Shedding Light On Importance Of New Credit & Credit Builder Loans

by Low Cards The #1 Rated Source For Credit Card Information

You want the best and the most practical way to put your finances together. Some of us are looking for easy approval credit cards for bad credit. Some of us are looking for credit cards for bad credit no deposit and many of us are considering credit builder loans. We don't know no how we should be using a new credit card to improve our credit score and we don't know what activities on this financial instrument are going to be reported to the leading credit bureaus. There is so much to know about credit cards for bad credit, related approval, unsecured or secured credit cards and interest, fee, charges and much more.

First Of All, Let Us Understand What New Credit Is

New credit accounts for 10% of your overall credit score and your FICO score is going to consider how many new accounts you have to come to a final score. If you have applied for several new accounts, you will invite a typical hard inquiry from any lender that you wish to associate with. This is a process of checking your credit card information that any bank / financial institution is going to perform when they are in the middle of the underwriting procedure. It is going to be very different from a soft enquiry. Hard enquiries can cause a little but temporary decline in your credit score.

Reason For Decline In Your Credit Score With A Hard Enquiry

Typically it is considered by every bank / financial institution that if you have opened several accounts recently and the percentage of these accounts is relatively higher when you compare it with the total number of accounts; you are considered an individual who has a greater credit risk. Any bank will tend to be extra careful while dealing with you. This is because such individuals have a history of cash flow problems and end up taking a lot of new debt in their name.

Applying For Mortgage

Similarly, if you apply for a mortgage, the lender is going to look at your monthly debt obligations quite deeply. This is going to enable them to ascertain how much mortgage you can actually afford. If your record reflects that you have opened several credit card accounts in the past 6 months, this is going to indicate that you are planning to increase your spending in the near future. This also means that you might not be in a position to afford a monthly mortgage payment. Eventually, it is going to discourage the lender from lending you any kind of credit.

This is the reason that FICO credit scores are only going to take into account your history of hard enquiries. The new lines of credit that have been given to you in the past 12 months will also be examined. This is why it is advised that you do not open several credit card accounts within a year.

Credit Builder Loans And Your Credit Score

You have already made up your mind to apply for the best credit cards for bad credit in the market but you are also considering a credit builder loan. How useful is it going to be for you?

By definition, a credit builder loan is not a credit card. It is only a special type of loan which is considered as one of the safest and simplest ways to build credit. If you are new to the whole credit scenario, a credit builder loan can help you out. All you have to do is apply for the loan and if you are approved, this loan amount is going to go into a special account. You will not be able to access this account until the day you are done making payments to your lender or the credit union against the entire amount of this loan.

Now, this loan payment activity of yours is going to be reported to the major credit bureaus such as TransUnion, Equifax and Vantage Score. Once you have paid the entire loan amount in full you will be granted access to the funds and the interest that this amount has earned over the period of time for which the funds were being held.

A credit builder loan is going to add diversity to your overall credit accounts. This is going to help you improve your credit scores because all the leading credit bureaus take the types of accounts that you have in your name into consideration.

But the one major downside to securing a credit builder loan is that you will not be able to access this account for as long as you are making payments against it.

Putting It All Together

Always pay your bills on time and you will never have to worry about ruining your finances or getting into debt
Any late payments and delinquencies are going to have a negative impact on your credit score, so try to avoid this situation at all costs
Whether you are using a regular credit card or some secured or unsecured credit cards for bad credit, make sure to enroll in an automated payments program to avoid any interest
Maintaining a low credit utilization ratio across all your credit cards is also a very smart move (it is advised to keep it at 30% or less)
Do not apply for too many credit cards in a short period of time (6 months to 1 year) because it might invite a hard inquiry into your financial activities which is going to reflect poorly on your credit score
Getting approved for a new credit card account is going to lower the average age of your accounts which again might have a negative effect on your existing credit score

Like we said, there is so much to know, to learn and to understand when you are using any financial instrument. You want the best outcomes from your credit card and for that the biggest advice for you would be to use it cautiously and intelligently.