Best Credit Cards for Rebuilding Credit

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When you have poor credit or no credit at all, obtaining a credit card can be difficult. However, a credit card can help you rebuild a bad credit score as well as establish a credit history, so it's beneficial to have at least one on hand. But finding one that will approve you or give you a decent interest rate can be tricky. If your score is particularly low, you may be denied a card altogether or you may be locked it at an exorbitantly high interest rate.

Luckily, there are a number of options available for those looking to build or rebuild their credit. A few cards or options to consider include:

Prepaid credit cards

A prepaid credit card works the same way as a credit card, but instead of purchasing items on credit and making monthly payments, the funds from prepaid cards are directly loaded onto your card. If you try to make a purchase and don't have enough funds, your purchase will be denied.

Prepaid cards are also a smart choice if you have difficulty controlling their spending. Because you can only use available funds, you won't go into debt with this type of card.

Secured credit cards

Like prepaid credit cards, secured credit cards work like any other credit card at the cash registers. However, a secured credit card requires a deposit, usually from $100 to $500. The deposit serves as the credit limit and covers the debt in the event the owner can't make his or her payments.

This type of card is also advantageous because the credit limit will begin to increase without an additional deposit you consistently make payments on time and don't go over the limit.

Cosigners

Some credit cards will allow you to use a cosigner. A cosigner is a person with good credit that shares liability for the debts incurred. In the event the card owner does not make payments, the cosigner then becomes responsible for paying the debts.

Weigh the pros and cons carefully before asking someone to be a cosigner. If you are late on a payment, the cosigner's credit score also suffers. If you do use a cosigner, set limits and guidelines beforehand to control spending and ensure payments are made on time.

Things to keep in mind

If you're trying to rebuild your credit, it's important to establish smart credit habits. Before you take on any new debt, remember to keep these things in mind:

  • Fees. Annual fees, monthly fees, and set-up fees are very common for the types of cards listed above. Credit card companies and banks tack on extra fees because those with a less than stellar credit history are in a higher risk category for defaulting on their payments.
  • Credit reporting. In order to improve your credit, the cards you choose must report to the three major credit reporting agencies. Most credit cards do this, but some prepaid cards and secured credit cards do not. If you opt for either of these, check first to make sure they will actually improve your credit.
  • Current debt load. Don't try and obtain new debt if your current debt load is out of control. Make sure your payments on all revolving lines of credit are up to date. If you have lines of credit that are maxed out or close to their limit, pay them down first before trying to open new credit.

Poor or no credit doesn't mean you can't obtain a credit card; in fact, a credit card can help you raise your score if you make your payments on time. While there are a number of options for those who are dealing with credit issues, a little research will help you find the right card for you.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.