If you know anything about me, you'll know I'll never make this mistake again:
Taking out a loan from the bank.
Instead, I've built a mentorship that has helped thousands of entrepreneurs get approved for more than $10 million in business credit.
This method works great if you have a 650 or higher credit score. But what if you don't?
Having a low credit score can make it challenging to access credit cards and hinder financial growth. And if you can't qualify for a credit card, you definitely won't for a business credit card.
Thankfully, there are credit card options specifically designed for individuals with low credit scores, offering an opportunity to rebuild credit and unlock a world of financial possibilities.
Let's break down some credit card options suitable for low credit scores and provide strategies for responsible credit card use.
By understanding the importance of rebuilding credit and utilizing these credit card options effectively, proactive steps can then be taken toward improving creditworthiness and achieving financial goals.
There once was a time when I had a terrible credit score. I had to learn all of these skills to fix my credit score on my own. I don't want you to have to do that.
Let's first start with the basics, the skills I like to call, "what they should have taught us in high school."
Understanding Credit Score and FICO Score
Please remember I am not a financial advisor!
Why is your credit score a vital component of your financial profile?
It reflects your creditworthiness and plays a significant role in determining your eligibility for loans, mortgages, and credit cards.
A low credit score can result from a handful of things. We'll get to them in a second. It's important you understand how credit scores are calculated and the factors that impact them.
When it comes to credit scores, the FICO score is one of the most widely used and recognized.
It’s based on five key factors that provide a comprehensive overview of your creditworthiness and understanding them can help you make informed decisions for improving your credit:
Payment History: This accounts for about 35% of your FICO score. It considers your on-time payments, any late payments or delinquencies, and the severity of negative marks. Consistently making timely payments is crucial to maintaining a positive payment history.
Credit Utilization: This accounts for approximately 30% of your FICO score. It reflects the amount of credit you use compared to your total available credit limits. It's generally recommended to keep your credit utilization below 30% to demonstrate responsible credit management.
Length of Credit History: The length of your credit history contributes about 15% to your FICO score. It considers the age of your oldest credit account, the average age of all your accounts, and the time since you last used certain accounts. Generally, a longer credit history shows stability and responsible credit usage.
Credit Mix: This factor makes up about 10% of your FICO score. It assesses the types of credit accounts you have, such as credit cards, loans, mortgages, and retail accounts. Having a diverse mix of credit can be beneficial, demonstrating your ability to manage different types of credit responsibly.
New Credit: This factor accounts for around 10% of your FICO score. It takes into account the number of recently opened accounts, credit inquiries, and the overall credit mix. Opening multiple new accounts within a short period or having too many credit inquiries can negatively impact your score.
Different banks pull your credit score from different credit bureaus. Once you understand where your credit score will be pulled, you'll be able to apply for more credit cards without it hurting your credit score.
By understanding these five factors, you can prioritize your efforts to improve your credit score.
Making on-time payments, keeping credit utilization low, maintaining a longer credit history, having a diverse credit mix, and being cautious about opening new accounts can all contribute to a healthier credit profile.
These changes won't happen overnight, so make sure you do due diligence to get your credit score back on track.
Credit Card Options for Low Credit Scores
Banks still benefit from people using their credit cards, they've provided credit cards for individuals with lower credit scores.
Here are some different examples of credit cards available to someone looking to rebuild their credit score:
Secured Credit Cards: Secured credit cards require a deposit and are an excellent option for individuals with low credit scores. You can only spend the money that is on the deposit. Think of it as a pre-loaded credit card. Once the money runs out, you can't use it anymore and you'll need to refill it. They provide an opportunity to rebuild credit by demonstrating responsible payment behavior.
Credit Builder Credit Cards: Credit builder credit cards are specifically designed for individuals looking to establish or rebuild credit. They often come with lower credit limits and may require an upfront deposit, but they can be instrumental in improving credit scores.
Retail Store Credit Cards: Some retail stores offer credit cards that are easier to qualify for, even with a low credit score. These cards can be used exclusively at a specific store or a group of affiliated stores. Not to mention, these cards can be a great practice for a point reward system.
Credit Union Credit Cards: Credit unions are known for being more lenient in their credit card approval processes. Joining a credit union and obtaining a credit card from them can be a viable option for individuals with low credit scores.
Cosigned Credit Cards: Having a cosigner with good credit can increase the chances of getting approved for a traditional credit card. However, it's important to consider the responsibilities and implications involved in cosigning a credit card.
Authorized User: If you know someone you can trust who has a good credit score, you can become an authorized user for their credit card. This means you will have access to the spending limits, points, and benefits without the responsibility of a credit card. Make sure you're paying off your debt!
Tips for Responsible Credit Card Use
If you're in a situation where you're lacking the confidence to apply for another card, that's OK. Try to apply some of these methods for the cards you do have:
Make timely payments: Pay your credit card bills on time to establish a positive payment history.
Keep credit utilization low: Aim to use only a small portion of your available credit to maintain a low credit utilization ratio.
Monitor your credit reports: Regularly review your credit reports to ensure accuracy and identify any potential issues.
Avoid excessive debt: Use credit cards wisely and avoid accumulating excessive debt that may become difficult to manage.
The Decision is Yours
Rebuilding credit is not an overnight process, but it is worth the effort.
By understanding credit scores, exploring credit card options designed for low credit scores, and practicing responsible credit card use, individuals can gradually improve their creditworthiness.
Remember, your financial future is in your hands.
If you're ready to take the next step and receive personalized guidance, join Credit Stacking.
You can join a network of thousands of entrepreneurs who are taking advantage of business credit to scale their businesses rather than drowning in debt from a business loan.
Start your journey today and embrace the power of responsible credit card use for a brighter financial future.