U.S. News Survey: Many Consumers Aren’t Clear on Credit Basics

Although most consumers know they should check their credit report at least once a year, many aren’t clear about actions that can improve – or hurt – their credit score, according to a U.S. News survey of consumers. Some consumers don’t realize important credit facts, like how bad credit can affect more than just credit cards and loans, under which circumstances a credit card’s annual percentage rate can change, or when collection accounts are removed from their credit report.

“The impact of bad credit can be devastating: it can lead to higher interest rates, having to pay more for insurance and being denied housing,” says Beverly Harzog, best-selling author, credit card expert and consumer finance analyst at U.S. News. “It’s crucial for consumers to become more credit savvy now.” The release of the survey coincides with the start of Financial Literacy Month in April.

  • Almost 60% of consumers don’t know which actions could hurt their credit score.
  • Half of consumers know an on-time payment history can improve their credit score.
  • More than half of consumers know it will take longer to pay off a credit card balance if they only make the card’s minimum payment each statement period.
  • Nearly half of consumers don’t know when a credit card’s APR can change.
  • About half of consumers know they might be denied new credit or have a higher interest rate if they have bad credit, but many don’t realize credit can affect other financial products.
  • Nearly 20% of consumers don’t know how to check their credit report.
  • Many consumers don’t realize collection accounts could remain on their credit report after they’re paid off.

Almost 60% of consumers don’t know which actions could hurt their credit score.

Only a third of consumers know that using more than 30% of a card’s credit line could hurt their credit score. But the amounts owed on your credit lines makes up 30% of your FICO score. Increasing a credit line can help this factor, giving you more available credit, but 20% of consumers mistakenly believe it can damage your score.

And only about 26% know that closing an old account could be a problem for their credit. When you close an old account, you can shorten the age of your credit history. The length of your credit history makes up 15% of your FICO score.

But more concerning is that more than 20% of consumers think checking their credit can hurt their credit score. Checking your own score has no effect on your credit rating.

Almost half of consumers know an on-time payment history can improve their credit score.

Payment history is the most important factor for your FICO credit score, making up 35% of your overall score. If you do nothing else to improve your credit, you should at least make payments to creditors on time each month.

Only about 25% of consumers in the survey know that having a mix of credit types can improve their credit score. A good credit mix means having different types of accounts, such as a credit card’s revolving credit line and an installment loan, such as a car loan. Although credit mix is one of the smallest contributors to your FICO credit score, accounting for 10%, it could be the factor that pushes your credit from fair to good or good to excellent, if your score is already close to the threshold.

Almost a quarter of consumers believe increasing income can improve their credit score. This isn’t entirely wrong. With more income, you might be able to improve your payment history or increase a credit line, both of which could help improve your score. But income alone is not a factor that’s considered when calculating your credit score.

Most consumers (nearly 90%) know you don’t need to carry a balance month to month to improve your credit score. You can pay your balance on time and in full each statement period to improve your credit score. In fact, carrying a balance could be a problem if it pushes your credit utilization ratio, referring to the proportion of the credit limit that you use, over 30%.

More than half of consumers know it will take longer to pay off a credit card balance if they only make the card’s minimum payment each statement period.

Unless you have a 0% introductory APR, interest will apply to any balance you carry. If you’re only making the minimum payment, you’ll be charged interest on a larger balance than if you’d made a higher payment. When you pay down more of your balance or pay it off each month, you can minimize the interest charges that make your credit card debt grow larger.

But even if you can’t afford to pay off most or all of your balance
each statement period, you should at least make the minimum payment. Although a few consumers believe they’ll be charged a late fee if they only make the minimum payment, that’s not the case. When you make the minimum payment on time, you won’t be charged a late fee and you can build a positive payment history, which can improve your credit rating.

Nearly half of consumers don’t know when a credit card’s APR can change.

It’s rare to find a credit card with a fixed APR. Most have a variable APR, which means your APR can change when the card’s benchmark interest rate, such as the prime rate, changes. If you have a credit card with a fixed APR, your APR won’t change, except under certain circumstances detailed in your terms and conditions, such as when a penalty APR applies.

About half of consumers know they might be denied new credit or have a higher interest rate if they have bad credit, but many don’t realize credit can affect other financial products.

When you have bad credit, you might not qualify for credit products that require a higher credit rating. And if you are approved for a credit product, you’re likely to pay a higher interest rate than consumers with good credit.

But what some consumers don’t realize is bad credit can affect more than credit cards and loans. Just over half of respondents don’t know that they might be denied an apartment if they have bad credit. And about 60% of respondents don’t realize that those with bad credit might pay more for insurance or might need to put down a security deposit for their utilities.

Nearly 20% of consumers don’t know how to check their credit report.

Although nearly 61% of consumers know you should check your credit report at least once a year, around 20% don’t know how to do it. And 6% think every two to three years is frequent enough.

You should check your credit reports at least once a year or more frequently if you’re working on improving your credit or plan to apply for a new mortgage or auto loan. Checking in on your credit improvement each month is a good strategy, and you’ll want to check your credit at least two or three months before a big credit application.

Many consumers don’t realize collection accounts could remain on their credit report after they’re paid off.

More than 40% of consumers don’t know if paying off a collection account will remove it from their credit report, and 18% think it’s removed once they pay the balance.

If you have an account sent to collections, it could stay on your credit report for up to seven years after the first missed payment on your original account. Some collection agencies might remove it after payment, but they aren’t required to do so.

Poor credit decisions have the potential to affect many areas of your life. But even if you lack financial literacy, there is hope. Personal finance sites, including U.S. News, produce consumer-oriented content that can help you learn about credit and make better financial decisions.

“Learning about personal finance, especially credit, is a lifelong process. The more knowledgeable you become, the more empowered you’ll be when making financial decisions,” Harzog says.

  • U.S. News ran a nationwide survey through Google Surveys in March 2019.
  • This survey sampled 1,502 people in the general American population who visit desktop and mobile sites where Google conducts surveys.
  • The survey asked 10 questions related to financial literacy.

What Do Consumers Need to Know About Bad Credit?

Credit cards for bad credit are designed for people with low credit scores. Your credit score is a numerical representation of your creditworthiness, and it tells lenders how good you are at repaying debts and effectively utilizing your available credit. Several credit-scoring models are used today, but the most common is FICO, created in 1956 by the formerly named Fair, Isaac and Co.

Your FICO score is calculated based on the data in your credit report collected by the three major credit bureaus: Equifax, Experian and TransUnion. Ninety percent of top lenders use that score when making their approval decisions.

It’s important to note that no person has a single credit score or even one FICO score. Your FICO or any type of score can fluctuate depending on which agency is doing the calculation and which FICO model they’re using.

There are several FICO models developed for specific industries, such as auto lending and mortgage lending. The FICO 8 is the most widely used U.S. model.

The general FICO credit score ranges are defined as:

  • Exceptional (800-850)
  • Very Good (740-799)
  • Good (670-739)
  • Fair (580-669)
  • Very Poor (300-579)

Credit cards for people with bad credit are typically intended for consumers in the Very Poor credit score category. Because they have little creditworthiness in the eyes of lenders, it’s usually very difficult for them to obtain a traditional credit card.

“You have to be careful when you have bad credit,” says Beverly Harzog, consumer finance analyst and credit card expert at U.S. News. “There are some credit card issuers that will take advantage of you. But there are also secured credit cards and unsecured credit cards with decent rates and low fees.”

To offset risks for the lenders, these poor credit credit cards (sometimes called subprime credit cards) often come with drawbacks such as an initial deposit, a low credit limit and/or a high interest rate. Some credit cards for bad credit are even predatory and have hidden fees and restrictions that keep users locked into debt.

What Do You Need to Know Before You Apply?

You shouldn’t apply for a new credit card unless you understand its costs and benefits. You should be committed to rebuilding your credit, using your card only on essential purchases and paying your monthly balance in full and on time.

Set realistic expectations for improving your credit score.

There is no single step to build credit fast. Success won’t come overnight. It’s important to stay current on your monthly bills like rent, cellphone and cable. Paying these bills won’t necessarily help improve your credit score, but unpaid bills can harm your credit if they get reported to collection agencies.

At the same time, you should demonstrate responsible use of credit through credit cards, student loans, auto loans and mortgage payments. Responsible card use means paying the balance on time every month and never utilizing more than 30% of your credit limit; in doing so, you should see your credit score start to rise after just a few months.

Know your credit score and how it is calculated.

To give lenders an objective measure by which to make their approval decisions, FICO developed a system that predicts the credit risk of a borrower based on the information in their credit history. The borrower is then assigned a number according to their risk level.

The score is calculated from data in your credit report at the following weights of importance:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Credit mix: 10%

The Consumer Financial Protection Bureau recommends these four ways to obtain your FICO score:

  • Purchase at for $19.95
  • Your monthly credit card statements (if offered as an additional feature)
  • Paid credit monitoring services
  • A nonprofit credit counselor

The VantageScore, developed jointly by the three major credit bureaus – Equifax, Experian and TransUnion in 2006, is becoming increasingly prevalent but is not as highly accepted by traditional lending institutions. It follows a similar model to the FICO and its score ranges are defined as:

  • Excellent (750-850)
  • Good (700-749)
  • Fair (650-699)
  • Poor (550-649)
  • Very Poor (300-549)

The VantageScore can be useful to see what is on your report but can vary greatly from bank-quality FICO scores.

Each of the three major credit bureaus is required by law to provide you with a free copy of your credit report once per year through the official site Many financial advisors recommend that you stagger your free reports and request from a single bureau every four months.

At a minimum, you should check your credit score at the same time so you can get a complete picture of your progress. If possible though, check your score every month; seeing constant improvement can help keep you motivated.

A growing number of websites give you free access to an educational credit score, which can be a good alternative for those who can’t pay for it. Once you have your baseline FICO score, Harzog recommends and for the purposes of monitoring your credit report.

They provide an educational score, but most importantly, they grade you on each category that goes into calculating your score, such as payment history and credit inquiries, so you can see where you need to improve. It’s important to note:

1) Some credit score sites are funded through advertising and are entirely free. They give you an educational credit score in exchange for your personal information, which they use to send you solicitations from their sponsors.

Other services will offer you a free score as part of a trial period for a regular paid subscription service. Once that trial period is over, you are automatically billed monthly for access unless you cancel in time.

2) They are simulated scores calculated in much the same way as a FICO, but in some it may not give you an accurate picture. In a study, the CFPB found meaningful differences between a consumer-purchased score and creditor-purchased score for every one out of four people. You don’t want to rely on these educational scores for tracking improvement in your true credit score.

Dispute errors on your credit report.

Your credit report is a detailed account of your credit history compiled separately by three major bureaus: Experian, Equifax and TransUnion. Each report contains information from a variety of sources (lenders, creditors, bill collectors, etc.) that shows how well you pay your debts.

Credit reports are not error-proof. If you find any false information on yours, dispute them immediately. Each credit bureau has a page on its website for filing disputes.

  • identity errors
  • incorrect account details
  • fraudulent accounts

Identity errors could be as simple as an incorrect address or spelling of your name, but they could also be serious. Your report might contain accounts that belong to someone else with the same name as you (known as a mixed file). Incorrect account details often include wrong credit limits, incorrect origination dates and closed accounts still listed as open.

If you notice a line of credit open that you never applied for, you should move quickly to dispute it because it may be a fraudulent account. If you have it successfully removed, you will see an immediate increase in your score.

The length of your credit history accounts for 15 percent of your FICO score. It may be tempting to close old accounts as soon as they are paid off, but it’s one of the worst things you can do for your credit score, Ulzheimer says.

A borrower with a long history of managing revolving credit is a more attractive investment for lenders. Keeping those older accounts open and using them semiregularly to show credit utilization can lead to a higher score.

You should, however, consider closing old accounts if they have burdensome maintenance fees. Your score may take a temporary hit, but you can put that money to better use paying bills and re-establishing a solid payment history.

Create a budget and plan to pay off existing debt.

If you want to rebuild your credit, you need to analyze all of your income and create a monthly budget that accounts for your regular bills, as well as any purchases that you may make with your new credit card so you can pay the balance in full each month.

If you have any extra money in your budget, you should start an emergency fund for those unforeseen bills such as auto repairs and medical expenses. Without an emergency fund, you may have to put those bills on a credit card which will make it harder to rebuild your credit.

After that, use the extra money in your budget to pay down any high credit card balances you have before making additional payments on installment loans such as student or auto loans. Lowering your revolving credit balances will lower your utilization ratio, or how much of your available credit you’re currently using. A lower utilization ratio is better for your score, and credit cards also tend to have higher average interest rates than many other loans.

Negotiate payment plans on existing accounts.

If you are having trouble making the minimum payments on any existing accounts, it is better to try to negotiate an alternative payment plan with the lender than not pay at all. Many creditors will work with you because they would rather receive a smaller, regular payment than no payment at all.

For any other accounts, set up automatic payments or reminders. They are the single best way to ensure that you pay your bills on time. Remember, payment history accounts for 35% of your FICO score.

Calculate and manage your monthly credit utilization.

Credit utilization is the amount of available credit that you are using at the time your score is calculated, and it contributes to 30%of your FICO score. Credit card companies report utilization in one of two ways. They either report your average utilization for the entire month or for a specific day during the billing cycle.

To show utilization, you only need a balance until your monthly statement is billed to you. You can then pay it off before your grace period. You will show regular use without accruing any interest or carrying too high of a ratio.

FICO recommends that you regularly use your card but avoid using more than 30% of your available credit, but the lower your utilization ratio, the better your score will be. Simply divide your total outstanding balances by your total credit limits to calculate your current utilization.

A high utilization rate on one card can be offset by a low rate on another, which can help balance your overall ratio.

Shop for new credit quickly.

You can’t shop around for credit cards the same way you do for other purchases, Ulzheimer explains. Every time you apply for a credit card, that creditor makes a request for your credit report.

Each of those inquiries stays in your credit history for two years, though your FICO score only considers the ones made in the past 12 months when determining your score. Too many inquiries can give the appearance of trying to open too many accounts and will further damage your credit.

Fortunately, the system allows for comparison shopping. The credit agencies do not penalize you for inquiring with multiple issuers to find the best card or for applying for multiple accounts in hopes of being approved for just one.

If you confine all your applications to approximately a two-week period, they will fall under the rate shopping provision and only register as one inquiry on your history. The newer FICO scoring models allow for rate shopping from 30-45 days, but some agencies view credit applications differently than loan applications, so it’s safest to adhere to the 14-day window.

How Can You Choose the Best Credit Card for Bad Credit?

Given how difficult it is to escape bad credit once you have it, you need a responsible strategy to improve your credit score and proper knowledge on what credit cards, if any, are right for your situation.

The first step in applying for a credit card when you have bad credit
is learning about the two types available: secured and unsecured. The primary difference is that secured cards are easier to get approved for because they represent less risk to the lender, but they require an initial cash deposit and have lower credit limits than unsecured cards.

What are secured credit cards?

Secured credit cards are specifically designed for new users trying to establish a credit history or looking for a credit card for rebuilding credit. They operate in the same way as traditional, unsecured cards except they require the user to make a cash deposit against the credit limit. The deposit protects the lender in the event of default.

How do secured credit cards work?

The cash deposit on a secured credit card is typically $200 to $500 or 50% to 100% of the credit limit. The lender places that money into a secure account, and depending on the bank, you might accrue interest on your deposit like a traditional savings account. As long as the secured card is active, you cannot withdraw those funds. If you miss your payments, the lender uses the deposit to pay the balance.

A secured card is not a prepaid credit or debit card; the billing cycle works just like a standard credit card. When you make a purchase using your card, you have to make payments on the card balance. The creditor only uses the deposit as an emergency backup plan, and it is considered the same as defaulting on a traditional credit card.

Benefits of secured credit cards for people with bad credit:

  • Easier approval because they represent less risk for the lender
  • Lower APR than most unsecured cards for bad credit

Drawbacks of secured credit cards for people with bad credit:

  • High security deposit
  • Low credit limits, which make it difficult to maintain a low utilization ratio

What are unsecured credit cards?

Unsecured credit cards are traditional cards that are not secured by a cash deposit. They are cards issued by a financial company that the holder uses to borrow funds to pay for purchases.

Credit cards let you buy things using the creditor’s money, with an agreement to pay it back with interest if you carry a balance. In effect, they are a way to access a small, instant loan directly at the point of sale for any item.

How do unsecured credit cards work?

Unsecured credit cards come with a credit limit, which is the maximum amount you can spend on the card. Your credit limit is determined in large part by your credit score and income. The higher each of those, the higher your limit. The amount you spend on the card is your balance. If you do not pay that balance in full after every billing cycle (your grace period of typically 21 to 30 days), it starts to accrue interest at an established annual percentage rate (APR). Like most credit cards, unsecured credit cards for bad credit also come with additional fees.

Benefits of unsecured credit cards for people with bad credit:

  • No security deposit
  • Higher credit limits

Drawbacks of unsecured credit cards for people with bad credit:

  • High interest rates
  • High annual fees
  • Monthly maintenance fees

How Can You Choose a Credit Card for Bad Credit?

While credit cards can be an important tool for rebuilding your credit, people with bad credit need to be extra diligent in order to find a card that works in their favor. Make sure you understand each of these factors before applying for a new credit card.

Most credit cards for bad credit (secured and unsecured) charge an annual fee to maintain the account. The amount of the fee is either charged directly to the balance in one large sum every year or broken into monthly installments. The annual fee will accrue interest if you do not pay it off by the end of the billing cycle in which it is charged.

Because there are very few poor credit credit cards with no annual fees, you should look for the card with the lowest fee possible.

You will find all of the card’s additional fees on the terms and conditions page. The fees associated with cards for bad credit tend to be much higher than those of standard cards.

Aside from the standard late payment and overlimit fees, cards can also include monthly maintenance fees, balance transfer fees, cash advance fees, initial processing fees, authorized user fees and foreign transaction fees. All of these are charged directly to your account, so you could start with a balance before you even receive the card in the mail. Because they accrue interest just like any other purchase, Harzog notes that consumers can end up carrying a balance on their credit cards simply because of mounting fees.

Fees can change from year to year, so be sure to calculate annual and monthly costs for subsequent years to find out which card is the best long-term value.

According to Bankrate, the national average APR is 16.87% for standard credit cards. In the U.S. News credit card directory, the average interest rate for secured credit cards for bad credit is about 19% and the average for unsecured cards is 29 percent.

Some cards have a higher penalty APR that is triggered if you miss a payment. The penalty rate is usually 6 to 8% higher than the standard APR, so you should look for a card without a penalty rate.

Some companies will keep the penalty interest rate in place until you make a certain number of consecutive, on-time payments; others lock it in indefinitely.

5. Foreign transaction fee

Many credit cards charge a foreign transaction fee that can range anywhere from 1% to 5% of the total purchase. The fee covers the cost of international payment processing and currency conversion. If you will be using your card outside of the U.S. frequently, consider a card with a lower fee or one that does not charge a foreign transaction fee at all.

6. Possible credit limit increases

Credit cards for people with bad credit tend to have very low starting credit limits. Some cards cap your limit, but many will increase your available credit if you have demonstrated consistently responsible card use.

As your credit improves, you may want a higher limit so you can use the card for regular purchases or have more credit available in case of an emergency. A higher credit limit will also help lower your overall utilization rate.

7. Reporting to three bureaus

Getting a credit card to repair your credit will help improve your standing with the three major credit bureaus: Equifax, Experian and TransUnion.

If the card you pick does not report your account history to those three agencies, you are not rebuilding your credit. Nearly all traditional secured and unsecured credit cards report to three bureaus monthly. There are some smaller banks, credit unions, store cards and catalog lines of credit that only report to one out of three or none at all.

Before you apply for any card, make sure they report to all three agencies by checking the complete terms and credit agreement of your card. If the information isn’t there, contact a customer service agent with the lender.

There are a number of subprime cards (mostly secured) that have rewards programs. Because you will use your card regularly in an attempt to rebuild your credit score, try to find one that will give you an extra bonus along the way.

9. Automatic upgrade to unsecured

A few secured credit cards for bad credit have a built-in pathway to an unsecured credit card. With those cards, the lender periodically reviews your account, and if you have been consistent with your payments, it will upgrade or “graduate” you to an unsecured card.

When that happens, it refunds your security deposit and removes the restrictions on your account. This saves you the hassle of applying for a new line of credit and the hard inquiry on your credit report that comes with that application.

Many cards come with additional benefits that are provided by the bank or from being part of the Visa or Mastercard networks.

Benefits can include monthly credit score updates, auto rental insurance, fraud and identity theft protection, travel insurance, roadside assistance, purchase protection and extended warranties.

11. Details of cardholder agreements

Read the terms and conditions page of any credit card before applying. The cardholder agreement contains key information that typically is not included in the card’s advertising or on the application page.

Know the grace period: Typically, the grace period begins on the first day of the billing cycle and ends a few days before it closes. If a card does have a grace period, the Card Act of 2009 mandates that it be at least 21 days. The average is around 25 days. That means, once you receive your monthly statement, you have approximately three weeks to pay that bill before your balance starts accruing interest.

Unfortunately, the law only applies to cards that choose to
have a grace period. They are not required to have one at all. Some cards do not have a grace period and begin charging interest as soon as you make a purchase. You should try to avoid those cards.

Know the hidden fees: The credit limit increase fee is usually the most hidden in the agreements of poor credit credit cards. Some companies will charge you a fee every time they increase your credit limit. Sometimes it is a flat fee; other times it is a percentage of the increase. The problem is that they charge the fee whether you requested an increase or not. The lender could review your account, increase your credit limit, and charge you a fee without you even knowing.

Several unsecured cards U.S. News reviewed charge a 25% credit increase fee. If they increase your credit limit by just $100, that is a $25 charge to your balance that you are responsible for paying. If they increase you by $500, that is a $125 charge.

Prequalification is a soft inquiry and will not hurt your credit score. A soft inquiry is when creditors request your report before sending the preapproved offers you often see in the mail. Many creditors now have prequalification pages on their websites where you can request that they perform one of those soft inquiries.

If you prequalify before you apply for a credit card with bad credit, you still need to fill out an application, which results in a hard inquiry. Your score may take a hit, but at that point, you likely to get approved.

What Are Some Cards to Avoid?

Some credit cards for bad credit don’t do much to help your credit score, while others can impose unnecessary costs. These cards market heavily to people with bad credit by advertising no credit checks and bad credit approvals.

Cards with no grace period

Avoid any credit card that does not have a grace period, Harzog stresses. Without a grace period, your purchases start accruing interest immediately after your monthly statement.

It is important to point out that some cards come in multiple versions with varying rates and fees. Some are a good value, but others have high fees and no grace period. We do not recommend the versions of any card with no grace period.

Online catalog cards are not credit cards at all but lines of credit that only allow you to shop at specific online marketplaces. You cannot use these catalog cards on everyday purchases to rebuild credit because they are only accepted at the card’s own online outlet. They encourage spending on unnecessary items like electronics, furniture and jewelry.

Can Store or Prepaid Credit Cards Help?

Store credit cards are unsecured credit cards that can only be used at the specific retailer that issues them. They often come with special discounts or rewards on purchases from that brand. In recent years, store cards have lowered those thresholds in an attempt to attract more shoppers.

Some store cards can encourage unnecessary spending and have higher interest rates. Consumers who can qualify are better off applying for a Mastercard, Visa, Discover or American Express that can be used everywhere and are weighted more heavily to repair their credit score. However, retail cards from big-box retailers and gas stations can be used to make small, essential purchases that will allow you to rebuild your credit at the same time because they report to all three credit bureaus.

  • When shopping for retail credit, you should look for the same features you would with a traditional credit card, such as a low APR, low fees and rewards programs.

How to Rebuild Your Credit If You Are Denied a New Credit Card

If your credit score is so low that you cannot get approved for any poor credit credit cards, you still have two options for rebuilding your credit.

If you cannot get approved for credit on your own, you may be able to do so with the help of a co-signer. A co-signer is someone with good credit who vouches for you on a credit application. By co-signing on your application, this person is pledging to pay the bill if you do not.

Co-signing is a very risky proposition for the co-signer. This person cannot use your card but takes on all of the risks. If you ever stop paying your bill, the credit card company will go after him or her to collect.

It is also very hard for a co-signer to withdraw his or her guarantee from an account if they decide to. Co-signers can petition the credit card company for removal, but the company has no legal obligation to do so.

Become an authorized user (piggybacking).

Piggybacking refers to when you become an authorized user on an existing credit card account, such as that of a spouse, parent or other family member. The credit card company issues a card in your name, but the original user remains the sole owner of the account.

As an authorized user, your credit history is positively affected by the primary account holder’s regular payments and good account standing. Even if you never use the card, your score will increase through their responsible use. However, the inverse is also true, so only piggyback off of someone you completely trust.

Piggybacking also has the same dangers as cosigning for the account holder. There are no separate statements for an authorized user. If you use your card, the purchase is added to the primary account holder’s balance. If you default on your portion of the payment, you are sticking them with the bill. Unlike cosigning, the primary account holder does have the power to cancel your card at any time.

How Can You Use Your New Credit Card Responsibly to Rebuild Your Credit?

The two biggest factors that impact your credit score are payment history and utilization. Together, they account for 65% of your FICO calculation. To improve in these areas:

1. Make regular, essential purchases and avoid luxury items.

Use your credit card to pay for things you would buy anyway. Using your card only for everyday purchases is the best way to rebuild your credit with minimal impact to your budget.

2. Manage your utilization.

To improve your score, try to keep your balance below 30% of your total credit limit. After every six months of good payment history, you should ask for an increase to your limits. This doesn’t hurt your score and can help your overall ratio if approved.

3. Pay your balance in full every month.

You want to show regular use but avoid accruing any interest or maintaining too high of a utilization ratio. Once a purchase appears on your monthly statement, it is best to pay it off immediately.

4. Set up automatic payments.

Late payments not only result in hefty fees applied to your balance, but they also disrupt your payment history, which accounts for 35% of your FICO score. Missing just one payment on your new card can hurt your rating. Automatic payments are the best way to ensure that you pay your credit card balance on time every month.

5. Always apply rewards to your balance.

When you are working to rebuild your credit, establishing a solid payment history is your top priority. Therefore, it is smartest to apply any rewards directly to your balance.

6. Utilize apps and digital resources to track your credit usage.

One of the best ways to maintain your budget and credit utilization is to track your bills and spending with software or apps.

Some of the top free personal finance apps include:

Many paid apps include added benefits like monthly credit score tracking.

7. Make the transition from secured to unsecured credit over time.

Many secured credit cards for people with bad credit will graduate you to an unsecured account after a period of consistent, responsible use. However, many unsecured cards have much higher interest rates and annual fees than secured cards.

If the card your creditor offers you is going to cost more money over time, wait for a better offer from another bank. You can continue repairing your credit score with a secured card to the point that you qualify for a better unsecured card further down the road.

Cash advances are expensive because your balance is charged a flat fee for every cash advance you take out. That fee is usually 3% to 5% of the advance, with a $5 to $10 minimum. Cash advances also have a much higher interest rate than the standard APR, as much as 10%. That higher interest rate takes effect immediately. Cash advances do not have a grace period.

9. Do not close old accounts too quickly.

Once you rebuild your credit score and obtain a better credit card, leave your old account open, and use it occasionally until you have rebuilt your credit to the point that your score can afford to lose a few points if and when you close the account.


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