Can You Rebuild Bad Credit By Using A Credit Card Responsibly?

A poor credit score is something that can impact various aspects of an individual’s life, from the rates, and fees accrued while borrowing, to qualifying for house and apartment rentals, and even getting selected for a job. This effectively makes it a never ending, cyclical pattern of financial deprivation, something that is likely to follow people all through their lives.

Even though it remains an uphill battle, rebuilding your credit score is definitely possible, with a myriad of options available for those who are willing to turn their lives around. The effective and responsible use of a credit card is one such avenue that has long been known to help nudge personal credit scores higher, even though it comes with its own share of pitfalls and risks that users need to be aware of.

At its core, a credit report is a numerical representation of an individual’s reliability, trustworthiness, and fiscal responsibility which ultimately gives rise to creditworthiness. So, yes, you can rebuild bad credit by using a credit card responsibly, with on-time bill payments, and usage within the prescribed credit limits, in order to effectively showcase traits that credit models, and bureaus value the most.

Getting An Unsecured Credit Card When You Have Bad Credit Score

As a general rule of thumb, all forms of unsecured credit remain the purview of high earning professionals, with a stable job, disposable income, and certain fixed assets. This once again brings us to the Catch 22 situation that millions of people find themselves in, being locked out of institutional finance, and their financial mobility effectively paralyzed from the get go.

As of late, however, the intensifying competition in the financial services industry, and the entry of disruptive fintech startups have brought this much needed, high-risk, unsecured credit to even individuals with a less than ideal credit profile. This comes at a price, often involving exorbitant fees and interest rates, but consumers with bad credit atleast have a way out to start rebuilding their scores.

In this article, we don’t act as your guide to getting an unsecured credit card, but focus on enlightening you on how the process of credit score improvement works while using a credit card, and the risks, pitfalls, and drawbacks of doing the same.

Be Aware of The Risks & Pitfalls

Financial institutions assume substantial risks when issuing credit cards that aren’t backed by any savings, deposits, or stable incomes. The risks are further compounded when the same is issued to individuals who lack a sound credit profile, and as a result, the only way this can work is with high interest rates, low balances, and a few other restrictive policies that make such risks worthwhile.

Getting an unsecured credit card with a bad credit score essentially involves straying from mainstream financial services. Institutions that offer this mainly include smaller community banks such as First Savings Bank, Coastal Community Bank, and the likes, who often offer small credit lines ranging from just $100 to $3.000, with annual fees, late payment charges, and penalty APRs piling on the debt.

It goes without saying that dealing with such banks can be quite exploitative, and as such should only be used as a pathway to rebuild credit, and get back onto the mainstream. A key pitfall in this regard is that many consumers who’ve already had their tryst with bad fiscal and credit management can be tempted to once again fall through the cracks, with much more severe financial ramifications this time around.

Read The Fine Print

Individuals who are starved of credit often make the mistake of taking up credit card offers without giving much thought to the terms, conditions, and other details in the fine print, in what can only be considered an act of sheer desperation.

Such mistakes are likely to sting going forward, especially if they’ve signed-off on bizarrely high interest rates, and insane fees that are often akin to payday loans. Instead of getting set on the track towards a good credit score and financial inclusion, this can take them further away from the mainstream, and deeper into debt and instability. 

Not All Cards Are The Same

There are still certain non-banking credit card issuers who might offer lower APRs, and friendlier terms for unsecured card users, but as attractive as these offers sound, they may not cater to the core intent behind this endeavor, that is, reestablishing a good credit profile, and improving scores with responsible spending, and on-time payments.

This is because not all credit card issuers report data to credit bureaus, which ultimately helps in determining your credit score. Such offers might provide a quick source of funding when you’re desperate for cash, but fail to serve the purpose of rebuilding bad credit.

Final Words