Unsecured Credit Cards to Rebuild Bad Credit

Most consumers who have a credit card have an unsecured credit card. An unsecured credit card is one in which the lender does not require the borrower to provide a security interest, such as collateral or security deposit. People with bad credit usually have a much more difficult time of getting an unsecured card, though having such a card can help you increase your credit score.

Unsecured Credit

If you're like most Americans with credit cards, you didn't have to give your credit card company any money when you applied for your card. This is because most credit cards are forms of unsecured credit. A secured form of credit, such as a car loan, requires you to give up collateral or security interest. For example, when you take out a car loan, the lender typically requires you to give it a security interest in the car that would allow it to repossess your car if you ever default on the terms of the loan.

Bad Credit

Your ability to get an unsecured credit card usually depends on two factors: your income and your credit score. If in the past you've had problems repaying your debts, you probably have a bad credit score and will have a harder time getting an unsecured credit card. However, if you do get an unsecured card, that card usually comes with a lower credit limits as well as higher interest rates, two factors that will impact your ability to rebuild your credit.

Rebuilding Credit

To rebuild your credit score with an unsecured card, you need to pay attention to two factors: your bill payments and credit utilization. Paying your bills on time every month is the single most important action you can take to raise your credit score. Apart from that, you should not carry a balance on your credit card that is more than about 25 percent of your credit limit. This is known as your credit utilization ratio, and the higher this ratio is the more negative the impact on your score.

Other Factors

Apart from the manner in which you use your unsecured credit card, you may also rebuild your credit score by taking other steps. For example, part of your credit score is based on the average length of all your open lines of credit, so by opening new lines of credit, you lower the average length and therefore lower your credit score. To keep your credit score high, you should generally not open any more lines of credit than you need.