Using the Damaged Credit Card Market to Rebuild Your Credit Score

If you have experienced credit damage but are now on the road to restoring your credit score one of the quickest ways to assure positive current information making its way on to your credit reports is to establish new credit. Sounds kind of crazy, doesn"t it? But obtaining new credit cards is a way to build a new foundation in your credit history.

There are some things you must be aware of as you work hard to restore your credit score. Before you apply for new credit cards, you must, and I do mean must, be prepared and able to meet all of your financial obligations in a timely manner. If you are not yet ready or able to meet your obligations, then you are not ready for this step.

If you are ready, however, it is often simplest to obtain new credit when you believe you have hit absolute bottom-when things look their bleakest. There are a number of credit card issuers who specialize in granting credit to those who are financially distressed or who need to build or rebuild their credit scores. These card issuers generally charge higher fees, higher interest rates and offer low credit limits (in some cases as low as $75.00), but they all report to all three credit bureaus on a monthly basis. If you use the card wisely and pay your bill on time and in full, you will be establishing new positive information that will show up on your credit reports on a regular basis. Once you have been a card holder for six to nine months you will often be offered a higher credit limit and, even better, you can call customer service and request a reduction in the interest you are charged.

If you have recently declared bankruptcy you know that you receive offers for new credit every time the mail is delivered. Be very careful. The solicitation comes from companies that are hopeful that you will accept their offer and build up a large bill for which the card issuer can then charge very high rates of interest. They know you will not be allowed to file for bankruptcy again for many years so they will be able to collect the debt.

While it is far better to apply for an unsecured credit card while you are trying to rebuild your credit, secured credit cards work well if you are still unable to obtain an unsecured card. Secured cards work much unsecured cards only you secure the debt with a savings account at the card issuers bank. The ratios for securing the credit vary but often begin at 1:1. Often, though not always, secured cards may be converted to unsecured cards in 12 to 18 months if you pay the bill in a timely manner.

While it is tempting to get many unsecured or secured credit cards, do not apply for more cards than you can comfortably handle. By this I simply mean that you need to determine what your optimal credit limit is and hold as many cards as you need to hold your own credit limit about 15% under what you believe you can comfortably handle. In other words, if you believe you can handle a credit limit of $1,000.00 then you should limit your cards to a combined limit of $850.00. By imposing your own discipline you will go a long way to improving your credit score.

Finally, notify your card holders of any change of address. Do not rely on the postal service forwarding a change of address to your card holders. Be proactive. At this stage of the game you cannot afford to miss a payment. Also, insist on paper statements. Online statements are a nice supplement to the paper bill, but it is far too easy to overlook the online statement.

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