Many people with seriously bruised credit are unaware that their low credit scores may be due in large part to a lack of active credit history rather than the numerous derogatory entries or public filings on their credit reports.    Inactivity will also result in credit scores effectively dropping to zero.  (Please ask about Emerging Market mortgage programs, available to those with scoreless credit profiles, before applying for any credit cards or installment loans.)

For those who wish to dispense with my long-winded rant about the advantages of good credit as opposed to the disadvantages of bad credit, click one of the links below:

• Pre-screened credit cards for those with bruised credit

• Pre-screened credit cards for those with good credit

Paying cash (or using your debit card in place of a credit card) does absolutely nothing to improve your creditworthiness.  Responsible use of revolving credit (e.g., credit cards) helps to build character ... and an indelible credit history.

We recommended that prospective home buyers maintain at least two major credit card tradelines and two minor credit card tradelines.  Installment loan tradelines, such as an auto loan or lease, will suffice as suitable replacements -- provided that they report to at least one major credit repository.  To qualify for the best mortgage programs, it is advisable that you have five or more tradelines that have been open and active for at least two years.  There are programs for those who lack this degree of credit depth, however.

Credit cards, when used responsibly, will raise your credit scores and improve your ability to qualify for better loan rates and terms.  Below are several credit cards that I have pre-screened for their overall value and effectiveness.

Good vs. Bad Credit

There are many misconceptions -- even outright lies -- regarding credit, especially in terms of what determines good credit and bad credit. Television programming is filled with commercials for debt consolidation companies and credit counselors.  Daytime talk shows abound whose premise surrounds people who have gone bankrupt by (mis)using their credit cards.  These stories offer up extreme examples of what can happen to people with bad credit.  Nevertheless, but they seldom address the key question: What is the difference between good and bad credit?

Good Credit

Credit, especially good credit, is very important. It affects nearly every major buying decision in our daily lives. Good credit can help obtain the best interest rates on an automobile loan or home mortgage. It also helps determine your homeowner's and automobile insurance rates, whether you get an apartment, or may even be used to qualify you for a new job.  But how do you get good credit?

• Obtaining Good Credit - You must have credit in order to get good credit, as odd as that may sound. Good credit ratings are gained when you borrow money from a financial institution, such as a bank or credit card company, and repay the debt on time -- and for the full amount. For example, let's say you have a credit card from a gas station that you use only for gas because you do not carry a large bankroll of cash. Each time you go to the service station, you use your card to fill up your car. In so doing, you are promising to pay the credit card company back when you receive their statement. When the statement arrives each month, you pay off the amount owed before the due date. The gas company that issued your card then reports to a credit bureau that you have paid on time and for the correct amount. The more favorable reports that go into your credit profile, the better your credit becomes.
  
   

• Benefits of Good Credit - Having a good credit history enables you to borrow more money at better interest rates. Why?  Because the banks know that you are a responsible person, based on your credit history.  You have a strong reputation.  Many potential employers also look at credit reports as a way to judge a person's character. Hence, your good credit may help you land a better paying job.

Bad Credit

Bad credit is the antithesis of good credit. While good credit helps you qualify for car and home mortgage loans, bad credit may keep you from being able to buy these big-ticket items.  If you do qualify, you will surely be hit with high interest rates and inferior credit terms. Bad credit will also keep you from qualifying for credit cards, and may even hinder your ability to rent a home or apartment.  If you have bad credit, you will be asked to pay higher insurance premiums.  Bad credit is the very costly consequence of not paying debts in a timely manner.

• Getting Bad Credit - It is easier than falling off a log to obtain bad credit.  Bad credit occurs when a person fails to repay a debt on time -- or not at all (collection or judgment). There are varying degrees of bad credit.  A person is not automatically given a bad credit rating if they forget to mail a payment or if they make an occasional late payments but soon after bring their accounts current. However, when a person is continually late or fails to make a payment for several months, their credit rating will be directly affected.  This will haunt the person for years to come.  Judgments, bankruptcies, repossessions, foreclosures, and liens underscore the problem, causing more permanent damage to a person's credit profile.  This will make it much more difficult for the person to qualify for any type of credit.
  
   

• Fixing Bad Credit - The good news is that credit ratings -- even bad ones -- can be improved and errors can be corrected.  Responsible credit usage and prompt payments can turn a bad credit rating into good credit over time.  The first step is understanding your current credit rating.  Credit reports can be obtained through any one of the three major credit bureaus (Experian, Equifax, and TransUnion). Understanding your current credit profile will help in identifying any places for improvement and corrections of any errors that might directly lower your scores.

Credit is a necessary part of society, and has been for centuries. While good credit will help a person improve their quality of life, bad credit will hamper their ability to excel. In a way, credit becomes a self-fulfilling prophecy.  If you have genuine concerns about your specific credit situation, speak with a financial advisor or credit professional to help you take the next step.  Work towards achieving and keeping good credit.

BRUISED CREDIT

For those with seriously bruised credit, the only credit cards available are "secured" credit cards.  These will require you to deposit $300 or more in an account to secure your proposed revolving credit line.  The initial fees will be high, so pay them down a quickly as possible to free up the entire credit line.  If you use the credit card responsibly for the first year, your deposit will either be returned to you or your credit limit will be increased. One or two late payments during that period will require a longer probationary period.  Please refer to my Credit Repair page for more information on other ways to improve your credit or dispute errors on your credit report.

An unsecured card for those with poor credit ...

A secured card for those with bad credit ...

GOOD CREDIT

For those with good credit, I have selected several popular cards that offer attractive start rates and incentives.  Feel free to transfer your balances from other cards, but make certain that you ask for a credit limit at least twice that of the amount you intend to transfer.  You never want to be up against your credit limit, as your credit scores will suffer.

Low fixed rate Visa/MC card for those with stellar credit ...

Low fixed rate Visa card for those with stellar credit ...

My favorite AmEx Business card (I carry this one) ...

My favorite personal AmEx card ...

My favorite Discover cards ...

And for the Java Junkies ...