Credit Cards to Help Get Your Credit Up

Even people coming out of bankruptcy should start using credit cards to help rebuild their credit history, suggests experts such as Justin Harelik of Bankrate.com. Credit cards only help build credit when the borrower uses them responsibly or else they could do far more harm than good. As long as the borrower thinks he can handle new credit he can almost always find a card.

National Versus Small Banks

All credit cards are basically the same from a credit scoring viewpoint. However, it is better to have an account with a national bank, because such banks almost always report to the three national credit bureaus and tend to charge lower fees and finance charges, according to the BCS Alliance. Also, future lenders respect lines with big-name banks rather than community financial institutions or debt repair companies. Consumers with bad credit scores can expect to have only retail store or gas cards and secured accounts -- backed by collateral -- available to them.

Use Strategy

Opening a new account always lowers a credit score a few points. With credit cards the percent of the credit limit a consumer uses plays a big part in the FICO scoring model used by most lenders. Thus borrowers should be careful about accruing a balance on their new card, especially the first month, because most borrowers put the annual fees on the account during the initial billing cycle. On a retail or gas card, which tend to have small limits, the fee can cause a high credit utilization ratio immediately.

Considerations

Once a consumer acquires over seven credit cards the FICO system dings the score a little bit, according to The Motley Fool. Also, it will probably take about six to 12 months of positive payment history before the new card adds a significant amount of points to the borrower's credit score.

Tip

Secured cards work best when the borrower cannot qualify for an unsecured card. Once the consumer builds a sufficient amount of payment history the creditor will likely turn the account into an unsecured line or offer a unsecured card. Before a consumer goes for any card, he should ask the creditor to which bureaus it reports. Unless the lender reports to Equifax, Experian and TransUnion, the borrower is not maximizing the amount of history the account builds.