If you are concerned about your credit score and want to improve it chances are that you have done some research into just how you can do that. And along the way, you may have come across the phrase “credit repair credit card”. But does such a thing really exist or are such things a myth? (or worse still a scam)
Using a Secured Credit Card to Repair Credit
You may be a bit familiar with the concept of a secured credit card. The idea is that you deposit a certain amount of money into a special savings account with a card issuer and in return, you receive a credit card with a line of credit equal to your deposit. At first, this may seem a bit silly – paying for a line of credit – but as a credit repair credit tool, a secured credit card can be very useful.
There are a couple of reasons for this. The first is that your new credit line, even though it is secured, will be reported as available credit to the credit bureaus. How much credit you have available to you is a factor in deciding your final credit score so the fact that you now have one when you did not before can help right away.
A secured card becomes even more useful as a credit repair credit card when you use it properly. That means using it regularly without eating up all of your available credit and then paying your bill on time every month (paying it in full is even better) These payments will be reported in the same way as payments on an unsecured credit card would be and will have the same positive effect.
Using a Subprime Credit Card as a Credit Repair Credit Card
The biggest problem that some people face with a secured credit card is actually coming up with the lump sum of cash they need to put down to get one, especially since that can be £200 or more. In this situation, some people might consider using a subprime credit card as a credit repair credit card instead.
It’s tempting. These cards usually are available to people with poor but not awful credit and instead of a security deposit you are charged a lower “application fee” You are then issued what on the face of things is an unsecured low limit credit card.
There are a couple of problems though. One there is usually an annual membership fee. Not unusual in itself there is one with most credit cards. However, that fee is deducted from your limit before you get your card. So, if you have a £200 limit but the fee is £75 your limit is reduced to £125 already and you already have a balance of £75 to pay off without ever using the card yourself.
Then there is the matter of the interest rate you will be charged. Subprime means an interest rate that is higher than the prime rate – the rate charged on “regular” credit cards. Because you already have a balance you also already owe interest unless you pay it off very quickly and at a rate of as much as 28 or 29% that can add up to a lot.
If you understand all of this and still want to get a subprime credit card proper use of it will build your credit in the way a secured card will. Just be aware of the fact that unless you pay all your balances off in full every month you will be paying more to use a subprime card as a credit repair credit card than you would with a secured card so your savings are only perceived, not real at all.
The Credit Repair Loan
So what if you can’t get a subprime credit card and you don’t want to fork over the large deposit for a secured credit card? Another credit building alternative is a credit building loan.
The idea here is that you take out a small short-term loan and pay that back according to the exact terms of the loan. These payments are reported to credit agencies and help build a positive credit profile as well. And as short-term loans are often available to those with bad credit but a steady income they are relatively simple to obtain.
The key here will be to ensure that you pay the loan back on time and according to the payment schedule agreed. Don’t be tempted to take out a loan to help build your credit, splash the cash on a new video game or clothes shopping spree just because you have it and then find you can’t pay it back, as that will only make your credit situation even worse than it was before.