When you’ve defaulted on the terms and conditions of your credit agreement, bad credit will show on your credit report for the next 7 years. If you plan to apply for a mortgage, unsecured loan, car refinancing or a private student loan you may wish to use credit-building credit cards to help repair your credit score. Don’t believe credit repair companies that claim to be able improve your credit score overnight or get you a completely new credit report. This simply isn’t legally possible if you’ve recently defaulted.
Types of Credit-building Credit Cards to Fix Your Credit Score
Although there is no such thing as rapid credit repair, there are several different credit cards to rebuild credit. Creditbuilder, unsecured and secured credit cards report to credit reference agencies each month so each punctual repayment will lead to a gradual credit score improvement.
Best Unsecured Credit Cards to Rebuild Credit
If you aren’t able to offer the issuer collateral, an unsecured card can help to fix your credit score. It’s important to appreciate that the initial limit is likely to be just $250. There are also several charges that must be cleared before using the card so that you have some credit to work with.
The limit on a unsecured credit-building credit card is normally subject to review after a period of 6 months. Provided that you pay punctually and avoid maxing-out your card, this is likely to be increased. Limits are low to begin with in order to minimize any potential losses in the event of default.
To maximize your credit improvement, you should avoid using more than 30% of your limit each month. This is because the Fair Isaac corporation formula looks closely at credit utilization so you don’t want to appear too financially stretched as this is perceived as a warning sign.
Secured Credit Cards to Repair Your Credit Score
If you need a higher limit, a secured credit card will help you to achieve this goal. Just deposit a sum of cash equivalent to the limit you require. You’ll need to settle the outstanding balance each month, but if you do this within the grace period you can avoid the payment of interest.
You protect the financial interests of the lender through the provision of collateral, such as property or a cash deposit. If you default on the terms of the agreement, you stand to lose your security. For this reason, it is generally inadvisable to secure the debt on the family home.
Using Creditbuilder Credit Repair Credit Cards to Rebuild Credit Ratings
A credit-builder card involves getting a small loan from the issuer which you repay as a management charge over the next 12 months. Provided that you pay on-time, this will be reported to Experian, Equifax and TransUnion. One of the best credit-building credit cards when seeking to repair your credit score and avoid debt problems. Unsustainable debt is the cause of past and future credit problems.