If you have bad credit and don’t qualify for a traditional credit card, one way to increase your credit score can be to take out a subprime credit card for people with bad credit. Also known as fee-harvester credit cards, subprime credit cards come with many pros and cons, however. The pro is that when used correctly, a bad credit credit card can help you improve your credit score. The con is that they start you out with a low credit limit and charge you high fees for the privilege.
Still, if you are looking to improve your credit score, a credit card for bad credit can be worth it as long as you use it with caution. Your main goal with a low-limit credit card should be not to get a line of credit, but to increase your credit rating and work your way up the credit ladder to a prime credit card as soon as possible. Here are five tips to help you climb that ladder as fast as possible:
1. Pay the balance off in full each month. Whether or not you have a prime credit card or a credit card for bad credit, this is the basic rule of all savvy credit card usage. It is the simplest rule, and it is also the hardest one to follow. All cardholders face the same challenge: it’s very easy to overspend when you have a credit card.
To avoid this tendency, treat your credit card like a debit or prepaid card. Determine how much you can pay off each month, and put that money aside in your checking or savings account before you even charge a dollar to your card.
In addition, keep a running total of your charges so you always know how much you have left to spend. This way, you won’t get caught off guard at the end of the month when you can’t pay your balance.
2. Don’t use the card for discretionary expenditures. Again to avoid temptation, use your credit card for recurring, non-discretionary expenditures, such as gas for your car, Internet service, or cell phone bill. Remember, you don’t have this credit card to enjoy access to credit, but only to build credit or increase your credit score as fast as possible.
3. Never charge more than 30% of the credit limit. How much you use of your available credit is an important part of your credit score. If you do occasionally carry a balance over from one month to another, make sure it stays below 30% of the total credit limit.
4. Pay early. Don’t wait until the last minute to pay your credit card bill each month. For best results, call your card issuer and get them to move your payment due date to 7-10 days after the day you get your paycheck. This makes it easier to remember when to pay your card and to pay early. If you get a paycheck twice a month, consider paying your credit card balance down each time you get your paycheck.
5. Put the card in a drawer. To err is human, and you’ll likely find that you are tempted to make charges to your card that you can’t pay off at the end of the month, particularly once your credit limit starts to increase This is the first step down the slippery slope to credit card debt, and it’s also a sure-fire way to undermine your efforts to increase your credit score. If you find this to be the case, leave your card in a drawer. Since you have to use the card to improve your credit score, instead use it for recurring bills that you can pay via the Internet.
If you follow these simple tips, you will be able to gradually improve your credit score and enjoy all the advantages of having good credit. Best of all, creating a discipline for managing credit wisely early on will help you avoid falling into a debt trap later on as you become eligible for a prime credit card and get access to higher and higher lines of credit.
