Credit file repair takes place naturally over time, but the credit rebuilding process can be accelerated with a guaranteed unsecured credit card. Any adverse credit will normally stay on a credit report for a period of 7 years. It can be as long as 10 years in the case of chapter 7 bankruptcy. Whilst a better credit score is an added bonus, it is often essential to have a card to reserve or pay for goods and services. For example, to book a hotel room or repair the car at a garage. Poor credit cards work in the same way as their mainstream equivalent, they simply have less favorable terms.
Common Features of Unsecured Credit Cards for Bad Credit
- A low credit limit of $250 that is subject to a review after a period of 6 months. This means that it is only really appropriate for paying for groceries, gas, books and more affordable items.
- High initial charges reduce the amount of available credit. It is advisable to pay these off before using the card as they tend to take up about 50% of the available limit.
- Lenders report to credit reference agencies each month. They advise whether the payment has been made on-time or not which will result in a higher or lower credit score.
- The functionality is identical to a mainstream card. It is virtually impossible to distinguish between a credit card for bad credit and a conventional card.
Fixing Bad Credit with Guaranteed Unsecured Credit Cards
A poor credit rating card helps with credit file repair because lenders report to the three major credit reference agencies - Experian, Equifax and TransUnion - at month end. A succession of punctual repayments will lead to a slightly better credit score with each passing month. Take on too much debt or fall behind with the monthly repayments and it will result in a lower credit rating. If this happens, it will normally be necessary to start to fix credit problems from scratch.
Alternative Poor Credit Rating Cards
- Secured credit cards. A guaranteed credit card offers a higher credit limit, not to mention a low rate of APR and charges. They are currently offered by some private companies. Although it is necessary to become a member, about 50% of all credit unions offer them as well.
- Pre-paid cards. Rather than being allocated a credit limit, customers load their own money onto their card. Although they help with money management, they aren't suitable for credit file repair due to the absence of a credit limit. This means providers don't need to report each month.
Pros and Cons of Poor Credit Rating Cards
Whilst a guaranteed unsecured credit card helps to fix credit problems, the terms of borrowing are less favourable. Not only do they have a lower credit limit, the interest rate and charges tend to be a lot higher. However, a credit score improvement means that a customer can qualify for more conventional cards in the future. It is important to avoid getting into further debt and to always make repayments punctually. Failure to do so could lead to a lower credit score or even financial difficulties.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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