not suit your needs, you can still go for a prepaid card.
These offers do not require a credit check, so your credit situation is not an issue. On the other side, these cards do not help you to improve a credit because they are not reported as credit.
When shopping for a prepaid card, you should watch out for fees. The fee structure of prepaid cards is usually more complicated than for credit cards making the average prepaid card cost $170-$300/year in fees.
A CARD Act of 2009 was a major change that turned the industry towards the consumer and eliminated some of the most predatory tactics implemented by banks. Unfortunately, the Act didn’t make a huge difference for prepaid cards.
Despite the fact that prepaid cards are focused more on unbanked lower income population, the rules that appliy to prepaid cards segment are much less strict.
One of the most important areas where prepaid are way behind credit cards is the disclosure requirements. All credit cards have a Rates and Fee information (a Schumer Box) that helps in understanding the total cost of owning a card. Prepaid cards lack that simple yet effective tool, which results in an extremely complicated fee structure for most prepaid cards.
Another problem is that it is not made clear enough by the issuers that prepaid and debit cards do not help to improve your credit because they are not reported as a credit.
Prepaid cards also lack some of the important security and protection features that credit cards have – fraud losses protection in particular.
However, recent Federal Reserve study shows that prepaid are intensively used by Millennials and ‘power users’, thus making it more important to fix the issues with prepaid and debit cards when more and more people use them every day.
Another option for an instant credit is to obtain a store card. You can go and apply for a credit card in one of your favorite stores – Target, Victoria’s Secret, Macy’s, Wal-Mart and many others.
These cards are really instant and easy to get. The approval process is very fast and loyal to your credit.
There is a well known “Shopping cart trick”- you start shopping in one of the shops online, put something in a shopping cart and start going through a checkout process filling out all your details and mailing info. Most of the times you will get an offer for the store credit card before the final page of the checkout. It helps that it doesn't make a hard pull from your credit report, thus not damaging your credit score.
The drawback of store cards is that they are not as helpful in building your credit as a regular credit card – credit agencies often consider these cards as consumer credit, not a credit card.