Editorial Policy

How a 'bad credit' card can help rebuild credit history

Erica Sandberg

August 7, 2015

QHi Erica,

If I have a “high risk” credit card like First Premier, should I cancel that card and start with a new one to rebuild my bad credit history? —Franklin

ADear Franklin,

To clarify: A credit card company and its products aren't high risk, although potential and current customers might be. For this reason, whether or not you should switch cards depends on your credit rating.

It's true that some card issuers focus their attention on individuals who do not have perfect borrowing and repayment histories. However, the majority of these companies develop products to satisfy a wide variety of applicants, from those who've shown to be great credit risks to those who haven't. Ask Erica

The company you mention, First Premier, does offer accounts to applicants with less than ideal credit ratings. Such cards may come with higher than average APRs, more fees and fewer perks. Still, even with a card like this you can come out ahead. Just charge what you can afford and send the entire balance by the due date. Outside of the annual fee that might be added, the process should be free, and it provides all of the advantages of paying with plastic — short term loans at no cost, plus valuable consumer protection.

What else does a card like this do? When used as described above, it allows you to ascend the credit rating ladder. Presuming you opened the account when your FICO scores (the most common credit rating measurement) were in the “bad” range of between 300 and 600, they have almost certainly climbed with responsible use. That information shows up on your consumer credit reports and is factored into your credit scores.

If your FICOs are in the mid-600s and above, most lenders will consider you for their better products. Check your numbers at myFICO.com for about $20 each to see where you stand and if they're good, go for it. Apply for a credit card that comes with more bells and whistles and fewer associated fees. Check out the current array of offers for people with your type of credit rating. Focus on what fits your lifestyle, too. Maybe you're a big vacationer and would like to have an airline or travel card where you accumulate points for flights. Or perhaps you'd prefer a cash-back card, so you earn money as you charge. Shop around and be selective.

That leaves the question of should you can cancel the card you have or not. I say no, at least for a while.

You see, for scoring purposes, timely payments and low debt are the most important considerations, but next on the list is length of credit history. That includes how much time you've had and used a particular account. If you're concentrating on building the highest score possible, keep the First Premier card and charge with it occasionally, making sure to keep it in positive standing. Do so and you'll prove that you can handle multiple accounts over a long period of time, which is what lenders like to see.

Eventually you'll have enough positive data on your consumer credit reports to indicate that you're a low credit risk customer. When your FICO scores are excellent (750 to 850), you can feel more free to drop the account that isn't doing much for you.

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