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Credit Cards for Poor Credit Individuals

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In personal finance today, it is critical to have a solid credit score. What a credit score does is tell a lender your ability to handle and pay back debt.

The higher your credit score the better, indicating you can be trusted with debt. Also with a higher credit score, you will likely earn lower interest rates. On the flip side, for those of you with lower credit scores, it may be difficult to obtain loans or credit cards. If you’re able to obtain a line of credit, odds are the interest rates are going to be higher. Here are some options for low credit individuals to begin building credit.

Secure Credit Cards
The first type of credit card for poor credit individuals is a secure credit card. This simply means you load money onto the credit card, and when you process charges, it will look like a credit card purchase. However, you have secured the line of credit with cash, leaving minimal risk to the card provider.

This is a simple way for an individual to build credit and earn the trust of creditors. As we’ve progressed out of the housing crisis of 2007, lenders have become more comfortable leading to less creditworthy individuals.

High Interest Cards
Each bank has their own type of card, but many will offer a credit card that is geared towards individuals attempting to rebuild their credit. The catch however is you will likely be paying a higher interest rate and there also may be an annual fee.

The reasons for this are interest rates are the measure of risk to these banks. If the lender feels the individual is lower in risk, the interest rate will be lower. Should the person be a greater risk, they will warrant a higher interest rate. You may also find that these cards come with a smaller credit line, keeping your spending abilities minimal.

Build Credit Before A Credit Card
Those are the two effective ways to obtain a credit card while having poor credit. However, it may be worth your while to build credit before obtaining a credit card. Any loan, rent, and utility payment can go toward your credit score. This will potentially allow you to obtain a lower interest rate.

Should you need a credit card, stick with the larger banks because they can likely tolerate more risk. Wells Fargo, Capital One, and Credit One are some you may look into. Be sure though not to apply for more than a couple credit cards because having your credit pulled for several can have a negative impact on your credit score.

It’s crucial to shop around and try to find the best rate, but apply carefully. Building credit is necessary should you want other loans in your future. Home and auto loans require proof of the ability to handle debt. You’ll be rewarded with lower interest rates and better terms. Credit cards can help you leverage debt to your advantage but ensure you have enough cash to pay the balance off because that will show you can manage debt well. Once you establish credit, you’ll have no problem opening a credit line at any of the major banks.

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