This is a guest post from Angie Picardo who is a staff writer for NerdWallet. Her mission is to help consumers stay financially savvy, and save some money with the best checking accounts for bad credit.
In desperate financial times, it can seem like an easy out to get fast credit in order to pay for expenses. However, this quick fix comes with greater risk to your credit and financial health. Most financial experts would not recommend racking up more debt in the short term by obtaining a credit card with bad credit. Sometimes, though, you just need the extra help. First, let’s consider some things before applying for a credit card. Then, we will discuss several credit card options that may fit your current situation. Here are some steps to take now.
CRUCIAL STEPS TO TAKE BEFORE APPLYING FOR A NEW CREDIT CARD
1. DO NOT close your old credit card accounts. Closing accounts that you already have will damage your credit rating and decrease your chances of being approved for a credit card.
2. Bring ALL of your accounts current. If you have a few small dings on your credit report or have fallen behind in payments, try working them out with your creditors to bring them current.
3. If you need more help, contact a credit counseling agency. Below, you will find a list of helpful sources to contact if you are in a real bind and don’t know what to do.
4. Verify that all three of your credit reports are accurate and in good standing. Your credit reports will give you valuable information about your credit that will help you plan your next move. See our instructions below to help you contact Experian, TransUnion and Equifax credit agencies.
5. Know your FICO score. (You only need one from the three credit bureaus)
6. Try lowering your interest rate and bump up your credit limit. Contact your current credit card companies to negotiate lowering their annual interest rate on all of your cards. You can also ask for an increase in the credit limit on each card. This will help decrease the amount you owe on your cards and is significantly better than some of the rates you will pay on a new credit card.
7. Be patient. It takes time to restore your bad credit.
KNOW YOUR CREDIT REPORTS AND FICO SCORE
Applying for a credit card without knowing what your credit reports say about you is like driving in the dark without your headlights on. You should obtain all three credit reports from each credit bureau and verify their accuracy. The good news is they are free to you, once a year. With identify theft on the rise, you should check your reports every year.
By Snail Mail: – The most effective and secure way to obtain your credit report is by U.S. Mail. If you choose to do it this way, make a copy of your Driver’s License and send it in with your completed application. The single form below will include all three reports:
Application for credit report
Online – You can obtain your credit information online as well by accessing the
FICO Score – You will pay less than $10 for your FICO score online
IF YOU JUST NEED TO GET A CREDIT CARD
Whenever possible, try to use the credit you already have before obtaining a new credit card. If you absolutely must obtain a credit card with bad credit; here are the best options for you. Secured credit cards may be your only option if you are in a situation where you need to re-establish your credit. Prepaid Debit Cards will do nothing for your credit history because they are not credit cards. Take some time to shop around. Sit down with a Bank Representative at the branch you bank at (sometimes, you can get a better deal if you already have an account) and find out what options they can offer. This is a good first step because can talk with a real person and ask questions, face-to-face. Review current credit card offers at comparative websites for the best fit. Make sure you read the fine print and understand the annual fees and interest rates. Lastly, always be on the lookout for scams, especially online.
IF YOU ARE NEW AT THE CREDIT GAME
If you don’t have any credit and have never had a credit card, try opening a line-of-credit at a jeweler. You can charge a $50 piece of jewelry and make payments. Always make the minimum payment, on time every month. This is a manageable way to establish a foundation for your credit history.
IF YOU NEED HELP PAYING YOUR BILLS
First, try to cut the non-essentials out of your budget. Consider food stamps or your local food pantry if you need to supplement a few meals. Pay at least the minimum balance on your current credit cards (on time, every month) until you can get caught up. If you have a family, try to keep your car expenses down by coordinating your shopping trips, appointments, picking up family members, etc., in one trip as opposed to many trips throughout the week. The less you drive, the less gas to fuel your vehicle.
If you need serious help obtaining credit and/or paying down debts, these organizations will help you consolidate and prioritize your finances by working with your creditors:
The Association of Independent Consumer Credit Counseling Agencies
National Foundation for Credit Counseling
Remember, you shouldn’t do anything until you know the big picture. If you have exhausted your resources, the only thing you can do is to your work to improve your credit history. It will increase your credit worthiness so that you can obtain a credit card or loan in the future.
1) Federal Trade Commission, Credit Report Request Form – http://www.ftc.gov/bcp/edu/resources/forms/requestformfinal.pdf
2) annualcreditreport.com – https://www.annualcreditreport.com/cra/index.jsp
3) myfico.com – www.myfico.com
4) The Association of Independent Consumer Credit Counseling Agencies – www.aiccca.org
5) National Foundation for Credit Counseling – www.nfcc.org