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How to get a credit card if you have bad credit

By Michele Lerner

Most consumers know by now that getting into debt is a lot easier than getting out of it. According to IndexCreditCards.com, the average revolving debt (mostly credit card debt) for an individual over 18 in the U.S. was $3,532 in August 2010.

Whether you are a recent college graduate needing to establish credit or you are trying to rebuild your credit after damaging it in the past, you will need a credit card. Have you ever tried to book a hotel room, make an airline reservation or order concert tickets without a credit card? It can be impossible.

But credit cards are not just a convenience. It may seem counter-intuitive, but you need to get yourself in a little bit of debt in order to improve your credit rating.

If you think about it, it makes sense.�� If you are applying for a car loan or a mortgage, the lender may only offer you a loan if they see that someone else (i.e. a credit card company) thinks you are trustworthy enough that they offered you credit. The trick is to build a strong credit rating without getting in over your head in debt.

Credit cards and debt

If you have struggled with too much debt in the past, receiving a new credit card may be scary. The key is to keep your commitment to stay debt-free and to keep your debt low by paying your balance in full each month.

One trick used by a friend of mine is to write every single purchase she makes with her credit card in her checkbook, deducting it every time as if it was a check purchase. That way, when her bill arrives, she has the money still waiting in her checking account to pay the bill in full.

Applying for new credit when your credit is bad

Before applying for a credit card, get your free FICO credit score so you know the truth about your credit score. People often are pleasantly surprised or terribly shocked by their score.

There are two options for getting a credit card when you have bad credit:

  1. A secured credit card. This card works almost like a pre-paid gift card. The card issuer will require you to keep the amount of money available on the card on deposit with that financial institution. So if you want your limit to be $500, you will need to keep $500 on deposit with the bank. Usually you will also need to pay a fee to open the card. When you close the account, you will get your deposit back.
  2. An unsecured credit card. For consumers with bad credit, an unsecured credit card can be hard to get, but not impossible. In order to approve a customer with bad credit, the bank will often require high fees and charge a high interest rate, too.

An advantage of a secured credit card is that you can improve your credit score just by keeping up with the annual fee on the card, even if you don't use it.

Improving credit and switching credit cards

After 18 to 24 months of keeping your secured credit card and consistently paying all your bills on time, you might want to apply for a new credit card with better terms.

For consumers with debt, opting for a credit card with a zero percent balance transfer could help you pay off other debt faster since you can delay interest payments.

If you want to build your credit or have already paid off your debt, a better option could be searching for the best rewards credit card. Before you apply, think about your goals. Are you interested in a card that earns frequent flyer miles or hotel rewards so you can travel? Or would you prefer earning cash back on your purchases?

Once you pick an offer that interests you, make sure you compare the fine print so that you can earn rewards as quickly as possible. If you are transferring debt from one card to another, make sure you budget for the new payment and estimate if you can pay off the balance before the interest rate rises. If not, choose the card with the lowest interest rate after the initial low rate.

While it may be easy to blame easy credit for some of our financial woes, carefully choosing the right card and controlling your use of credit can put you on the path to prosperity.

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance and business. Her clients include The Washington Times, Urban Land Magazine, NAREIT's Real Estate Portfolio, and numerous Realtor association publications. Michele's first book,

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