Put credit cards to work for you (part #2)

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Put credit cards to work for you (part #2)
2 years ago
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What is a Secured Credit Card?
Some companies require that you send money (say, $100 to $500) as a deposit. The cards that these companies offer are known as secured credit cards. This amount of money is a hedge or protection against your possible default, and shows the company that you're serious about getting a credit card-and about keeping the balance low.

As A Last Resort - Should You Apply For "Bad Credit" Cards?
If you absolutely can't obtain a credit card, so-called "bad credit" card companies may be the only alternative. (These companies specifically target persons with ?쐀ad?? damaged or non-existent credit histories.)

An example of this sort of company is Orchard Bank. Orchard Bank claims it is the "Best Card for Bad Credit" in a recent pop up ad. This company is regularly seen as one of the last resorts for those who either have no credit or who have "bad" credit. Another company which targets this damaged credit audience is Chase Freedom Card.
An online search will quickly turn up many of these companies. If you're applying for one of these cards, beware the hidden costs, such as the charge for calling their 900 numbers.

These companies will also charge very high APR's and annual fees. On the plus side, however, they will let you charge purchases and advance you small sums of money. This will, of course, build your credit in the long run?봟ut only if you avoid running up large balances and pay

What?셲 Your Score?
The big three credit reporting agencies?봞gain, Equifax, Experian and Trans Union?봳rack your residence history, employment history and payment history and give you a rating, or a FICO score. These scores range from 350 to 900. In the mortgage realm-and most likely in matters involving other large purchases-anything over 650 is considered a very good credit score. A bankruptcy or late payments that are reported to these companies will result in lowered scores.

All three agencies vary in their scoring. So if you're being considered for a mortgage, the "average" or second figure of the three will generally be considered the accurate reading. (For instance, let's say your scores are 620, 650 and 670. Your actual credit rating is considered to be the middle, or 650, score.)

Revolving Credit - What Is It?
Usually, an individual's revolving credit history is assessed before anything else. When you've got a balance that goes up or down depending on how funds are withdrawn and repaid, that's revolving credit. In contrast to installment types, revolving credit does not have a fixed number of payments. Also, the credit may be used repeatedly. Credit cards are an example of revolving credit. Other examples are lines of credit (at a bank) and home equity loans.

Among the thirty or so factors considered by credit rating companies, one important area which these three entities keep on eye on is the ratio of total balances to total revolving credit limits.

Pay Within The Grace Period
Now you know how important it is to obtain-and pay off-credit cards. There are a few other basic rules you need to know about.

Once you've obtained one or two low-rate credit cards, you should pay the balance off each month before you're charged any fee to use the money. This is known as the grace period, a time during which you can pay off the bill in full without being charged finance charges.

This will help you to establish an impressive credit history. You will also have the ability to pay for purchases that you don't have cash for at the time. Many successful credit card owners think of it as "giving themselves a cash advance.?? (Just remember to pay the statement before any interest is charged!)

Should You Transfer Balances?
As you don't want your credit card companies looking askance at your history, you don't want to open many accounts merely to transfer funds. However, if you do this once, and you are able to transfer balances to a company that is truly low, such as 2%, that won't be a mark against you.

One or Two Cards - Better than Four or Five
It?셲 wise to try to limit the cards you carry to two or three in number. Applying for too many cards within a short period of time will label you a high risk.
Avoid High Balances!

Credit companies frown upon any unpaid balances. If you carry an unpaid balance for six months or so, no matter how tiny the amount, you will be identified as a credit risk for seven whole years. (After that time, your credit "slate" will be wiped clean.) Also, it is considered better to carry a small balance, than it is to have a zero balance.

Don't "Max Out" Your Cards
Finally, credit card companies rate your credit based on how high your balance is, relative to your limit. If you "max out" your cards over a long period of time, your rating will go down.
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