The credit score model awards those with a well-balanced credit portfolio. But it’s a catch-22. How are you supposed to get more credit (to improve your score), when your credit score won’t allow you to?   We show you what you can do to scratch your way back into the credit game.   Click on the “open” tabs to learn more.

 

Secured Vs. Prepaid Credit Card

If you are trying to rebuild your credit, DON’T use a Prepaid credit card. Get a Secured Credit Card instead (click here for recommended Secured Credit Cards);
Here’s why. The main difference between secured credit cards and prepaid credit cards is in the aim and usage of your deposit.
 
With secured credit cards, your deposit is intended to cover your debt if you default. The bank uses the security deposit as collateral while lending you its own funds. If you make regular timely payments, the lender will often reward you by increasing your credit line without requiring you to add money to your deposit.
 
As for prepaid credit cards, they work similar to debit cards, so your deposit will be used as your credit line. The cardholder spends money deposited by himself or someone else, for example an employer or a parent. That’s why the name “prepaid credit card” is just a marketing trick – you can’t borrow your own money.

 

1 – Select a card with no annual fee.
Having 4 credit cards is optimal, but not if each of them is costing you more every year than you’re benefiting.
 

2 – Secured debit cards only help if they report to the bureaus
Make sure you do some additional research into the card, even if you have to call them. Make sure they report your account to the bureaus (which increases your “Types of credit” & “credit limit”, along with your good “payment history”!
 

3 – Do not rack up the inquiries
Applying for several cards, when you only need one will put several “hard” inquiries on your report – decreasing your score. Find the right card, then apply for it, and wait for an answer.
 

4 – Give yourself the best chance for approval
Applying for a credit card that isn’t for “bad credit” individuals, and checks deep into your past, will do you no good if you know you’ll be denied. Go for a card that is designed to help you rebuild.
 

Traps to avoid in secured credit cards

Make sure the secured card you choose to help you rebuild your credit:

1 – Reports the credit card limit you have (even if it’s only $200).
 
2 – DOESN’T report that the card is a secured card.
 
3 – Reporting the balance
 
4 – Credit scores take into account the total amount of credit available to you and the current balance you have on your cards. They use this to calculate your debt ratios which is:
 

Current Total Balances/Current Total Credit Limits = Debt Ratio.
 
If they are not able to do this calculation, they will just guess what the limit is and this is going to be your current credit card balance or 100% of your credit limit used. Remember, in the credit scoring article, the scoring model likes to see 25% or less of your credit limit used.
 

Reporting that the credit line is secured
 
If you get a card which reports to the credit bureaus that it IS a secured card, your credit score will also take a hit, even if you are paying on time.