Almost all of us wreck our credit at some point in our lives – usually when we’re young and not so great about the decisions we make. There is an old saying that good decisions come from experience, and experience comes from bad decisions. If you’re like us you probably made some bad decisions about credit and may even have been forced to file for bankruptcy.
If you did mishandle your credit and find that you can no longer get any credit at all, you need to learn from the bad decisions you made and begin rebuilding it.
You do know your credit score, right?
If you’re not able to get credit it’s probably due to your credit score. Lenders look at credit scores in the following ranges:
• Between 700 and 850 – Very good or excellent credit score
• Between 680 and 699 – Good credit score
• Between 620 and 679 – Average or OK score
• Between 580 and 619 – Low credit score
• Between 500 and 579 – Poor credit score
• Between 300 and 499 – Bad credit score
If you’re being denied credit, you probably have a credit score of less than 500. But the important thing is to learn your credit score. You can get it by going to the site www.myfico.com and either pay $19.95 or sign-up for a free trial of its Score Watch program. The three credit reporting bureaus – Experian, Equifax and TransUnion – offer free credit scores but you may have to jump through some hoops in order to get yours. We like CreditKarma and CreditSesame as good sources for a free credit report. Plus, a site such as CreditKarma offers a lot of other valuable information in addition to your credit score.
Now that you know your credit score
Once you get your credit score the next step is to get your credit reports so you can see why your score is so pitiful. The law mandates that you can get your credit reports free from the three credit reporting bureaus once a year. You can get yours by going to each of the credit reporting bureaus or on the site www.annualcreditreport.com.
What to look for
If you have a very low credit score it’s because there are damaging items in your credit report. The ones to look for are late payments, missed payments, collection accounts, judgments, bankruptcies, defaults and lawsuits. You should also be sure to look for errors. The FTC (Federal Trade Commission) released a study last year showing that 5% of us have errors in our credit reports so serious they are damaging our credit scores. If you’re lucky you might find that there are errors in your credit report that are dragging down your credit score. If this turns out to be the case, you will need to dispute the negative items by writing a letter to the appropriate credit bureau, along with whatever documentation you have that proves your case. If you can get the erroneous items deleted from your account, your credit score should get a very nice boost.
In most cases you won’t find any errors in your credit report, which means you have basically shredded your credit. In this case you will need to begin rebuilding it and one of the best ways to do this is to get a secured credit card. If you’re not familiar with these cards this is where you make a security deposit in order to get a line of credit. Some of these cards will also have an annual fee and even interest rates that are higher-than-average. Instead of just jumping into the first secured card you find, do some comparison-shopping to ensure that you get one that’s affordable. Here is what to look for.
What’s the annual fee?
All companies that issue secured credit cards have different annual fee requirements. These can be from $29 to $39 or even more, depending on the individual card and its interest rate. For example, you might find that a card that has a low interest rate and low deposit requirements has a higher annual fee. On the other hand, a card with a low annual fee might have a higher interest rate and stiffer deposit requirements.
Check out what’s required for a line of credit
If you search carefully you might find a secured credit card where you could qualify for an increase in your credit line and without having to add more funds for a security deposit. In the event you believe you will be using that secured card for a year or more, think about getting one that offers this advantage. You will need to maintain your account in a good standing by making your payments on time every time to get such a benefit. But this should pay off for you.
Go to a credit union
Membership in a credit union used to be limited to people in a certain group such as the employees of a company or members of a union. However, today many credit unions are open to just about anyone. A lot of them offer secured credit cards and some will even forego the annual and application fees. In addition, the secured cards offered by credit unions usually have lower interest rates and more alternatives for rebuilding your credit – even if you’ve had a bankruptcy, illness, divorce or another life-altering situation that damaged your finances.
If you’re not familiar with credit unions, here’s a helpful video that discusses the differences between banks and credit unions.
Check out credit-card comparison websites
There are many websites that have reviews of secured credit cards and their current rates. Try to monitor a few of these as this could help you learn the pros and cons of each secured credit card program. This can give you a great birds-eye view of the latest programs and the offers before you begin researching individual cards on your own.
Don’t look just at deposit requirements
The first thing you’ll probably look for in a secured credit card that would be affordable is the deposit requirements you will be required to make before you get the card. But do remember that the security deposit is just part of the card’s total cost . You need to check out annual fees, the interest you will be charged on any balances you carry forward, the application fee and any other required fees. Add up all the costs of the different cards you’re comparing and their terms. What a card costs you over the course of a year will be much higher than just the security deposit. So make sure you account for those other costs.
Be careful you don’t get scammed
This may shock you but not all companies that offer secured credit cards are legitimate. If you’re not careful you could actually run into a scam. Before you sign up for a card, go online and check out multiple sources and look for reviews of the card and the company behind it. If the company passes this test, you can be pretty sure that it’s legitimate.
Watch the fine print
There’s an old saying in the advertising business that the big print giveth and the small print taketh away. Once you boil down your selections to a few secured credit cards be sure to read all the fine print. You need to have a detailed understanding of the card’s annual fee, fixed or variable interest rates, security deposit requirement and any other fees you would be charged over the life of your contract. And don’t be afraid to call the card’s customer service department if you have any questions about the terms or if you need something clarified. There is another old saying that it’s better to be safe than sorry.