...But I have Bad Credit (or No Credit)

Ok, so you have been working YOUR plan and planning YOUR work and are ready to tackle this pesky bad credit issue. Now what?

You have made a list of all your debts (from your credit report and the ones you know about); you have made your short, medium, and long term goals; you have started your Emergency Fund; you have made a budget that fits your needs; and you have paid off a huge chunk of your debts...

Most people are in debt because of credit cards because they don't know how to use them. Now you want to find and/or learn to use a credit card....to your advantage. There are some rules (some standard and some of my own) to follow to get the most out of your credit card experience.

Before I talk about finding the right card for you, let's talk about how to make your credit cards work for you....

Rule #1 - Credit cards are NOT for wants! Remember back when I wrote about Wants, Needs, and Needs to Wants? Well, CREDIT CARDS ARE NOT FOR WANTS OR NEEDS TO WANTS.

Rule #2 - Credit Cards should only be used as an Emergency Fund IF one doesn't exist. See Rule #1!

Rule #3 - Pay off the balance IN FULL every month. For brand new cards with no balance the BEST way to make the card work for you is to only use it once a month for a SMALL purchase, then pay off the balance immediately. This helps to build your history of making payments on revolving debt and builds your credit history. If you have a balance, STOP using the card! Pay the card according to the plan you developed. If you are using the snowball method and this card is at the top of your pay down list - throw as much money at it as possible, while paying the minimums on everything else.

Rule #4 - See Rule #1!

Now that you know the rules of credit card use, what types of cards are avaliable to you and what do you want them to do?

There are many different credit cards, that do many different things. Here is a quick run-down from http://www.creditcards.com/:

• Low Interest Credit Cards
  Credit cards with 0% intro APRs & low fixed rate offers
• Balance Transfer Cards
  Transfer a high interest balance onto a low APR credit card
• Rewards Credit Cards
  Credit cards that "reward" you for your purchases
• Cash Back Credit Cards
  Credit cards that allow you to earn cash back on purchases
• Airline Credit Cards
  Earn frequent flyer miles with an airline credit card
• Instant Approval Cards
  Get approved instantly on select credit cards from specific banks
• Prepaid & Debit Cards
  Control your spending with debit cards, prepaid debit cards, & prepaid credit cards
• Credit Cards for Bad Credit
  Cards for people with bad credit or less than perfect credit
• Student Credit Cards
  Credit cards for high school & college students
• Business Credit Cards
  Cards for corporate & small-business owners
• 0% APR Credit Cards
  Credit cards with 0% APR for 6 - 12 months on purchases or balance transfers

Let's focus on the Credit Cards for Bad Credit and the Prepaid & Debit Cards because we are trying to establish a good history of credit use and to do that we need the right card.

Credit Cards for Bad Credit (or No Credit):

The following Credit Cards and Prepaid Debit Cards, some of which are fee based, are for People with Bad Credit or less than perfect credit. Simply getting a credit card will not help you build, re-build or re-establish your credit history. Making on-time minimum payments with all of your creditors and maintaining your account balances below the credit limits is the key to changing your financial future. Choose from both secured and unsecured credit card.

What is the difference between Secured and Unsecured credit cards?

Secured

A secured credit card is a guaranteed VISA or MasterCard that has been secured by a deposit to the issuer's bank. Generally, you must deposit an amount, ranging from $300 to $5000, in a low-interest saving account or CD to secure the credit card. You then receive a credit line for up to 100 percent of your account balance. Each creditor has its own requirements for how much you can deposit for your credit line. The creditor issues you a credit card by using your deposit as security.

Unsecured

An unsecured credit cards offer just that -credit. When you make a purchase or withdraw cash (usually called a cash advance), funds are drawn from your "line of credit." You pay back the amount you borrowed or "charged" each month, or carry over to the next month (revolve) a certain amount that was borrowed and you are assessed an interest charge. You are then responsible to pay the interest charge as well. Credit cards carry a brand logo (e.g., Visa, MasterCard, American Express, etc.) and are accepted by participating merchants. When you use your credit card, the transaction requires a signature.


Debit Cards, Prepaid Debit Cards, & PrePaid Credit Cards

Prepaid debit cards and prepaid credit cards can help you control your spending. A reloadable debit card allows you to only spend up to the amount you have pre-deposited into the account. If you tend to overspend or would like to control your spending then a pre-paid debit card or prepaid credit card could be a good card for you.

When thinking about what type of card you need, think about your goals, priorities, and WILL POWER. Building or establishing credit is all about doing the right things and using the card in the right ways.

Remember to follow the rules and you will be fine....if you need help choosing the right card or learning how to use your card correctly, Personal Finance 4 The People is just an email away!

Personalfinance4thepeople@gmail.com