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Credit Cards for the Financially Stressed

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You need a credit card. Yet, because of some jack-booted thug at the IRS or some just plain bad luck, your credit history stinks. And nobody will let extend you credit. You see great deals on the Internet, but you can't enjoy the convenience and security of online ordering. What can you do?

Here's one way to get back in the good graces of lenders:

1. Get a credit card. Any one will do, no matter what rate it charges. Don't apply for every credit card possible. Apply for one every 3 weeks or so until you get accepted. Then stop applying.
2. Use that card to make one small purchase a month--something you know you can pay off.
3. Pay the small balance in full each month.
3. After 3 months, add a basic purchase, like gasoline--you are going to buy gas anyhow.
4. Continue to pay the balance off.
5. After 3 more months, add another basic purchase, like groceries.
6. This time, keep a running tab of what you purchase, making sure to set aside the funds at each payday.
7. Continue to pay the card in full.

After you have done this without any lapses, consider financing some other necessary purchase, but a large one. If you buy a car, make sure you set your spending limit before you talk to a salesperson--otherwise, you will end up ruining your credit again.

What you accomplish here is you establish a credit track record without adding new debt. Now you are a bit more attractive to potential lenders.

Having problems getting that first credit card? If you've applied to four and been rejected, the answer is yes. Don't keep applying, because too many applications will count against you. The answer is to obtain a secured credit card. It works much like a debit card, because you must first have the funds on hand. You deposit an amount equal to your credit limit, or the amount you deposit IS your credit limit.

To make things simple, go to the bank where you have your checking account and get this card from them. Again, the interest rate and other terms do not matter. You are going to make only small purchases to establish a credit pattern. What will matter with this card is that you aren't required to maintain a balance of any size on deposit. If your bank wants a big deposit, then look elsewhere for this card.

Another thing you want to make sure of before you get this card is that you will get your deposit back after X time. If you can't ever get it back, you are stuck with this card and never getting back that deposit. It's a permanent loss that way, and it's not acceptable.

Every time you buy something with this card, make an Outlook appointment (or whatever calendaring system you use) to pay that about that amount the following week. Preferably with online transfer. For example, have an appointment every Friday to pay for whatever you've bought. Transfer that amount to the card. This way, you will pay off your balance in full. Even with a deposit, this matters. And you'll develop the habit of paying on a regular schedule.

It's critical that you pay down the balance weekly, not monthly. This is easier to manage from a cash flow perspective, and the pattern of regular payments gives you a good mark on your payment record. The credit card company will report your excellent payment history to the credit bureaus and that will improve your record. 

Once you get in the groove of using this card, apply for a store credit card at one store where you shop frequently. Use that card the same way, paying off purchases weekly. These cards, because they have to be used in a particular store or store chain, tend to be easy to obtain. If you can't get this card after applying to three stores, then wait six months and try again.

After you get six months of payment history with a store card, obtain a second one. After you have six months of payment history with the second one, then it's safe to try obtaining an unsecured credit card.

Once you get that card, follow the same weekly payment discipline. After you have done this for six months, then you can probably qualify for a rewards card and get cash back or credit back on your purchases.

At this point, you have several cards. Cancel the one that is least favorable to you. Don't apply for another card for six months. When you eventually do apply, you'll find your credit score has greatly improved. That is, if you have kept current with other obligations such as utlities, taxes, car payments, etc.

Get your free copy of our consumer credit guide here. No strings attached.

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