Rebuild Your Credit with VISA or MasterCard: Where to Start?

If you are looking to rebuild your credit quickly as a result of a bad credit report, there are a number of ways to do so. One of the more popular options includes obtaining a credit card to begin the process of rebuilding credit. While there are a variety of credit card offers that cater to people that are rebuilding their credit, it is important to consider which VISA or MasterCard is best for you.

The following are some factors to consider when selecting the VISA or MasterCard that will help you to rebuild credit.

Credit card for rebuilding credit: secured or unsecured?

When considering a VISA or MasterCard for rebuilding your credit, it is important to decide whether you want a secured or unsecured credit card. However, still be careful when you decide to use a credit card to reestablish your credit, as there can be some risks if you don’t manage your new credit card properly whether it is with or without a security deposit. If you don’t manage your card properly, you could find yourself in an even more difficult financial situation.

Credit card with security deposit

A secured credit card is backed by a security deposit that you pay to the issuing bank of the credit card. The deposit secures the credit line in the case of a default, but the deposit may be greater than the amount of the credit granted.. Security deposits for these types of cards are usually equivalent to the amount of credit desired. For example, if you want a credit limit of $500, you would be required to pay a $500 security deposit or more to secure the credit card. You will receive a refund of the amount used to secure the credit card if you close the credit card account or if you are offered the opportunity to upgrade to an unsecured card.

However, please be aware that the use of such a card is not without risk. If you miss a payment, it will have a significant negative impact on your credit report, regardless of your balance. Whether it’s $50 or $1,000, the unpaid balance will have a negative effect on your credit report. The risk of a credit card with a security deposit is to lose the entire security deposit if the payment is not made. You will therefore miss an opportunity to reestablish your credit, and your efforts will be useless …

Secured credit cards using your home equity

With this type of secured credit card, the security on the credit limit is calculated from the value of your home. A membership fee and also a guarantee fee may be applicable to obtain such a credit card.

Prepaid credit cards

Similar to how a debit card works, this allows you to spend money that has been transferred to the credit card. So you don’t spend money that you don’t have, unlike a traditional credit card. The only thing you have to do is to recharge the card with the amount you want and you can use the card like any other regular credit card. Note that it is possible to protect yourself against theft with this type of card. Indeed it is possible to register the card in order to protect your funds.

However, unfortunately few lenders will report the various payments you make to the credit bureau. This does not always help rebuild your credit. So check with the card issuer!

Unsecured credit cards for rebuilding credit

An unsecured credit card does not require a deposit to secure the credit line. The issuing bank will issue a VISA or MasterCard with an applicable credit limit with the trust that you will pay the charged balance in a timely manner.

While these options are available, most people rebuilding their credit qualify for secured credit cards or prepaid credit cards whereas unsecured credit cards are often harder to obtain by those that are initially rebuilding their credit. Some companies that offer secured credit cards do offer you the option to upgrade to an unsecured credit card after you prove the ability to manage the secured credit card responsibly.

5 tips for rebuilding a credit report

• Demonstrated that you are a good payer by paying on time.
• Do not fill your card to the maximum capacity
• If you have unused cards, delete them as they are taken into account.
• Applying for a lot of credit can be detrimental to your credit report, it’s better to be selective!
• Make sure your credit file is in good standing and correct errors if necessary.

Fees and APR

When considering a VISA or MasterCard through an applicable issuing bank, it is important to consider the various fees and APR associated with the available cards.

Some banks issuing VISA and/or MasterCards for rebuilding credit have certain fees associated with them. Some of these fees include a one-time annual fee, charges associated with late payments, foreign transaction fees as well as cash advance and balance transfer fees.

The Annual Percentage Rate (APR) is the amount of annual interest that is charged on the balance that is carried over on your credit card. There are different APRs which include purchase, introductory and balance transfer to name a few. It is important to view the APRs of various VISAs and MasterCards in order to select the card that offers the lowest APR which will translate into lower monthly payments. 

Perks

There are a number of perks that are offered by issuing banks for their secured and unsecured VISA and MasterCards. Perks and additions vary according to the issuing bank. Some of the perks include:

Zero liability fraud protection

Auto insurance on cars rented using the applicable credit card

Free credit reports

Home and car loan products

Credit education resources

Using a credit card is often the best way to begin the process of rebuilding credit. Whether you are interested in obtaining a VISA or a MasterCard, there are a number of banks that offer both secured and unsecured credit card options to assist you with rebuilding your credit. Take your time and decide which type of credit card is best for you.