Have you ever requested a loan from the lender and they instantly ask your credit score? Or, they end up checking a three-digit number on the internet? Not aware of what it is, you just keep wondering what they are doing. If you are still unaware of what a credit score is, then read on and know it all.
A credit score is a three-digit number that showcases your creditworthiness in the eyes of the lender. It is a gateway to get your loan request approved. Thus, you need to maintain a good credit score to ensure that a lender approves your request for a loan.
All in all, a credit score is an essential part of maintaining stability in your financial life. In case you have a bad credit score, then also you don’t have to worry. There are many ways to improve your credit score, including a bad credit credit card, making bill payments timely, etc.
Here, we will focus on improving your credit score with the help of bad credit credit cards. So, let’s start from the basics to make sure that you understand it all.
Bad credit card- What is it?
Also known as a secured credit card, these are credit cards for people with bad credit. These are considered secured credit cards because an initial deposit for a credit line needs to be determined. People who issue secured credit cards, use the initial deposit as collateral. They may use this money to cover the outstanding balance if the cardholder turns out to be a defaulter.
The only difference between standard credit cards and secured credit cards is that of the initial deposit—otherwise, these work as any other credit card. Also, the cardholder can increase the credit card limit by depositing more money as and when they like.
How a bad credit card helps in improving credit score?
If you wish to improve your credit score, one of the best ways to do so is by using the best credit cards for bad credit history. Secured credit cards make it possible for you to have a credit card, even when you have bad credit. Using such credit cards, you can easily prove it to a lender in the future that you can make monthly payments timely.
As long as you make monthly payments on time, the credit card company gives positive feedback to the reporting agencies. This way, it becomes possible for you to improve your credit score in a couple of months.
How much spending limit should your bad credit credit card have?
When it comes to deciding the spending limit of your secured credit card, we suggest you start with a low limit. Also, due to your bad credit history in the past, the credit card company will exercise caution while approving your credit card request. Thus, you won’t be given a credit limit of a higher amount.
You can increase the limit of your credit card after using the same for quite a time. Once you start making timely payment, the credit card companies increase your credit limit, obviously on your request. You must also know that if you fail to make any payment, the credit card company holds the right to decrease your credit limit.
So, if you wish to take leverage of the increased credit limit, make sure that you pay each month’s payment timely.
How to find a bad credit card at a low rate?
Credit cards for people with a bad credit history usually come with high charges. You cannot get credit cards for bad credit without making no deposit. However, you can find a credit card at a low rate in the form of a secured credit card. So, compare different credit card companies online and request the one available at best rates.
Wrapping it up
It is essential to maintain a good credit score to make sure that all your loan requests are approved on time. Now that you know how a bad credit card helps improve your credit score, we hope that you will never suffer from such financial trouble.
If you know any other ways in which a secured credit card can help improve credit score, feel free to drop the same in the comment box below.