For overall financial health, one of the most important aspects is having a good credit score. Without a good score, a consumer will have a difficult time obtaining financing for a mortgage, install loan, or credit card. Even if a loan or credit card is obtained, a person with a bad rating will pay far more in interest than a person with good creditworthiness. While rebuilding is quite difficult, there are multiple credit cards available to people with bad credit, which could actually help them rebuild credit. While there are various credit cards to choose from, the best overall option to help someone rebuild credit is a pre-paid one.
A pre-paid card is a one that has a line of credit that is funded by the borrower, as opposed to a card issuer. As opposed to having a line of credit with maximum balance that is pre-determined by a traditional card issuer, a pre-paid card will have a line of credit that is set by borrower. Upon being issued the card, the borrower will deposit money into the account, which will act as the available line of credit. The borrower will then be able to borrow up to that amount at any time.
The first way that a secured card can help a borrower improve their credit score is that it comes with guaranteed approval. Since a pre-paid card comes with no risk of loss, the issuer will definitely approve the application. This is beneficial compared to other products that come with the risk of being denied credit, which will add another negative mark to the applicant's credit report.
The second way that a pre-pay card can help a borrower improve their score is by helping the borrower build a strong repayment history. With each successful monthly payment, the borrower will improve their credit repayment history. After successfully making payments for a couple of years, a borrower will begin to see drastic improvements to their credit score.
The third way that a pre-paid account can help a borrower improve their creditworthiness is that they are low cost. Other options available to people with poor credit standings come with high fees and interest rates. For someone that has trouble controlling debt, this could quickly lead to an escalating level of debt that will further ruin ratings history. Since pre-paid cards are low risk to the issuer, fees and interest rates are much smaller.