The Right Way to Use Bad Credit Credit Cards

Millions of Americans have suffered from credit problems. If you've experienced them yourself, one of the best steps you can take is to open an account for a secured credit card-you could call these bad credit credit cards.

Secured credit cards are offered in exchange for a certain amount of your cash held as collateral in case you don't pay. Then, starting with low credit limits-a couple hundred dollars, for example-users slowly re-establish a positive payment history without getting in over their heads.

Because of the way credit scores work, you'll want to apply for bad credit credit cards as soon as possible after a major credit hit like a bankruptcy or repossession. Every 12 months of stable payment history rebuilds your score to very usable levels, even after the first year or two, so start right away, and bad credit loans will soon be a thing of the past.

Using bad credit credit cards

Use the card regularly, at least once per month, and pay at least the minimum every month. Keep the balance below 50%; this is very important for score recovery. It's also very important to show regular activity & repayment every month. Forget about the money you have in the account; you'll need to hold this card and account for at least 36 months and ideally longer so it can do it's best work for you.

Don't convert the account

Here's a little-known tip: After a certain amount of time with good payment history, the issuer will offer to convert your account to a regular account, usually with a higher credit limit. The problem is you have to close out the original account & open a new one, and both actions lower your score! So don't be tempted; stick with this one simple account for as long as possible-several years at least-and you'll always have an active, positive, long-term credit card account pushing your fico credit score higher. Another benefit is that it takes time to re-learn positive credit behavior, and several years is not too few after serious problems.

Finding the best deals

Where to get these bad credit credit cards, or secured cards? Your bank or most major banks & some credit unions will offer them. An easy way to compare terms is at Bankrate.com. This website does the footwork for you by listing credit card rates & terms from many banks in one place. It lists websites for easy online applications. Apply to just one until you get an answer, as each application will further reduce your credit score by a small amount.

Unsecured cards

Many banks offer un-secured bad credit credit cards, where no collateral account is required. Avoid them if at all possible, as their interest rates, terms & fees are terrible. Imagine paying between 16-25% interest every month, plus $75 annual fees, $30 over the limit fees and NSF fees, and miscellaneous other fees that are destined to drive you to credit despair anyway. These accounts take a page from the playbook of loan sharks.

When your Fico score begins to rise, you'll be sent credit card offers every week. Get in the habit of checking the tables that list the rates & fees. You'll see huge variances and start to get a greater sense of how the machinations of credit card marketing can push you towards poor financial decisions. Let these offers go for the first few years of credit recovery and you'll never regret it.