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Monday, 23 March 2015

Improving Credit Score Using Prepaid Credit Cards

You can use prepaid credit cards to rebuild your credit score. While this blog may be about millionaires giving money away I like to help my readers out as much as possible. One recurring question that has popped up is ways to improve credit score. Prepaid credit cards are great if you have bad credit and allow a person to show that they are creditworthy over a period of time. Prepaid credit cards are available from Visa and MasterCard. 

In this guide we look at how to apply for prepaid credit cards specifically to repair bad credit. One point to remember is this is not an overnight process. Damaging credit is very hard however repairing credit takes time. The process will take at least 6 to 24 months before you see any significant improvement. Do not get duped by companies who claim to repair your credit overnight. These people are out to deceive you and will take money from you at every opportunity.

1: Get a Free Credit Report

The first step is to find the extent of the problem. I always advise people to get a free credit report which shows their credit history in detail. You could pay more to get more financial information on your credit report but this is not necessary. A free credit report will give you your latest score and all the debt which is recorded with your credit reference agency. You should get free credit reference reports from agencies such as Experian and Equifax which are approved by the Government.

2: Fix Mistakes on Credit Report

Your credit report is a snapshot of your financial health. However credit reports are sometimes inaccurate. You should go through your report with a fine toothcomb to find any discrepancies. When you find mistakes contact your creditor and credit reference agency to rectify the mistake. Taking the time to correct the information on your credit history will raise your credit score.

3: Consolidate, Close, Pay More, Pay Early

Once you’ve got a list of all your debt your next step should be to consolidate all the outstanding balance on one account. Call all your creditors and ask them for a consolidation rate. Credit reference agencies like to see low interest rates and fewer creditors in order to raise the credit score. You should also try to make payments that exceed the minimum payments. You should also try to pay a couple of weeks in advance. Both these actions show that you are committed to paying off the debt.

4: Apply for One Prepaid Credit Card

Applying for too many prepaid credit cards will have an adverse effect on your credit history. Every time you apply for credit there is footprint on your credit report. Applying for too many accounts will show that you are desperate for money. One apply for one prepaid credit card at a time. Find a card which has a low annual charge and apply for it. Some of the prepaid credit cards that you can consider include American Prepaid Credit Card, American Express Bluebird Prepaid Credit Card, Green Dot Card, and The Approved Card from Suze Orman. These cards are preferred for credit building. You should obviously find a prepaid credit card which has a lenient application process and low annual and monthly fees.

5: Top-Up Your Pre Credit Card   

Once you’ve received your prepaid credit card you should think about how much money you spend on a monthly basis. If you spend $500 per month on groceries then top your card up with $500. You should try and increase the amount you top your card with every month to build credit. Suppose you top up with $500 in month 1 you should try to increase this to $520 in month 2. This continual increase shows credit reference agencies that you can handle the higher credit limits without going crazy.

6: Spend Your Money Evenly Throughout the Month

You should space your purchases out evenly. Don’t blow your budget in the first week. Credit reference agencies want to see that you’re disciplined with your money. You should be able to control your impulses and spend slowly and surely.

7: Spend Less Every Month

Suppose you increase your prepaid top up by $20 per month. You should also try and reduce your shopping by $20 per month or more. By having an increasing monthly credit on your prepaid credit card you are showing credit reference agencies that you controlling your spending while increasing the amount you have available to you. This action will also help to improve your credit score.

8: Make Sure Every Payment Goes Through

Not only is it embarrassing when payments don’t go through it is also recorded by prepaid credit card companies who pass the information to credit reference agencies. Always know in advance how much you have and never ever exceed the limit otherwise you will be destroying your credit not improving it. Check your spending online to keep close tabs on the balances.

9: Recheck Credit Score after 6 Months

After 6 months you need to get another free credit report to check your score. If you’ve been disciplined you should notice an improvement in your creditworthiness. If there is an improvement you can apply for another card and then repeat the process. Find some other expense that you need to make and use prepaid credit cards to make the payments. As always increase the amount you top up every month and try to reduce the payments every month too. Recheck your credit every 6 months to check the progress.

10: Apply for Credit Cards

After 12 to 24 months of repeating this process you should notice a significant improvement in your score. You need to try and apply for 1 credit card to see if you are approved. The chances are that you will be approved. Try to keep no more than 3 credit accounts open and maximise these cards. From time to time call your credit card company to ask for a rate reduction and limit increase.

You can improve your credit score using prepaid credit cards. By using this same procedure I was able to increase my credit score when I went through a bad patch with my credit accounts. Patience is the key. Spending 24 months to repair your creditworthiness is worth it because you’ll be saving money for the rest of your life.

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