Finance Tips

So you are interested in a pre approved credit card are you? Let us first examine exactly what constitutes a pre-approved offer. It must be said that unsecured credit cards are in fact not preapproved.

If you should ever find a solicitation where a claim is made that an unsecured card is guaranteed you will now know it is some sort of scam so stay away from it. Banks and financial institutions simply do not hand out credit without first thoroughly checking the credit-worthiness of the person or business that applies.

That would be an absolute recipe for disaster. In a way that sort of did happen a few years ago when banks were giving out cards to just about anyone that had a pulse. Bank of America even went so far as to approve cars for illegal aliens.

We all know how hard that came back to bite these irresponsible issuers and the fallout remains as the banks and financial institutions continue to reel from record high default rates. In fact, it looks as though it may be many years before they fully recover.

These are the very same institutions that took billions and billions of taxpayer dollars as a bailout to keep them in business. Their poor judgment and granting of credit to unqualified individuals with subprime credit ratings is a big reason that the economy is in such poor shape today. This applies to mortgages as well as credit cards.

Having said that, there most certainly are pre-approved offers available and they come in the form of secured credit cards. These types of offers cater primarily to people with moderate to severe credit rating issues.

Their primary function is to allow this niche of consumers the opportunity to repair and rebuild their credit rating. Having a strong credit history is incredibly important in our society because it allows an individual to receive favorable terms for such things as car loans and mortgages.

Without at least a respectable credit score many people will either only be offered terms that come with very high interest rates, or will be denied credit altogether. In some cases a poor credit rating will even affect an individual’s job prospects.

There are indeed some fine pre approved credit cards available on the market. Visiting a reputable comparison website will allow you to compare the various features and benefits. It is also vitally important to read the terms and conditions associated with an offer before you apply.

When people find themselves with bad credit the most common refrain they hear from friends, family and idiots on TV is “… first thing: cut up those credit cards!” That couldn’t be more wrong. Credit repair, like life, is often counterintuitive, and the role of credit cards in rehabilitating your credit scores couldn’t be more so. Let me walk you through a worst case scenario.

For our scenario lets assume you have horrible credit scores, sub- 500, with lots of write-offs and old, bad debt. The last thing you want to do is cancel any existing credit lines for two reasons. First, if you close them they will continue to report as a debt each month but they will not show any available credit and you need as much available credit showing as possible. Even a store credit with $289 owed with a $300 ceiling is better than $289 owed on a closed account. The second reason we don’t want to close any credit lines that are still viable is that with credit this bad you won’t be able to open any new accounts for a while so you’re best off working with what you have. Paying down that $289 debt to $149 will make a tremendous impact on your credit scores, probably pushing you above the “drop-dead” 500 credit score.

In a real worst case scenario you don’t even have one account active and clean enough to work with, thats when credit cards become a necessity if you want to rehab your credit within your lifetime. There are cards that will approve anyone with a valid social security number but the costs are high. A typical “worst case” card will offer guaranteed approval but your credit line will only be $300 and the fees to get the card will be upwards of $240, which is applied directly to the card. Thus you get a legitimate credit card that will report your good payment monthly to all three major credit bureaus but you will start out with a fat balance right away. The key is to now pay that down right away so that you are showing an available balance greater than half the maximum credit line of the card, in this case less than $149 owed on a card with a $300 limit. This may seem like a very predatory lending practise and it is, however you are not signing up for credit you are “buying” a credit booster. Simply paying this credit card balance off with on time payments will greatly improve credit scores within 3-6 months.

After you’ve had the “worst case scenario” card for 6 months, assuming you haven’t been late or defaulted on any new debts, you will no longer be a “worst case scenario”. You can now apply for a better card that will actually start with some credit. You usually need a job and one line of credit in good standing for 6 months to get a “step-up” card, that is where the “worst case scenario” card comes in. If you can transfer the balance from your first card to the new one that’s great but you don’t want to cancel the first one even if it seems silly to pay monthly and annual fees to keep a card you will never use. You will keep all of these cards until you have truly reestablished your good credit. This new card should have reasonable fees but you will still be paying $60 to $100 in set up fees and you will have an interest rate at the very high end. It doesn’t matter the interest rates because you aren’t supposed to use this card anyway, just let it bouy your credit.

After you’ve had both cards reporting good payment for about a year with low balances you will see an amazing improvement in your credit scores. The reason is because the formula the credit bureaus use to determine who deserves credit is based on who already has credit. The more unused credit you have the more credit lenders want to give you. At this point you should start replacing predatory cards with high annual fees with good cards with zero annual fees.

Building credit through “bad credit credit cards” is not the only way to improve your credit but it is one of the most important steps if you are really in a deep hole.

Obtaining a car loan with bad credit is achievable. The downside to purchasing a car with bad credit is that you may receive a high interest rate. On average, individuals with poor credit can expect to pay about 2 or 3 percentage points higher. Higher interest rates may increase you monthly payment by up to $150. Those who can afford to pay a higher monthly payment may be willing to purchase a car with a high rate. Nonetheless, there are ways to improve your chances of getting a reasonable interest rate.

Fix Your Credit Problems

Before approving a loan, lenders review credit reports to determine credit worthiness. Credit reports reveal a lot of information regarding your credit history. Do you pay your bills on time? Have you filed bankruptcy? How much debt do you have? Based on this information, lenders will approve or deny credit. If you have a low credit rating, try and improve your score before applying for a car loan. It takes time to improve your credit score, but it is worth the effort. Improving score involves paying bills on time, reducing credit card and consumer debt, etc. If you have recently filed bankruptcy, consider opening two or three new credit accounts to rebuild credit and establish a good payment history with creditors.

Save for a Down Payment

Having a down payment is a great way to negotiate a lower interest rate on a new car. The average down payment varies. However, a down payment of as little as $1000 can make a big difference. An interest rate reduction may save you thousands throughout the life of the loan. If you are hoping for a very low monthly payment, consider a large down payment. Not only will you get a low interest rate, but you are able to pay off the loan balance quicker.

Compare Fees and Rates

Many people receive auto financing through a dealership. However, it is smart to obtain at least three quotes. The best way to obtain multiple quotes for a car loan is to apply for a loan with an auto loan broker. Brokers are the convenient way to compare lenders. Simply complete an online information request form, and auto loan brokers will negotiate with several lenders to provide you the best financing. After you receive quotes from lenders, compare their rates, fees, and terms. Select the lender with the best financing option.