After bankruptcy, when you’re rebuilding your credit score, using credit cards strategically can be one of the fastest and most strategic ways to boost your FICO score. However, it’s also important to realize that you must use caution with credit cards, so you don’t get in over your head with debt again and wreck the fresh start you got from your bankruptcy case. Consider these important issues when choosing credit cards.
#1 Annual Percentage Rate (APR)
Interest rates on credit cards are also referred to as the APR. The higher your credit score, the lower your interest rate should be, and this can save you money if you carry balances month to month and must pay interest. If your statement cuts with a balance, you’ll be charged interest based on a monthly portion of the annual percentage rate. The lower the rate, the better.
When you’re just starting out rebuilding your credit after bankruptcy, your card offers might not be great. Some card programs to re-establish credit come with hefty annual fees and some charge set-up fees. With the worst programs, your initial line of credit might be eaten up entirely be new fees so that you start out in debt from the moment you get the plastic. Look for reasonable (or no) fees.
#3 Introductory APR
In some cases, you might get a lower interest rate when you first open a new account or if your transfer in a balance from another card. This is a temporary interest rate and might not apply to new purchases, only to transfers or qualifying purchases. However, these can be useful if you transfer a balance from a higher interest card and then pay it off before the introductory interest rate expires.
Many cards these days come with rewards when you spend on particular items like entertainment, meals, etc. Others allow you to accumulate rewards towards specific goals like Disney tickets or gas rewards. Rewards can be enticing but unless they offer incentives you will actually use, and for expenditures you will actually make, they might not work out well for you. Be cautious!
#5 Cashback Incentives
Some cards offer rewards that can be translated to money in your pocket. These cash back rewards might come in the form of statement credits, or they may be accessible in other forms such as gift cards. They may be payable monthly, quarterly or annually. However, there is always fine print. If you run late on payments, you might lose the privilege or other T&Cs that limit the benefits.
#6 Additional charges and fees
You should always pay your bills on time, but if you ever run late, it’s important to know what will happen. In some cases, you might be subject to an immediate interest rate increase, penalty, or fee. Sometimes you might lose a benefit or privilege like reward points or cash back incentives. It’s important to read the fine print so you know the worst-case scenario if you can’t make a monthly payment.
#7 Cash advance policy
For most credit cards, cash advances carry a higher interest rate than do standard purchases. However, in some cases, a cash advance might be helpful if you need emergency cash for something that crops up out of the blue for which you cannot use a credit card. While cash advances on cards aren’t the best way to go, it’s wise to know the policy in case you absolutely must use your plastic for cash.
Other things to consider when shopping for new credit card accounts to rebuild your credit is whether you’ll qualify for the card. You should be cautious about having too many hard pulls on your credit and applying for an offer for which you won’t qualify is a waste. To find out more about rebuilding your credit after bankruptcy, check out Credit Score Keys.