Following is a brief explanation of the optimum methods to enhance your credit report by properly using a credit card.
Most people will be suspicious at such a question because credit cards are known for causing bad creditrather than fixing it. However, one should know that credit cards are only financial tools and as with any tool, it is not in essence bad or good but the use you give to it is what really matters. Therefore, proper use of a credit card can contribute to enhancing your credit report. Following is a brief explanation of the optimum methods.
Prepaid Credit Cards or Secured Credit Cards?
There is a great confusion about this issue. There are those who believe that prepaid credit cards can help you improve your credit and that is not so. Prepaid credit cards do not establish a line of credit whatsoever and thus, there are no records of payments. To purchase a prepaid credit card does not make you a borrower and therefore does not contribute to building a credit history either.
Instead, secured credit cards do establish a line of credit even if you are required to submit a deposit equal to the amount of money you are allowed to borrow. This is due to the fact that legally speaking the deposit is still yours and does not belong to the credit card issuer. Therefore when you use your credit card you are borrowing from the financial institution regardless of whether you repay the balance or the issuer collects from your deposit.
How About Unsecured Credit Cards?
This is probably the best solution but will you be able to obtain an unsecured credit cardwith reasonable terms having bad credit? If feasible, it probably will not be easy at all. Nevertheless, since there are bad credit cards available, you just need to make sure that the terms on the line of credit are not too harsh and onerous. Also, remember to use your credit card with moderation.
Fixing your Credit With Credit Card Payments
By paying your credit card balance on time, you will be able to improve your credit score and build a healthy credit history that will guarantee you approval on other financial products if you decide to apply for one later. This technique is also useful for those that have no credit at all because it is effective in creating a fit credit history from nothing at all.
What you need to do is just use your credit card regularly. The way to achieve the best results is to use it instead of cash and putting the cash aside for the balance payment. This way you will finance only minimum amounts and avoid interests from accumulating. In any case, you should always try to pay more than the minimum payments on your credit card or you will enter a vicious circle of debt which will not be easy to escape from.
As a final note, you should always read the fine print on your credit card contracts to stay away from those credit card offers that hide fees and charges within the common credit card stipulations. Also, take special note of the APR and try to get a credit card with the lowest rate possible. If you fail to get an unsecured credit card with reasonable terms, consider a secured credit card at least for six months or a year till you can get approved for an unsecured one.
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